What are cryptocurrencies and why should one invest in them?
Bitcoin, Doge coin, Elon Musk, Ripple, Blockchain- most of you reading this article have reached here due to one of these terms. You got to know how people are making huge amount of money by investing in crypto currencies and like every individual you want to grow your money many folds too.
But unfortunately, this article isn’t about where you put 1000 bucks and the next weekend you see it at 2000 bucks, this is about the concept behind all these crypto currencies, the ecosystem empowering its growth, why are crypto currencies the next big thing. So if you are still reading this, I guarantee you, at the end of the article you will have a sense of how the system works.
What is centralisation and what is decentralisation?
Almost all of the world uses Facebook( Whatsapp, Instagram, Facebook), Facebook has all the data of the world at one place.
Almost every person in the world has money in a bank, that bank further keeps the money in a central bank, the central bank has the control on the money of every individual of their country at one place.
This one place is called centralisation.
Imagine if one day you wake up, and these social media pages and banks don’t allow you to access your own data and money? What can you do?
The debit cards and credit cards that you use for your shopping and EMI payments are owned by private companies of certain countries of the world. If one fine day your country goes into war with one of these countries and the organisation decides to stop providing services to your country, what shall you do?
A recent example on a smaller scale: A man downloaded Youtube from an external source and not the official website or the play store, Google disabled his Gmail account.
This is why we need decentralisation, this is why the internet was originally built.
Decentralisation is a process through which functions, powers , people etc can be distributed/ dispersed away from a central authority. No, this is not the perfect system too, but this gives you a better control over your own personal lives.
Decentralisation through Blockchain is taking the internet back to the basics.
What is Blockchain?
Block chain is just another database. Like Excel, where you store data. Where data can be fetched by entering few formulas. What makes Block chain different is in the way the data is stored. A block chain stores data in blocks and these blocks are chained together, hence deriving the name. Once the block is filled with data it is chained onto the previous block, which makes the data chained together in chronological order.
For any excel or spreadsheet, the storage of multi millions of spreadsheets is all under one roof. Microsoft or a similar company will have control on all of this data at one geographical location.
In crypto currencies, block chain is used in a decentralised way to ensure no single user or group of users has control, rather all users collectively have control. Even crypto currencies consist of thousands of computers, but each computer or group of computers that hold its blockchain is in a different geographic location and they are all operated by separate individuals or groups of people called nodes. ( However single private entities owning all the nodes exist too).
Decentralised blockchains are immutable, which means that the data entered is irreversible. For crypto currencies , this usually means that transactions are permanently recorded and viewable to anyone.
Blockchain technology can help us return to flatten hierarchies without giving up the simplicity and convenience that centralised services and platforms provide — this is a key driver of blockchain development.
What are cryptocurrencies?
Every day when you transact using an Indian National Rupee or a US Dollar, you show complete faith in that government. But can you go to the Reserve Bank of India or the Federal Reserve Bank in the US and ask them to give you a pack of cigarettes in exchange of the fiat currency you have. They can’t, because they can only print it. The fiat currency provides a certain value because the government says that it does, else it is just paper.
The governments track the fiat currency, they can induce inflation according to their will, devalue the currency you hold, dictate who can profit from the movement of the currency and then tax the individual on it.
Crypto currencies are very similar to virtual currencies , the CRED Coins you use to buy earphones, the miles points you use to buy airplane tickets etc are all virtual currencies. Crypto Currencies are virtual currencies based across a distributed network built on block chain.They are secure as they are encrypted using private/public keys and they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties, without the need for a trusted third party like a bank or credit card company.
Why should you invest in Crypto Currencies?
Because it is the gateway to a decentralised society, your government, your finances, the law everything can and will undergo revolutionary changes because of decentralisation. The crypto currencies are coins/tokens of different projects , projects that are all working in different ways to empower this ecosystem, to solve real world problems, to act as currencies, to advance existing technologies etc.
Bitcoin, Ethereum, Ripple and your favourite Dogecoin are all examples of crypto currencies.
I will share a few favourite crypto currencies of mine ( Not financial advice) :
- Nano ( Name NANO) : Cross border payments for free.
Imagine sending your loved ones in another country money without any transaction charges and currency conversion fee. - Audius ( Name AUDIO) : Audius is creating a fully decentralised community of artists, developers, and listeners collaborating to share and defend the world’s music.
- Chainlink ( Name LINK) : It serves a middle ground between real world data and blockchain applications, such middle grounds are called Oracles.
By now , I believe you would have got a fair idea of the ecosystem of cryptocurrencies and how they function.
In the upcoming articles I will be talking about the crypto currency market, how strong is Bitcoin in the market, what is Alt Season, what are the best exchanges you can use to trade cryptocurrency.
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This article was written for Turtles of Investing and is co authored by Pooja.
Keep educating yourself, keep reading, do your own research, do not consider information on the internet as financial advice.
Till then, you can send Elon Musk — to the Moon.
