Bitcoin beginners, Ripple pupils and Dash dummies

Cryptocurrency has become a household name recently with the rise (and relative fall) of Bitcoin in the past years. Yet I fear many still do not fully understand what cryptocurrencies are or what purpose they serve. I have found myself explaining cryptocurrencies in layman’s terms constantly ever since I became interested in it. The purpose of this blog is to give the “layman” information regarding cryptocurrencies and will serve as a good starting point for anyone with an interest in this subject and who possibly think investing in Bitcoin or other cryptocurrencies is a sure thing. This explains the blog title: “Crypt”, short for cryptocurrency and “Tyro”, a synonym for beginner. That’s exactly who I am aiming this blog at; the Bitcoin beginners, the Ripple pupils and the Dash dummies. I aim to give readers information that is relevant to the new world that the technology behind cryptocurrencies is bringing us into. I should divulge that I am in no way an expert in this field, I am merely just an interested party. Up until now, all the research I have done on cryptocurrency was done out of my own interest but now as I complete my Masters in Finance at Queen’s University Belfast, one of my modules “Money and Banking” has included cryptocurrencies as part of the module so hopefully all those blogs, articles and opinion pieces read (as well as the countless videos watched) will become useful in my academic career! 

Dorain Satoshi Nakamoto - Bitcoin creater? 

So, let’s start at the beginning. Many people confuse cryptocurrency and Bitcoin as being the same thing which isn’t the case. Bitcoin, Ripple and Litecoin are all types of cryptocurrencies, just like how Ford, Toyota and BMW are all types of car. Cryptocurrency is just the general term for these ‘virtual currencies’. Bitcoin, the first ‘successful’ and probably most well-known cryptocurrency, was invented by a person, or group of people who went by the name Satoshi Nakamoto. No one ever met this mystery person/group of people, so no one could be sure if it was in fact just one man or a group of people. The press did think they found this anonymous man, but it turned out to be a man called Dorain Satoshi Nakamoto living in LA who knew nothing about Bitcoin, so this was thought to be a dead end. From reading the paper that outlined the components of Bitcoin and the technology behind it, written by our mystery man Nakamoto in October 2008, the author keeps referring to them self as “we” which indicates it was a group of people who are responsible for Bitcoin and the blockchain technology behind it. 

But I digress, enough of the conspiracies. I have noticed that a lot of people seem to confuse blockchain and cryptocurrency as being the same thing which is another mistake. Keeping with the motor example from earlier, blockchain technology is like the engine and cryptocurrency is like the car. The car needs the engine to function, just like cryptocurrencies need blockchain to function, but that’s not to say that you can only use the engine in a car: you can use it in a van, a motorbike, a plane, a boat and so on. There has been a lot of hype recently about blockchain technology and I’m sure many people believe it’s only function is providing the technology behind cryptocurrencies, but as you will see later this technology can be used in money and banking for different things. 

Nakamoto published the paper on Bitcoin in late 2008, after the financial crash, which is no coincidence. The paper (attached here https://bitcoin.org/bitcoin.pdf) outlines a “peer-to-peer version of electronic cash” allowing payments made online to be sent directly from one person to another without going through a bank or another financial institution. The intuition behind it is that there is no need for there to be a middle man in our transactions, and this technology can pave the way to a decentralised system without the need of financial institutions to get in the middle. The financial crash clearly destroyed a lot of people’s faith in the banks and the financial industry as a whole, so some wanted a way to break free from the shackles put on us by the banks making it virtually impossible for us to live life without their intermediation. 

How does one go about creating a currency that doesn’t need the banks to operate? This was the focus of Nakamoto’s work, he wanted to create a currency that was part of a decentralised system i.e. there was no central bank controlling it. This is the cornerstone of Bitcoin and what a lot of its original backers’ advocate for. In my next blog I will explain the technology behind Bitcoin which is used by other cryptocurrencies. I know many people have heard of the depreciation of Bitcoin and other cryptocurrencies and you’re maybe thinking this cryptocurrency fad is coming to an end. To those people, I would say I don’t totally disagree with you, there was a bubble in cryptocurrency value. I would also remind you however that there also was a bubble in housing prices before the financial crash in 2008, that doesn’t mean that investing in property post-financial crisis is a bad idea. I know this is a trivial comparison because properties do have fundamental value i.e. the value of the land it is located on, the type of property it is etc. I would also like to remind you the value of one Bitcoin today is about $3400, granted this is much lower than its high of nearly $20,000 in late 2017, it still shows that Bitcoin and other cryptocurrencies may not be fully irrelevant today. The graph below shows the rise and fall of Bitcoin over the last 2 years.

Bitcoin price in USD from 2017 to present (available at https://charts.bitcoin.com/btc/chart/price)

The purpose of Bitcoin has shifted from what it was originally set up to do significantly in my opinion, and I feel like public opinion on this cryptocurrency has been brought about by lack of research and new outlets using buzz words and not properly explaining what exactly Bitcoin is. This is where this blog will come in handy.