Cryptocurrency 101 for Dummies

If you’re new to Cryptocurrency and you want to know what it is, you’re in the right place. About 18 months ago, I became more engaged with the online community and kept hearing about Bitcoin; so I decided to investigate. The only problem was that I’m a bit slow on the uptake and had no idea what they were talking about when they tried to explain it.

They would say things like, “Bitcoin is a cryptocurrency on the blockchain supported by a peer-to-peer network,” completely oblivious to the fact that “cryptocurrency” and “blockchain” aren’t part of a normal dialogue (well not mine) relegating their explanations to worthlessness.

The appeal of Bitcoin is enormous.

Money is involved in roughly 50% of all transactions. Having a regulated currency (currency issued by our government’s central bank) entails the government regulates at least 50% of our transactions.

Most of us will work eight hours a day for something which the government decides the value of. Our purchasing power, our ability to obtain goods and services, is controlled by the government. An individual can work for a full eight hours, but what that individual can purchase with that labour is entirely decided by the government.

Bitcoin is the confession that money is no longer real combined with the recognition that our governments aren’t eager to relinquish their control and go back to the gold standard. It’s a digital currency, so we can electronically set up an account to hold our money. Each of us can have a unique identifying address, which is the Bitcoin wallet – which tells you how many Bitcoins you have.

The Bitcoin community has recorded each of the wallets and transactions on a basic accounting ledger.

Now suppose you want to pay someone for work they’ve done for you, and you transfer one Bitcoin to their account; the Bitcoin community keeps a ledger of this and adjusts the balances of the appropriate wallets. The transactions are then ordered into blocks and appended to the ledgers. The blocks are time stamped and form a chain of transaction history – hence the term blockchain.

The blockchain data – the list of transactions and accounts – is stored on multiple computers all across the world. This way, if one computer is hacked and the information altered to artificially inflate the balance of the hacker’s account, the account will be checked against the network of computers and will be immediately recognized as a fraud.

The advantage of participating in the blockchain is that, when new Bitcoins are distributed they are distributed to the network, so those who lend their computers to the network receive Bitcoins for doing so.

This network is usurping the power of central banks, who control our currency. With Bitcoin, they no longer have the power to erode our purchasing power.

The difference in purchasing price enables banks to earn record profits. By increasing the money supply – the number of dollars in an economy – they devalue the existing dollars making us poorer.

However, banks can lend out the additional money for loans, mortgages, or lines of credit and profit from it.

This impoverishment of the average individual that profits the banks is facilitated by the government.

Individuals who worked their entire lives, find their retirement income in their senior years within striking distance of the poverty line, because the 2017 dollar purchases far less than the dollars that went into their retirement savings and investments.

Take the example of a Venezuelan who invested in Bitcoin – currency their government couldn’t control – this person now finds that the cryptocurrency is literally the difference between life and death in their ability to purchase food; compared to their neighbour, who cannot, due to their sole reliance on the government-controlled currency.

Though still in its infancy, and highly speculative, cryptocurrency offers intrigue, and the hope of emancipating ourselves from central banking in a very real way.

 Acknowledgement to Brandon Kirby @ Being Libertarian