Cryptocurrency is a digital currency, asset or token that uses cryptography (encryption using secret codes) and it’s not issued by a sovereign state or a central bank. It’s used for borderless and trustless transactions between any person in the world without any type of limitation. Generally, transactions are registered on a public digital ledger called “blockchain”.
Although it all sounds quite complex, in reality it works in a very simple way. Knowing how cryptocurrency works will not only help you to be more knowledgeable, but it will turbocharge your business endeavours and even help you to overcome nasty totalitarian restrictions that our current monetary system imposes on the world. Let’s dive right in!
Fiat currency - The root of all evil
Let’s get something out of the way first. The reason why you are reading this article is not only to understand how cryptocurrency works right?. You have always felt subconsciously that there is so much wrong with this world. The rise of extreme poverty, injustice and suffering doesn’t just happen by accident. The saying: “The rich get richer and the poor get poorer” hasn’t been more evident since the worldwide events of 2020 than in any other time in human history.
We haven’t been taught any of this in school. Why should we? The only purpose of the current educational system is to produce an army of button pushers, taxpayers and consumers. Obedient and docile people that will carry on their shoulders the very system that robs and enslaves them.
Do you want to understand cryptocurrency? In this case let’s dive into the bottom of the cesspool where it all started from. Understanding the solution ( crypto ) means understanding the problem (fiat monetary system) first. It’s crucial that you do, otherwise nothing will make sense as we move on.
After a hard workday when you look at those coins and banknotes that are living in your wallet, you think of them as money. They’re not. In fact you’re looking at “fiat currency units”. All money today is created from debt and it’s backed by absolutely nothing. The banks (since 2021) are not even obligated to hold reserves in case people want to withdraw all of their digital ones and zeros in a paper or metal format. It’s literally the scam of the century.
This fiat currency is printed out of thin air or just typed on a keyboard into existence. The central banks do it every second, while all the other people in the world literally spend their lives working for these ever inflating candy wrappers. Fiat currency has a 50 to 75 year shelf life and it always ends up in tragery. Millions of hard working people who save fiat currency end up losing all of the purchasing power while the central bankers end up owning all the assets. The game is rigged from the beginning.
It’s on to feel the anger and disgust. We’ve all been there. The sooner you realize that we are living in a system that completely enslaves us, the better you’ll understand cryptocurrency and why it’s so damn important. Take your anger and disgust for the ride. They will help you to stay focussed.
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Gold, trust and money
As long as there were people, there was free trade, enterprise and commerce. These things are impossible to achieve without money. In the past many objects were used as money, but since gold and silver had the best properties (scarcity, divisibility and durability) people naturally migrated towards these precious metals and used them throughout history.
Gold and silver poses a serious problem for the power hungry elites; You can’t create precious metals out of thin air. No matter how hard the ancient alchemists tried, in the end it was still necessary to spend countless resources to mine, refine and mint gold and silver coins. Where did we screw up?
During the first international trading expeditions it was very dangerous and inconvenient to drag around heavy bags of gold and silver. This is why the ancient merchants left their coins at the banker for safekeeping. The banker wrote a paper receipt for precious metals and the merchant could travel light and safe. After a while the merchants started to use the paper receipts as payment.
People trusted that the banker held the claimed amount of gold and silver that was guaranteed by his receipt. Soon however the bankers realised that almost nobody actually came to claim their gold and silver. People found it all too convenient to use paper notes instead of dragging around heavy bags of coins. So the bankers started to write more receipts than they held gold on deposit. This parasytic system is called fractional reserve banking and thanks to clever lobbying (or bribery of the government officials) this system has actually been legalised today.
Trust is the key to the whole puzzle. We don’t trust our central banks, because we know that they print money out of thin air. Thanks to the Cantillon effect (whereby newly printed fiat currency first goes to the multinational corporations and private financial institutions) this new fiat currency ends up benefitting the very wealthy and not the people who need it most.
As we sum it up, fiat currency is issued by a private institution called the central bank. They have no loyalty to the government or even the normal people. They exist in order to enrich the large corporations and financial institutions. Inflation is the hidden tax for our ignorance. As you can see, the need for change is waiting at the door ready to slap us on the face with a rolled up newspaper. All changed with the use of cryptography.
From cryptography to cryptocurrency
The need for change was there even during the 1990’s. There were certainly attempts at designing new digital currencies. None of these attempts have eventually taken off. What’s different about the cryptocurrencies of today is the private key cryptography. Don’t let the technical lingo intimidate you. The idea here is very simple.
We have a string of letters and numbers called the private key. This private key is completely secret and cannot be revealed to the world. If we compare the private key to something from the real world, you can see it as a bank. This means you literally have a whole bank in your possession and the mere point of you owning the private key proves to the whole world that you are the sole owner of your assets. This means trust without trust!
From this private key we can generate an (almost) infinite amount of strings of letters and numbers called the public keys. These public keys can be seen as bank accounts that one can open in a bank. The public key can be sent to anyone who wants to transfer a payment to you. It’s very safe to make them well “public”. But why?
Very simple. Using what’s called a “hashing algorithm” (a fancy form of encryption), we can use a private key in order to derive an almost infinite amount of public keys, but we can’t do it in reverse. So your private key simply cannot be “back traced” by anyone. This is the core principle of how cryptocurrencies work.
When Bob shares his public key (ie. Bank account) with Alice, she can send him a payment. Fortunately Alice cannot see from which private key (Bank) Bob’s account came from. This ensures a degree of privacy and protection that allows us to send value through the internet. Pretty cool! The algorithm that makes it possible in Bitcoin is called the standard hashing algorithm (SHA-256). When you deal with cryptocurrencies, always remember that only YOU should be the owner of your private key! Once you understand it, you understand that the private key is your indisputable proof of ownership.
Just imagine crossing any border in the world wearing only your underwear (but knowing your private key). This literally allows you to transport ANY amount of money across any border with total privacy and anonymity. Now you begin to understand the core principle of cryptocurrency, let's take a look at Bitcoin as a simple example and throw it on the dissection table.
What is cryptocurrency and why is it here?
Before we answer the “what”, we need to know the “why”. In the wake of the 2008 financial crisis the monstrous money printing efforts (called quantitative easing) was organised by pretty much all world governments in order to bail out the very same culprits who created the crisis in the first place. Nobody went to jail and the bankers just gave each other fat bonuses for their recklessness. The game is rigged, remember? The movement of “occupy Wall Street '' was in full swing and people have had enough of privatised gains and socialised losses. Out of this simmering cauldron of global hypocrisy the very first cryptocurrency (Bitcoin) was born on the 3rd of january 2009.
Now that we have the “why” out of the way, let’s see what makes Bitcoin (the original Cryptocurrency) so much different from fiat currency.
- While central banks make their printers run faster than Michael Schumacher driving a Formula 1 car, churning out endless supply of crisp banknotes (inflating our purchasing power away) Bitcoin is 100% open source and is not owned by anyone.
- Fiat currency is being weaponized by the use of sanctions, the Bitcoin network is completely open to anyone with an internet connection. No matter what country you are from, literally nobody can physically prohibit you from using bitcoin. Yes that also means crossing any border in your underwear and transporting all your wealth in your head.
For starters, the debasement of purchasing power through inflation goes straight out the window, because there are only 21 million Bitcoins that can ever be produced. In case you’re wondering, you can divide one BTC into 10 million tiny Bitcoin pieces called Satoshis (named after the anonymous inventor Satoshi Nakamoto). This means regardless of the price, you can even have less than 1 USD in Bitcoin if you want.
Now, let’s get serious, how can we even trust something like this?
When we go back to the matter of trust, we can clearly see that Bitcoin solves this problem in a simple and brilliant way. All transactions are open and verifiable via the digital ledger called the Blockchain, meaning all the transactions that are ever made on the Bitcoin network (and other cryptocurrency networks for that matter) are forever stored on this digital ledger.
If Bob sends Alice some Bitcoin, this transaction can be viewed and verified by anyone who knows Bob’s and Alice’s public keys (ie Bank accounts). There is no central authority that serves as the middleman. The trust is achieved mathematically. How?
Remember all these mysterious “Miners” that the media is talking about? These guys (or rather computers spread out across the world) are doing nothing more than confirming the transactions on the Bitcoin network, making sure that Bob's coins can move safely to Alice’s address.
When a whole group of transactions is accumulated, this data is then put into a “block” and attached to the ever growing “Blockchain”. That’s it! Pretty simple right? Now there is of course much more at play, but we will cover mining in later articles in case you like to understand it better, for now, let’s take a practical look at cryptocurrency together.
What problems does cryptocurrency solve?
Freedom, the true kind of freedom that is long gone from our current economic system, here are some examples:
Ali is a brilliant electrical engineer from Iran. His dream is to work for a large Canadian company. Of course with the current economic sanctions this is impossible. Cryptocurrency works without permissions or borders, remember? This means Ali can now apply for ANY position in ANY country and negotiate getting paid in cryptocurrency without having to worry about any financial sanctions. Done deal!
Pablo is a farmer from Venezuela. He has worked his whole life growing crops and supporting his family. When the hyperinflation hit the economy hard, he decided to relocate his business and family to Panama. He has successfully sold his assets for cryptocurrency and memorised the recovery phrase from his wallet (only 12 words). Having only this information in his head, he and his family successfully relocated to Panama, recovered all the assets and started a new life.
Ming is an investigative journalist from China. Currently she’s writing a report on North Korea and how regular people are coping with the current regime. Using her sources she can get a clear picture of what’s happening and she can bypass the financial iron curtain of the North Korean regime by paying her sources with a small amount of cryptocurrency. Even with the Chinese firewall this is still possible.
As you can see cryptocurrency allows people from all over the world to completely opt out of the current predatory financial system that’s set up to serve the needs of the 1%. Cryptocurrency is the currency of the people. Not governments! Literally for the very first time in human history we have this option. Not even gold and silver can pound their chest with this sort of freedom of mobility. Just like in the middle ages, we are heading towards a financial separation of Church and State, but on a much more important level.
People everywhere are being liberated from rigid doctrine, predatory restrictions and loss of purchasing power through inflation. This is huge! And you haven’t heard the best part yet; even though cryptocurrency is pretty damn expensive, it’s nowhere near expensive as it should be. This is monetary freedom we are talking about. As a trader, investor or speculator it’s inexcusable not to know about it. Join us on this quest of discovery and find out what literally nobody is covering. We are in 2021 and we are still early! TheTradingBible.com is here to give you the insights you won’t find anywhere else. Now that your brain is crackling with concepts of what’s possible, let us help you to unchain yourself from all the limiting factors that school, parents and friends have propagated your whole life. You won’t regret it.