If you haven't heard of cryptocurrencies, you clearly haven't been following the news lately. If you're not quite sure what cryptography is or what you should do with it, correspondent David Pogue is here to teach you (pretty much) everything there is to know about cryptography, in nine easy steps:
1. Bitcoin was just the first crypto.
"Crypto" is short for "cryptocurrency." Bitcoin was the original and is still by far the most popular. But there are more than 10,000 different cryptocurrencies. Anyone can start one!
2. They are purely digital currencies.
If you go to Google Images and type "bitcoin", you get thousands and thousands of images of physical metal coins. Do not be fooled! The only place where you can watch the cryptocurrency is on your phone or on your computer screen. The only cash register is the Internet.
3. Crypto is not easy to spend.
This is another reason why Bitcoin may not seem like a normal currency to you. For now, you will have a very bad time. spent that! Go to a pet store, grocery store or hot dog cart and you will find it very difficult to buy anything with cryptocurrency.
One of the few stores that accept bitcoins directly is PJ Bernstein Deli in New York. There, Pogue used his phone to capture a QR code, received a verification code, and pressed "send." Lunch paid!
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4. Banks and governments are not part of the chain.
Crypto needs some reliable way to track all those transactions, and that's what a blockchain is. It is a theoretically tamper-proof public online database.
Caitlin Long, CEO and founder of Custodia Bank, a digital currency bank, described blockchain as "a new kind of ledger, where different parties that don't know each other, and certainly don't trust each other, actually they can trust that shared ledger is the so-called golden copy of all the data."
All you need to watch is an internet connection. And of course, on websites like blockchain.com, you can see transactions taking place in real time, all essentially anonymous.
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But if you really can't buy with crypto, what's the point? At this point, it's mostly an investment, speculative, that saw a big spike during the pandemic.
5. Today, cryptocurrencies are primarily for investors.
"I think it's probably the biggest bubble of our lifetime," said Ryan Payne, president of Payne Capital Management, a wealth management firm. "I mean, this could be pointless at some point. Quite possible."
Pogue asked, "Do you think it's going to go to zero?"
"I think there is no intrinsic value," Payne responded. "Look: we use oil, even gold. Whereas with bitcoin, there is no real use in society for it, which, again, in my opinion, peers might not be worth anything."
But traditional currency is also not based on anything physical. A dollar bill has value only because all believe that makes
Long said: "The commodity we use as money is a piece of linen, with a picture of a dead president printed on it in green ink. For the last 50 years, nothing has substantially backed it, since the US and the rest of the world moved away from the gold standard. He's just a middleman. That's all."
6. You buy and sell cryptocurrencies on "exchange" websites.
To buy $50 worth of bitcoins on Coinbase.com, the largest exchange in the US, the customer enters their email address, is sent a verification email, is asked for their phone number, receives a code text message authentication, submit the last four digits of your Social Security number, take a picture of your driver's license, provide your bank PIN and password, press "But Now" and voila! For $50 in "real" US currency, Pogue has bought 1/1000th of a bitcoin.
7. Most cryptocurrencies are volatile investments.
Pogue bought some bitcoin last May, and in six months, his money had more than doubled!
And then, as of this week, it has crashed, almost all the way back to where it started.
8. It's going to get easier.
Long said, "It's very confusing. We're in the very, very early stages. I compare this to maybe the 1994 Internet." The future, he said, "will look and feel a lot like your online banking."
Crypto has a few other issues to overcome before it's ready for the mainstream. There are all kinds of scams; transactions are slow; if you lose your crypto password, you may lose your entire investment; and crypto transactions can bypass US financial sanctions on Russia.
And there is a terrible environmental cost. The creation of new bitcoins and the confirmation of their transactions require massive banks of computers that consume large amounts of energy. By some estimates, every time you make a Bitcoin transaction, its net releases half a ton of carbon dioxide.
Pogue asked Ryan Payne, "I'm trying to figure out how you can look at the same facts as cryptocurrency fans and draw such different conclusions."
"We love a great story; Bitcoin is a great story; decentralized finance is a great story," Payne replied. "So this is just human nature, doing what he does over and over again: fooling himself. But we know from history how these things end."
Caitlin Long couldn't disagree more: "It's not a perfect system by any means. But it's going to make things better, faster, cheaper, safer, and frankly it's going to devolve power to the big banks and even the big governments towards the individual.โ
9. Crypto is polarizing.
You can't believe how many haters and fans there are. But at this early stage in the life of cryptocurrencies, everyone seems to agree on one thing:
"I certainly would never encourage anyone to put more money into this than they can afford to lose," Long said.
And Payne? "My philosophy is to put money you can afford to lose," she said.
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Story produced by Amol Mhatre. Publisher: Josรฉ Frandino.
