Remembering that bitcoin sprang from the ashes of the global financial crisis of 2007-08 can help you understand cryptocurrencies.
Bitcoin, the first cryptocurrency to acquire widespread acceptance, was marketed as a digital form of money that didn’t rely on banks and was unaffected by government action. It was established under the pseudonym Satoshi Nakamoto by an individual or group. Anyone could exchange bitcoins with anyone else at any moment and for any reason.
Bitcoin, on the other hand, is simply the first application of a technology known as “blockchain,” which is rapidly making its way into (and potentially shaking up) areas like real estate, music, and gaming. The bitcoin blockchain is only used to track bitcoins; meanwhile, ethereum and later projects use blockchains to execute “smart contracts” – programmes that may be activated on request. As a result, blockchains face competition not only from banks and government record-keepers but also from computer servers.
Blockchains eliminate the need for a central ledger or record-keeper by utilizing a decentralized network of computers to preserve and update a permanent digital record of each transaction. To ensure that information is protected, they use cryptography, which is a collection of mathematical procedures for transforming information into almost unbreakable code.
Anyone can look at the data on a public blockchain like bitcoin; anyone can look at the list of activities (even as they happen, which is like trying to read the labels on moving boxes) or monitor the activity of any single account holder. However, because account holders’ identities are encrypted, determining who is behind the accounts conducting those activities is difficult.
Cryptocurrencies are worth whatever the market tells you they are worth. More than $2 trillion has been invested in bitcoin and other cryptocurrencies, with the anticipation that future investors will be ready to pay better for them.
Bears argue that the volatile price swings – bitcoin has already seen two boom-and-bust cycles in 2021 – will prevent most people from jumping on board the cryptocurrency bandwagon. The vulnerability of cryptocurrency to price manipulation and the whims of momentum-driven investors could potentially play a role. According to a paper summarizing economic analysis on bitcoin, Parthajit Kayal and Purnima Rohilla of the Madras School of Economics in India cautioned that the cost of bitcoin could fall to zero if the uses bitcoin provides “are taken away by the government or the coins are hampered by fraudulent activities or if a better alternative emerges in the market.” There are many alternatives; according to the Los Angeles Times, there are already over 7,500 cryptocurrencies in circulation.
