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What is cryptocurrency?

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Decentralization

Decentralized instead of centralized

A feature that makes cryptocurrency extremely revolutionary and unique is the fact that many cryptocurrencies are decentralized. This means the cryptocurrency is not centrally controlled by states, banks, or other institutions like a
fiat currency Intrinsically valueless medium of exchange used as money because of government decree, usually issued by private banks. Fiat currencies are e.g. the US Dollar, the Euro, and most other conventional currencies.
is. In other words, a decentralized cryptocurrency is not directly controlled by individuals who can approve/refuse transactions, issue the currency, or otherwise directly manipulate it and its value.

The first cryptocurrency, Bitcoin

The first and best-known cryptocurrency, Bitcoin, can be used as an example. Bitcoin is running on a code/software that controls the currency. This code is
open source A type of computer software/code which grants everyone the rights to study it and distribute it to anyone and for any purpose.
which means anyone with interest can read it. As Bitcoin is created on
blockchain technology A technology that serves as a growing list of records, called blocks, that are linked using cryptography. This list of records, (transaction ledger), is by design resistant to modification of the data it contains. Was invented in 2008 by Satoshi Nakamoto (Founder of Bitcoin).
, the fundamentals of the code cannot be changed or hacked. Thereby, anyone can at any time know exactly how Bitcoin works but no one can be able to manipulate it directly through position of power, politics, or technical knowledge.

Decentralized networks

There are many ways in which cryptocurrencies and their networks are decentralized. In Bitcoin’s case, it’s by using the structure called proof of work. In short, this structure consists of the so-called
miners Computers constantly verifying and processing transactions and as an incentive, they get rewarded with cryptocurrency from transaction fees and/or newly created cryptocurrency. (Those who own the computers are called miners as well).
who maintain the network. They are a kind of servers that processes/verifies Bitcoin transactions so that it is possible to transfer Bitcoins on the network. Any person in the world with an Internet connection can connect a computer to this network and become a
miner Computers constantly verifying and processing transactions and as an incentive, they get rewarded with cryptocurrency from transaction fees and/or newly created cryptocurrency. (Those who own the computers are called miners as well).
. Thereby, there is not a central server running the network, but small and large
miners Computers constantly verifying and processing transactions and as an incentive, they get rewarded with cryptocurrency from transaction fees and/or newly created cryptocurrency. (Those who own the computers are called miners as well).
/servers all over the world.
NB
There are also cryptocurrencies that are not 100% decentralized. These cryptocurrencies are instead created with other characteristic properties.

Money creation

Inflation in fiat-currency

There has always been
inflation A sustained increase in the general price level of goods and services in an economy over a period. When the general price level rises, a reduction of purchasing power per unit of currency occurs.
in the
fiat currencies Intrinsically valueless medium of exchange used as money because of government decree, usually issued by private banks. Fiat currencies are e.g. the US Dollar, the Euro, and most other conventional currencies.
most of the time. It is when prices rise because the currency decreases in purchasing power. On the chart below, you can see the purchasing power of the US Dollar over time, as an example. Over the course of 100 years, it has dropped to 4.25% of its original purchasing power. (3.87% in 2019).
Purchasing Power of the USD Since 1913
In modern times, the
inflation A sustained increase in the general price level of goods and services in an economy over a period. When the general price level rises, a reduction of purchasing power per unit of currency occurs.
primarily occurs because private banks constantly create new money. Every time someone takes a loan, it is new money the bank just creates. It is primarily banks and speculators who profit from this money creation at the expense of the average citizens’ economy, especially the lower class. The money creation by the private banks is also one of main causes of economic bubbles and crises in modern times.

Cryptocurrency is governed by code

As many cryptocurrencies are decentralized, it is only a code/software that controls creation of the decentralized money.

You can take Bitcoin as an example; Bitcoin’s code ensures that there can never exist more than 21 million Bitcoins in the world. Currently there are about 18 million Bitcoins, (85% of the 21). The new Bitcoins are created at a fixed rate which is halved approximately every 4 years. (The time of the
halvings When the dividend to miners paid in newly created cryptocurrency, (e.g. Bitcoin), is halved. With Bitcoin, it has happened 2 times before. In 2012 and 2016. The next one for Bitcoin is in 2020. These supply halvings are usually followed by increasing prices.
depends on the level of activity on the Bitcoin-network).

This means the creation/supply of new Bitcoins is decreasing over time until no more Bitcoins can be created. The ones receiving/earning the newly created Bitcoins are the so-called
miners Computers constantly verifying and processing transactions and as an incentive, they get rewarded with cryptocurrency from transaction fees and/or newly created cryptocurrency. (Those who own the computers are called miners as well).
. It is private persons or companies providing electricity and
hardware The physical parts of electronics that operate on digital signals. Digital electronics consists of software(data) and hardware(physical components).
to the Bitcoin network. Providing the “servers” of Bitcoin.

Increasing purchasing power

This setup ensures that Bitcoin’s purchasing power increases over time as supply decreases, (because of
halvings When the dividend to miners paid in newly created cryptocurrency, (e.g. Bitcoin), is halved. With Bitcoin, it has happened 2 times before. In 2012 and 2016. The next one for Bitcoin is in 2020. These supply halvings are usually followed by increasing prices.
), while demand increases, (because of the continuous growing interest and adoption). In other words, this means that Bitcoin’s value and purchasing power will only increase in the longer term if demand continues. Other cryptocurrencies also have mechanisms that control the money creation, with some even having declining numbers of currency units over time.

Efficient and cheap transactions

Direct transactions

When you transfer cryptocurrency, it is done according to the “peer to peer” principle. This means transferring directly to the recipient, instead of using an intermediary, (such as a bank). It makes the process far more efficient and cheaper.

Time and distance are insignificant

As an example, the time and geographical distance between the sender and the recipient have no impact on the price and speed of a cryptocurrency-transaction which is a direct contrast to the types of transactions we use most frequently today.
Peer to Peer

Ordinary transactions are slow and expensive

E.g. bank transfers and other similar services can take up to several days and cost a lot of money in apparent and hidden fees and commission rates. Especially when transferring to foreign countries. If it is not the sender who has to pay for the transaction fee, then the fee ends up at the recipient, (e.g. a company), which therefore raises the price for the consumer. That happens when you pay with most debit/credit cards, mobile payment systems and many other services. You do not think you pay any fees but that is because the company does and then pass the bill on you through higher prices.

Cryptocurrency is more efficient

When transferring cryptocurrency, the price and speed only depend on the cryptocurrency’s code and servers. This means that a transaction usually takes from a few milliseconds to a few minutes anywhere in the world. The price of a transaction is usually somewhere between completely free and a few pennies.

Although Bitcoin is currently among the most expensive cryptocurrencies to transfer, it still has minimal transaction costs compared to traditional payment systems. Especially when it comes to large transactions. These small transaction costs are paid to the
miners Computers constantly verifying and processing transactions and as an incentive, they get rewarded with cryptocurrency from transaction fees and/or newly created cryptocurrency. (Those who own the computers are called miners as well).
.

More than just currency

Decentralized products

Cryptocurrency has not only introduced the first decentralized currencies but also the first decentralized financial products, also called DeFi (Decentralized Finance), and the first decentralized applications, called Dapps. These products are developed on decentralized networks that support
smart contracts A digital contract which is executed automatically (eg. a transaction) if certain conditions are met.
. The most well-known network for this purpose is Ethereum which is linked to the world’s second largest cryptocurrency in terms of
market value Total number of an asset existing multiplied by the value of the asset. (Also called market capitalization).
.

Examples of Defi products and Dapps

DeFi products and Dapps are platforms where you can borrow/lend money, for example on Maker or Compound, decentralized trading platforms like dYdX or Synthetix, the popular
DEXes Decentralized exchanges.
like Uniswap or Kyber Network, trading protocols like TokenSets, decentralized games and much more.
NB
If you want to use DeFi, it is recommended to seek further information. For instance, there are many great guides on YouTube.

Advantages of Defi and Dapps

The advantages of DeFi and Dapps are that they are open source and managed by a community of users and developers instead of an underlying bank or company. It provides maximum transparency and even makes the products democratic with the user being the only one who has control and responsibility over his or her money/assets.

It means that if you have to pay interest or fees then the money only goes to other users or developers who use the platform just like you. E.g. when you borrow money on a DeFi platform, you borrow money from a pool that other users have deposited money into. As a borrower, you therefore pay interest directly to those who lend out their own money. Thereby, you do it without any expensive intermediary. Conversely, you can make money yourself by lending out your own money. Fees can also exist on these platforms but only if the community decides it. It can for example be small fees that go to those who contribute to the development of the platform as an incentive for their work.

In short, DeFi and Dapps create more equitable, efficient and cheaper solutions as every person has the same rights and opportunities for influence and everybody can participate in the development while a lot of costly unnecessary entities are removed.

Many more possibilities

However, it should be kept in mind that DeFi and Dapps are only in their beginning as they have only existed for the past few years. Therefore, many consider it to have a much greater potential in the future with possibilities of big investment returns in both short and long term.

In addition to currency, DeFi, and Dapps, there are many other ways in which cryptocurrency and
blockchain technology A technology that serves as a growing list of records, called blocks, that are linked using cryptography. This list of records, (transaction ledger), is by design resistant to modification of the data it contains. Was invented in 2008 by Satoshi Nakamoto (Founder of Bitcoin).
are used. However, these other examples are not included in this guide.
2 in a circle

Why invest in cryptocurrency?

Intelligible explanation of the main reasons why cryptocurrencies are formidable investments
Copyright © 2020 Into The Coins
Email: support@intothecoins.com

The information contained herein is for informational purposes only.
Nothing herein shall be construed to be financial advice.
Take this information and do your own research.
Follow us on Facebook

What is
cryptocurrency?

Decentralization

Decentralized instead of centralized

A feature that makes cryptocurrency extremely revolutionary and unique is the fact that many cryptocurrencies are decentralized. This means the cryptocurrency is not centrally controlled by states, banks, or other institutions like a fiat currency[1] is. In other words, a decentralized cryptocurrency is not directly controlled by individuals who can approve/refuse transactions, issue the currency, or otherwise directly manipulate it and its value.

The first cryptocurrency, Bitcoin

The first and best-known cryptocurrency, Bitcoin, can be used as an example. Bitcoin is running on a code/software that controls the currency. This code is open source[2], which means anyone with interest can read it. As Bitcoin is created on blockchain technology[3], the fundamentals of the code cannot be changed or hacked. Thereby, anyone can at any time know exactly how Bitcoin works but no one can be able to manipulate it directly through position of power, politics, or technical knowledge.

Decentralized networks

There are many ways in which cryptocurrencies and their networks are decentralized. In Bitcoin’s case, it’s by using the structure called proof of work. In short, this structure consists of the so-called miners[4] who maintain the network. They are a kind of servers that processes/verifies Bitcoin transactions so that it is possible to transfer Bitcoins on the network. Any person in the world with an Internet connection can connect a computer to this network and become a miner[4]. Thereby, there is not a central server running the network, but small and large miners[4]/servers all over the world.
NB
There are also cryptocurrencies that are not 100% decentralized. These cryptocurrencies are instead created with other characteristic properties.

Money creation

There has always been inflation[5] in the fiat currencies[1] most of the time. It is when prices rise because the currency decreases in purchasing power. On the chart below, you can see the purchasing power of the US Dollar over time, as an example. Over the course of 100 years, it has dropped to 4.25% of its original purchasing power. (3.87% in 2019).
Purchasing Power of the USD Since 1913
In modern times, the inflation[5] primarily occurs because private banks constantly create new money. Every time someone takes a loan, it is new money the bank just creates. It is primarily banks and speculators who profit from this money creation at the expense of the average citizens’ economy, especially the lower class. The money creation by the private banks is also one of main causes of economic bubbles and crises in modern times.

Cryptocurrency is governed by code

As many cryptocurrencies are decentralized, it is only a code/software that controls creation of the decentralized money.

You can take Bitcoin as an example; Bitcoin’s code ensures that there can never exist more than 21 million Bitcoins in the world. Currently there are about 18 million Bitcoins, (85% of the 21). The new Bitcoins are created at a fixed rate which is halved approximately every 4 years. (The time of the halvings[6] depends on the level of activity on the Bitcoin-network).

This means the creation/supply of new Bitcoins is decreasing over time until no more Bitcoins can be created. The ones receiving/earning the newly created Bitcoins are the so-called miners[4]. It is private persons or companies providing electricity and hardware[7] to the Bitcoin network. Providing the “servers” of Bitcoin.

Increasing purchasing power

This setup ensures that Bitcoin’s purchasing power increases over time as supply decreases, (because of halvings[6]), while demand increases, (because of the continuous growing interest and adoption). In other words, this means that Bitcoin’s value and purchasing power will only increase in the longer term if demand continues. Other cryptocurrencies also have mechanisms that control the money creation, with some even having declining numbers of currency units over time.
A logarithmic chart of Bitcoin's price from 2012 to 2020

Efficient and cheap transactions

Direct transactions

When you transfer cryptocurrency, it is done according to the “peer to peer” principle. This means transferring directly to the recipient, instead of using an intermediary, (such as a bank). It makes the process far more efficient and cheaper.

Time and distance are insignificant

As an example, the time and geographical distance between the sender and the recipient have no impact on the price and speed of a cryptocurrency-transaction which is a direct contrast to the types of transactions we use most frequently today.

Ordinary transactions are slow and expensive

E.g. bank transfers and other similar services can take up to several days and cost a lot of money in apparent and hidden fees and commission rates. Especially when transferring to foreign countries. If it is not the sender who has to pay for the transaction fee, then the fee ends up at the recipient, (e.g. a company), which therefore raises the price for the consumer. That happens when you pay with most debit/credit cards, mobile payment systems and many other services. You do not think you pay any fees but that is because the company does and then pass the bill on you through higher prices.

Cryptocurrency is more efficient

When transferring cryptocurrency, the price and speed only depend on the cryptocurrency’s code and servers. This means that a transaction usually takes from a few milliseconds to a few minutes anywhere in the world. The price of a transaction is usually somewhere between completely free and a few pennies.

Although Bitcoin is currently among the most expensive cryptocurrencies to transfer, it still has minimal transaction costs compared to traditional payment systems. Especially when it comes to large transactions. These small transaction costs are paid to the miners[4].

More than just currency

Decentralized products

Cryptocurrency has not only introduced the first decentralized currencies but also the first decentralized financial products, also called DeFi (Decentralized Finance), and the first decentralized applications, called Dapps. These products are developed on decentralized networks that support smart contracts[8]. The most well-known network for this purpose is Ethereum which is linked to the world’s second largest cryptocurrency in terms of market value[9].

Examples of Defi products and Dapps

DeFi products and Dapps are platforms where you can borrow/lend money, for example on Maker or Compound, decentralized trading platforms like dYdX or Synthetix, the popular DEXes[10] like Uniswap or Kyber Network, trading protocols like TokenSets, decentralized games and much more.
NB
If you want to use DeFi, it is recommended to seek further information. For instance, there are many great guides on YouTube.

Advantages of Defi and Dapps

The advantages of DeFi and Dapps are that they are open source and managed by a community of users and developers instead of an underlying bank or company. It provides maximum transparency and even makes the products democratic with the user being the only one who has control and responsibility over his or her money/assets.

It means that if you have to pay interest or fees then the money only goes to other users or developers who use the platform just like you. E.g. when you borrow money on a DeFi platform, you borrow money from a pool that other users have deposited money into. As a borrower, you therefore pay interest directly to those who lend out their own money. Thereby, you do it without any expensive intermediary. Conversely, you can make money yourself by lending out your own money. Fees can also exist on these platforms but only if the community decides it. It can for example be small fees that go to those who contribute to the development of the platform as an incentive for their work.

In short, DeFi and Dapps create more equitable, efficient and cheaper solutions as every person has the same rights and opportunities for influence and everybody can participate in the development while a lot of costly unnecessary entities are removed.

Many more possibilities

However, it should be kept in mind that DeFi and Dapps are only in their beginning as they have only existed for the past few years. Therefore, many consider it to have a much greater potential in the future with possibilities of big investment returns in both short and long term.

In addition to currency, DeFi, and Dapps, there are many other ways in which cryptocurrency and blockchain technology[3] are used. However, these other examples are not included in this guide.
Glossary
[1]fiat currency
Intrinsically valueless medium of exchange used as money because of government decree, usually issued by private banks. Fiat currencies are e.g. the US Dollar, the Euro, and most other conventional currencies.
[2]open source
A type of computer software/code which grants everyone the rights to study it and distribute it to anyone and for any purpose.
[3]blockchain teknology
A technology that serves as a growing list of records, called blocks, that are linked using cryptography. This list of records, (transaction ledger), is by design resistant to modification of the data it contains. Was invented in 2008 by Satoshi Nakamoto (Founder of Bitcoin).
[4]miner
Computers constantly verifying and processing transactions and as an incentive, they get rewarded with cryptocurrency from transaction fees and/or newly created cryptocurrency. (Those who own the computers are called miners as well).
[5]inflation
A sustained increase in the general price level of goods and services in an economy over a period. When the general price level rises, a reduction of purchasing power per unit of currency occurs.
[6]halving
When the dividend to miners paid in newly created cryptocurrency, (e.g. Bitcoin), is halved. With Bitcoin, it has happened 3 times before. In 2012, 2016 and 2020. These supply halvings are usually followed by increasing prices.
[7]hardware
The physical parts of electronics that operate on digital signals. (Digital electronics consists of software(data) and hardware(physical components).
[8]smart contract
A digital contract which is executed automatically (eg. a transaction) if certain conditions are met.
[9]market value
Total number of an asset existing multiplied by the value of the asset. (Also called market capitalization).
[10]DEX
Decentralized exchange.
2 in a circle

Why invest in cryptocurrency?

Intelligible explanation of the main reasons why cryptocurrencies are formidable investments
Follow us on Facebook
Copyright © 2020 Into The Coins
Email: support@intothecoins.com

The information contained herein is for informational purposes only.
Nothing herein shall be construed to be financial advice.
Take this information and do your own research.
Updated July 26th, 2020
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