An Introduction to Cryptocurrencies and the Blockchain
In short, cryptocurrency is a digitized and encrypted method of peer to peer monetary transfer via the blockchain. It has grown to become a tech industry in and of itself through the use of smart contracts, specialized programs that run on the blockchain.
That’s a lot to unpack, I know. But it is much simpler than it sounds at first. Let’s start with blockchain. Imagine a blockchain as a digital ledger, similar to a shared Google Doc, where everyone can see and add information, but no one can alter what was already there. This ledger is maintained across a network of computers (called nodes) that assess any proposed additions for validity, making it very secure and transparent.
Now, cryptocurrency is digital money that exists on the blockchain. It’s as if you had a special type of email that you could only use to send and receive money. When you send this ‘money email’ (cryptocurrency), the transaction is recorded on the blockchain ledger for everyone to see, ensuring that it’s secure and can’t be tampered with. Crypto and the blockchain have a whole host of other uses, but we’ll get to that later. First, let’s talk about why you should even care what cryptocurrency is to begin with.
Why do I care about crypto? [Insert amusing photo] Let’s start with the obvious. Crypto is by and large the best performing asset class in the history of finance, with the giants like Bitcoin(link to ticker w/ price)coming in at astronomical 60 million percent return to date, and an annualized 230% yield, which is over 10 times that of the NASDAQ, the largest (non crypto) average annualized yield asset. [Insert bitcoin chart, or perhaps btc v nasdaq chart if available] Cryptocurrency is also becoming more widespread in it’s use, and real world blockchain/crypto solutions are starting to come to fruition. It’s very likely this trend of growth and adoption will continue, so you stand to benefit by at least educating yourself about the dynamic world of crypto!
So, we know about bitcoin. It’s touted as a ‘virtual gold.’ But what does that mean? Simply put, it means all Bitcoin is really meant to do is be a means of transaction and a monetary store of value. Its just there to function basically the same as any currency, except without the need for a traditional middleman, like a bank, due to the trustless (fancy word that means you have transparency and control of your own actions, therefore no trust is placed in a 3rd party) nature of the blockchain. Well, that’s pretty cool. But it doesn’t sound like the technological revolution I’ve heard crypto to be.
And right you are. Bitcoin is more of a financial revolution. It is solely a transactional cryptocurrency. Other crypto, most notably Ethereum (ETH imbed ticker link), utilize pieces of code called smart contracts to carry out computational functions as well as transactional functions. Going back to the Google Doc analogy, with a transactional crypto, like Bitcoin, you can only contain values and data in those blocks, but with a computational crypto, like Ethereum, you can run individual software programs on each of those blocks, not just store data. Recently, updates with Bitcoin, namely inscriptions (link to separate article on inscriptions), have allowed it some of this functionality, but in an altogether different way. But for now, all you need to know is that there are transactional cryptos, that merely store value and facilitate peer to peer monetary transfer, and there are computational cryptocurrencies capable of executing complex commands and achieving unique use cas