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What is Cryptocurrency (Crypto)?
Crypto is a digital currency that first came to the scene with Bitcoin, which was introduced in 2008 by someone using the name Satoshi Nakamoto. Crypto is very much like traditional currencies that are sanctioned by a government and controlled by a central bank (a.k.a. fiat currencies). Unlike fiat currencies, crypto is independent of both governments and the central banking system. The beauty of crypto is that its value is not a victim of political and economic policies. Instead, the value of crypto is based purely on supply and demand.
What is a Blockchain?
To keep transactions secure, crypto transactions are stored in a blockchain. Blockchain is a technology that stores information in a chronological sequence of blocks. These blocks are kept in a common network, making them available across the globe. When it comes to cryptocurrency, the blockchain is simply a high-tech ledger on which only new information can be added. Once a block is full, it cannot be modified or deleted. Hence, making cryptocurrency completely secure.
Put simply, a block is a digital location with a limited storage capacity. Once the blocks are filled, they are then linked to previous blocks in the form of a chain. Furthermore, all prior blocks are locked by encryption and cannot be modified. Nor can anyone modify the chronological order of the blocks in the chain. Hence, blockchains are immune to tampering or changes. See Figure 1.
How Do People Use Cryptocurrency?
Crypto was meant to be used as any other currency. However, rather than spend their crypto, most people keep it as an investment. Hence, like stocks, you can buy crypto low and sell it high. For instance, the initial value of a single bitcoin was less than a penny. Today, the value of a single bitcoin is approx. $40,000.
Crypto is also gaining popularity as an alternate currency. In fact, you may have seen Bitcoin ATMs at your local bodega. Furthermore, companies like Burger King and Whole Foods now accept crypto. You should keep in mind that, unlike fiat currency, all crypto transactions are permanent and cannot be reversed. Additionally, the high volatility of the crypto market makes it a risky investment. For instance, at the time of this writing the value of a single bitcoin is $39,251.84. Four months ago, in November, the value of a single bitcoin was $66,971.83. Funny story: I was contacted by someone on Facebook back in November telling me that I could make a fortune if I invested in bitcoin. Had I taken her up on the offer, then I would have lost nearly half my investment in a mere four months. Like most stocks, bitcoin may well show profit in the long term, but a 50% loss in only four months is rarely seen in blue-chip stocks, and it is almost never seen in mutual funds.
Why I Am Against Crypto
In and of itself, crypto is a wonderful idea and, in my opinion, it is what currency should be. However, as previously stated, crypto works outside of the control of governments and the central banking system. Whether you want to accept it or not, the central banks, and governments by proxy, run the world (see my other blog The Illusion of Freedom). It is my experience that betting against the power of the government and central banks is a losing proposition. In fact, central banks like the US Federal Reserve, European Central Bank, and the Bank of England are in process or developing their own cryptocurrencies; and China has already launched a pilot program of their Digital RMB cryptocurrency. Unlike the current peer-to-peer cryptos, where blockchains are maintained by miners (users), the cost of maintaining the blockchain will fall on the government and central banks. Therefore, government sanctioned crypto will be at a competitive disadvantage right out of the gate. How are these governments likely to level the playing field? By making peer-to-peer crypto illegal of course. In fact, at the time of this writing, President Joe Biden announced that he will sign an executive order to regulate the crypto market. This is the US government’s first finger into the cookie jar, and if history is any judge, they will eventually squeeze in both hands until the jar is shattered.
The Rise of the Quantum Monster
Thanks to advanced encryption, the blockchain is super secure. So much so that it would take thousands of years for a current supercomputer to crack the encryption of a blockchain. “Current supercomputer” being the operative phrase. According to decrypt.co, a 4,000-qubit quantum computer could crack a blockchain wide open in a matter of seconds. They go on to state that current quantum computers max out at 54 qubits, and that quantum computers developed in secrecy by governments could easily reach 4,000-qubits and be used to corrupt the blockchain in just a few years time.
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