What Is Cryptocurrency? A Breakdown Of Bitcoin & Blockchain Basics

Philosopher Alan Watt asked the question, “What if money were nothing?”

Many people think cryptocurrencies answer that question. Now that’s a little glib, but it also has some truth to it.

Cryptocurrencies are an attempt to create decentralized economies, where exchanges of values and properties can be made without governmental interference (i.e., taxes, permits, licenses, etc.)

The problem occurs whenever traders want to translate these transactions into real world values. That’s where it gets tricky and leads some people to crime should they try to launder their newfound gains. It seems like just paying your taxes would be much simpler, but hey, where’s the thrill in that?

Cryptocurrencies use blockchain as their primary transactional base and security. The first successfully launched cryptocurrency was Bitcoin which also launched with blockchain as its trading system.

Blockchain is a system and a process. It’s an ever-growing compilation of records organized into digital information blocks that share information between them to secure these records with cryptography and protect them with unchangeable backups to prevent record corruption.

Some claim that blockchain is unbreakable, while others see it as the next in a line of unbreakable systems to get broken. So far, more than $4 billion worth of Bitcoin have been stolen in today’s market values with no clear explanation. That should make investors a little uneasy.

Blockchain is a peer to peer (P2P) system similar to – but much more complicated than – the one used by Napster to share files back in 1999. The tendency of users to trade copyrighted files of music, movies and computer programs is what eventually put Napster out of business, but not before a few people made millions and millions of dollars and the music, movie and software companies lost even more.

Imagine a virtual world where you do all your banking. In this world, they use Bitcoins instead of dollars. You can mine for Bitcoins, or you can buy them at the market’s current rate connected to supply and demand and by using real world dollars.

Your virtual world is fun to play in, but the makers of cryptocurrencies have figured out a way to turn your Bitcoins into real money in the real world. Until you do that, you will just have your VR money and be virtually rich, but not really rich.

It’s like playing with chips in Las Vegas. You may be $50,000 up but until you leave the table and cash those chips in, you haven’t won anything. And as long as you stay at the table, you could lose everything. Casinos count on that. If you do get into Bitcoin and it rises, don’t be greedy. Cash in before it all slips away.

Here’s another important thing about Bitcoin ownership. You need a Key Code to access your coins. If you lose your account number at your bank, your money isn’t lost. The bank has ways of locating your information and your money is protected. Not so with Bitcoin. If you lose your Key Code, you’ve lost all your coins forever. So be sure to keep a record somewhere that you can’t lose it, where it can’t be stolen, or burned up. Maybe tattoo it in a place no one ever sees if you’re a Never-Nude.

If you want to know what some investing experts think about Bitcoin, make note that Warren Buffett hasn’t invested and has said he thinks it will all come to a bad ending. Also, South Korea and China are both watching Bitcoin closely and South Korea may eliminate trading completely.

There are other cryptocurrencies available, such as Ethereum, Litecoin, Ripple, Dash and more. They seem to be popping up weekly, so getting in on the ground floor may be your best chance for some real gains. But each of these currencies has their own systems and rules, so do your due diligence before you buy in.