The Problem with ‘Crypto’
‘Crypto’. A word that is all the rage now. The toast of the town for some, a boogeyman for many others.
What exactly does this term entail though? What is ‘Crypto’? Some people might have gone onto Google to do their own research with regard to these questions, whilst others may have asked their friends whom they think are ‘in the space’, about it.
One thing is certain for both these groups of people though — the answers to these questions are usually too overly complicated, technical and difficult, to comprehend.
Investing in ‘Crypto’
All the above simply mean that most of you will not be in a fit state to invest in ‘crypto’. As tempting as it is to jump into something that has so much hype around it right now, and as much as you feel like you are sorely missing out on the 100x or 1000x gains that some of your peers might be making now — please do not invest in something that you do not, and will never, fully understand.
DO NOT FOMO IN!
The ‘crypto’ market is extremely volatile, and if you do not know exactly what you are buying into, please do not go in at all.
The many success stories you see or hear on social media are all built on a giant graveyard of thousands of red and negative account balances; there is a reason why this is so.
So, if you are someone who really wants to invest in ‘crypto’, but is hesitant or unsure because you do not know enough — or even, anything — about it, this is the perfect place for you to be.
Fincade will, through this series of articles, break down everything and anything about ‘crypto’, and the technology (blockchain) behind it, so that you will get a better idea of what you are investing into.
We are, by no means, financial advisors of any sort. We are merely blockchain and ‘crypto’ nerds who think that we may have some valuable words of advice and help to give.
So, what exactly is ‘Crypto’?
‘Crypto’, as it is colloquially known, actually refers to ‘Cryptocurrency’, where ‘Cryptocurrency’ refers to a completely digital and decentralized currency that is built using principles of computer science, cryptography, and economics.
Now, there are some big words thrown around here, so let’s try to break them down. First, what does being decentralized mean?
Cryptocurrencies being decentralized, are usually not backed or controlled by any central government, organisation or company. Cryptocurrencies are built by the users, for the users. They are also fully digital, meaning they only exist in the virtual world, and not in the real one.
Cryptocurrencies were inspired by the Cypherpunk Movement of the late 80s, where it advocated for the protection of privacy using cryptography.
Cypherpunks didn’t trust governments, corporations, or large organizations to respect privacy, because these points of centralization were able to accumulate a great deal of power over society by collecting unimaginable amounts of information from millions of users.
As a result, it was not completely out of the picture that these central entities could strip away the freedom of the general public at their own whims and fantasies.
One massive point of centralization in modern day society would be the financial system, where large banks govern the economies of entire countries.
For example, banks could freeze the assets in your account, refuse to let you withdraw or transfer, or even empty your account balance if they really wanted to, and if they had means to justify such actions.
This is why cryptocurrencies were created in the first place — to prevent central powers from being able to have the common man and woman under their thumbs. The plan was to have a digital currency/ies that was decentralized and anonymous, so that it could not be controlled or censored by any one central party.
As you all should know, Bitcoin is the first technology to succeed as a cryptocurrency. There were plenty of others who tried and failed (most notably: Digicash, Hashcash, and B-Money. Please Google about them/PM us if you are interested to know more!), paving the way for the juggernaut that is Bitcoin to survive and thrive till today.
Because we don’t want to go too deep into any one thing in this article — if you are interested to find out more about Bitcoin, there are many good resources on Bitcoin out there that you can access for free. One such good resource would be: www.investopedia.com/terms/b/bitcoin.asp
An important note: although Bitcoin is usually the first thing that comes to mind whenever anyone mentions cryptocurrencies, it is not the only cryptocurrency.
It is the most popular and most dominant one, yes, but it is far from the only one.
Most cryptocurrencies share the same goal and purpose though, which is to — as aforementioned — serve as a decentralized and private (anonymous) alternative to normal currencies, so as to subvert the power and influence of banks and governments.
This diffuses power to the user/people!
Cryptocurrencies’ Characteristics
In essence, cryptocurrencies refer to digital stores of value that can be used to buy and sell goods, services, or property — just like what you do with real world currency!
Think of them like your SGD, USD etc., just a digital and unregulated version of them.
For example, when you want to buy a cup of coffee from a store, you will use your SGD or USD to exchange for it. You will take out your notes or coins (currency), and pass them to the cashier at the counter, in order to trade for your cup of coffee. This is the function of currencies — stores of value that can be exchanged for things that you want to get or consume.
This is exactly what cryptocurrencies are too, just that now, this currency no longer has a physical manifestation.
There are no more physical notes and coins; cryptocurrencies are purely digital, and exist only in the virtual world where you will have to use applications to exchange them for a good or service.
Their main purpose as a store of value, however, has not changed.
These digital currencies are cryptographically secured against fraudulent practices, and often are not issued or controlled by any centralized authority because of the ultimate goal of decentralization, privacy and security within the cryptocurrency world.
In sum, cryptocurrencies have 3 key properties that differentiates them from the normal currencies we are so used to.
Cryptocurrencies are:
- Decentralized
- Private (pseudonymous)
- Secure
Cryptocurrencies VS Blockchain
Now that you know what cryptocurrencies are, we will move on to another buzzword that you must have come across and heard of, (and usually in the same breath as ‘crypto’) too — Blockchain.
At this juncture, it is of paramount importance that you register this fact: that cryptocurrencies are NOT blockchains. They are NOT the same things at all, so please do NOT see them as one or the other!
Instead, cryptocurrencies usually run on a blockchain. The blockchain is an underlying technology and data structure that underpins, powers and enables cryptocurrencies to be functional.
Therefore, and in most cases, when you are investing in certain ‘cryptos’, you are also investing in the underlying, but separate, blockchain technology — its quality, security and scalability etc. — too!
Please take note of this, because it will definitely affect how your investments perform.
In our subsequent articles, we will be going way deeper into what a blockchain really is so that when the time comes, you will be able to better understand the coins that you invest in. Hopefully, these articles will also give you much more clarity on the differences between cryptocurrencies and blockchains.
Perhaps you may even start basing your investment strategies off the different types of blockchain technologies, and the value they generate, instead.
At least, that is what we do!
