Can anyone explain crypto currencies to me?

[Neome]

I’ve never really tried to understand them other than thinking ‘it all sounds a bit dodgy’. I realise they are based on some complex mathematics (I’m not bad at maths).

Given the current situation I’d love to have a more detailed understanding of what’s going on and how it relates to eg Putin.

If you can explain at all I’d be very grateful.

@SamphiretheStickerist no, I don't think I can - I'm not sure I have a good enough understanding of it to try at the moment and I'd probably get something wrong.

I was also thoroughly confused when I first started researching it and, yes, I certainly did have to look up a few new words as I went! As I said, I'm just getting my head around the basics now and beginning to read more around the subject.

Actually, you seem to be fairly confident in your opinion that it's a pyramid scheme so you probably know more than me - I definitely haven't learned or understood enough to form a real opinion of it yet.

I'm certain because it is all sorts of wrong.

When the explanation of what it is demands such dense language you have to question it.

When the explanation of what it actually is is so stark and clear you have to question it.

When you know that it is based upon use of massive amounts of energy and a promise of payment underwritten by nobody, nothing. When governments are working out how making it illegal, how to get it out of their energy grid.

It makes no sense. Literally, no sense at all. If it did anyone would be able to explain it..

Currency: a financial.tool underwritten by a government that allows commerce, trade to flow smoothly. Globally recognised, agreed and regulated.

Crypto currency... .see above flannel and tell me what it is.

www.forbes.com/sites/barrycollins/2022/01/15/cryptocurrency-nothing-more-than-a-pyramid-scheme-says-browser-boss/

I am pleased to see so many posts saying what I've been thinking. The lack of regulation of this is an absolute global scandal, in my opinion. Ordinary people are putting vast amounts of money into cryptocurrencies, which they can't afford to lose, and there is absolutely zero protection for them. There are numerous protections for investors in companies or funds, and even for gamblers, but so far zilch for cryptocurrencies.

My interest stems from the blockchain. Which is a computer in it's own right.

Does anyone know, how does government controlled CDBC relate to Bitcoin? Does it mine in the same way? Thanks.

@grumpytoddler1

I am pleased to see so many posts saying what I've been thinking. The lack of regulation of this is an absolute global scandal, in my opinion. Ordinary people are putting vast amounts of money into cryptocurrencies, which they can't afford to lose, and there is absolutely zero protection for them. There are numerous protections for investors in companies or funds, and even for gamblers, but so far zilch for cryptocurrencies.

But aren't governments basically staying out of it, which tells investors what they need to know?

Governments also generally stay out of investing in wine, art or vintage motor cars. Doesn't necessarily make the trade in those things dodgy. (In fact I would be amazed if anyone seriously wealthy did not have some investments in wine, art, and vintage motor cars).

Interesting thread. I’ve obviously heard about them, but not really had a thought apart from along the lines of “sounds dodgy and unsafe”.

Am off to do a bit of research. As had no idea that “mining” used huge amounts of energy. Can’t understand why/how, so if anyone has a simple explanation that would be great.

@DGRossetti

Governments also generally stay out of investing in wine, art or vintage motor cars. Doesn't necessarily make the trade in those things dodgy. (In fact I would be amazed if anyone seriously wealthy did not have some investments in wine, art, and vintage motor cars).

The trade in all those things is riddled with dodgy.

The Libertarian fantasy of crypto reminds me of the way people talked about the internet decades ago - an unfettered, self-governing paradise.

These things always need regulation to work properly in the end, because humans are fuckwits.

As had no idea that “mining” used huge amounts of energy. Can’t understand why/how, so if anyone has a simple explanation that would be great.

It's very simple. The more complex the mathematical problem you need to solve, the more sheer grunt you need to do it. That grunt is volts and amps - electricity.

Mining "proof of work" isn't the only way to propagate the blockchain. There's also "proof of stake" which is more how smart contracts are handled.

@Furries

Interesting thread. I’ve obviously heard about them, but not really had a thought apart from along the lines of “sounds dodgy and unsafe”.

Am off to do a bit of research. As had no idea that “mining” used huge amounts of energy. Can’t understand why/how, so if anyone has a simple explanation that would be great.

As you can see DGR is giving a really good explanation of the energy usage.

But it boils down to "It takes a lot of sunshine to keep fairydust all sparkly so the Gnome King uses all of the sunshine in Kazakhstan. The people of Kazakhstan aren't happy about living in the dark"

Another Forbes piece that explains it

www.forbes.com/advisor/investing/bitcoins-energy-usage-explained/

This is all very interesting and thought provoking. Thank you for the links and forthright opinions, I’m getting a clearer idea.

I’m not very mathy now but studied some complex maths in the distant past and taught for a while. In my experience probability, as an example, is profoundly unintuitive to the human brain.

The mathematics here also seems very unintuitive which builds in a huge advantage for those who do understand it. More importantly perhaps is the inbuilt disadvantage for most people which leads us to do what human brains do well and look for familiar stories and patterns which make sense of it.

‘Pyramid scheme - avoid’ might not be mathematically accurate but could be a useful way to think about cryptocurrency!

Some people are saying it doesn’t really exist and others are pointing to energy use, hardware and software.

A Russian ‘influencer’ was apparently mourning the loss of her business because of Facebook, Instagram etc shutting down. Her followers haven’t immediately vanished, I imagine, but she may not be able to access or monetise so her ‘virtual’ business was dependant on physical things.

If the array of computers holding and processing cryptocurrency data were shut down for any reason (including lack of energy to run them) the holdings might not stop existing as mathematical ideas but they might become difficult or impossible to access or trade. So they might be an idea but one that depends on a physical object.

What is the ‘promise to pay the bearer’ here? The Bank of England’s promise comes along with its ability and willingness to fulfill that promise including the ability to print money or devalue - please correct me if I’m wrong.

With cryptocurrency there is also a promise to pay. I wonder if it rests on a promise by the seller of it to the buyer that there will be a buyer when they want to sell in their turn.

It feels like it involves huge risk, it’s not clear who owns and controls the hardware and software. The energy use is scandalous. It’s unlikely that officials and heads of state fully understand it themselves so they are dependent on advisors. It seems to reduce rather than increase human cooperation on constructive activities for local communities eg funding healthcare, infrastructure, energy security.

It seems like another vehicle for the powerful and wealthy to restrict access to power and wealth.

EU looking towards regulating cryptocurrencies

www.theregister.com/2022/03/16/eu_parliament_cryptocurrencies/

I own some crypto. I completely disagree that it's a pyramid or Ponzi scheme. You need to look at the underlying technology that I think only @DGRossetti has mentioned: the blockchain. This is what's revolutionary and this js what creates value (as opposed to pixie dust).

It's hard to explain without being very technical but essentially the blockchain is like a database of transactions - the accuracy of which is not confirmed by any one person or company but by a network of computers. Every computer in the network has a copy of the whole database and once new information is added, it cannot be changed or deleted. The trail of transactions is held on thousands upon thousands of computers - there's no way to find or hack all of them. This makes it incredibly secure.

The first application of blockchain was Bitcoin. It's a cryptocurrency pure and simple, and I don't like it because it's energy intensive and has little real utility (very like paper money, ironically!). But it's so widely owned and traded now that I think it's unlikely ever to collapse. Equally, I think it's unlikely to soar again either.

What's far more interesting to me is what came after Bitcoin. Take Ethereum for instance. Ethereum has its currency (Ether) but first and foremost it's a blockchain that allows other applications to build on it. Ether is what you pay to use the blockchain (rather than the blockchain being used to create Bitcoin). If you look at the crypto world now, there are dozens of applications built on Ethereum, from decentralised exchanges, lending and borrowing, other crypto coins (such as Stablecoins which are pegged to real-world currencies like the dollar), virtual reality gaming, and so on. There's a whole alternative ecosystem being built on Ethereum. And every transaction, whether it's trading on an exchange or buying your avatar in a virtual game like Sandbox, costs Ether. Users of all this stuff are growing exponentially. Money is flowing in from the likes of Meta (formerly Facebook), Elon Musk, JP Morgan, hedge funds etc. HSBC just bought land in the Sandbox!

(Ethereum is also about to move from proof of work (the energy-intensive verification model of Bitcoin) to proof-of-stake, which will reduce energy use and increase transaction speed.)

My belief is that this tech will go mainstream. That's why I own some Ether and other coins with a lot of potential (real world utility). I do believe it needs to be regulated to protect small investors from over-risking themselves - this is already under way in the US and E.U. You already need to provide proof of identity to use most exchanges and platforms. Binance's CEO (Binance is one of the big trading exchanges, trading up to $76 billion a DAY) confirmed they will apply the sanctions to Russian individuals. They know who people are.

If you don't believe me, go out and do some proper research. There are literally millions of people now involved in crypto. New applications launching every day. It has the potential to revolutionise banking and finance, and I haven't even touched on smart contracts, real estate, NFTs etc etc. I think it's an excellent investment right now. Of course it has risks, but the rewards could be huge in the long term.

Some great answers here by some knowlegeable people. Like the film The Big Short, you get an idea of whats happening but when the financial wizards/fraudsters/chancers are talking you start to glaze over.

@lifesnotaspectatorsport thanks for that. I note that the big players are involved. they can afford to lose or break even and have access to supercomputers and risk management. prob the same people tho who were the 'victims' in The Big Short or Margin Call. Smoke and Mirrors in my opinion but thats why I am not involved in the Financial markets

All you need to know is that it was discovered by the late Mike Hunt in 1946, one year after the war. If you want to be a billionaire by the end of the year, invest in DeezCoin. It’s going up! Xoxo

I will stick with stashing money under the mattress. At least I understand that.

Hi @Pedallleur

Investing in crypto has risks, just like any financial investment. Never invest money you can't afford to lose, never invest money you might need soon.

On the other hand, it's risk and reward. If you have money to put aside (which is a luxury, I appreciate), then there's no point putting it in a bank. Sure, it's almost nil risk but the return won't even cover inflation.

Crypto has risks (some of which I think are overstated as explained below) but the rewards are much higher. You don't even have to bet on the markets. You can turn your £ into Stablecoin equivalents on a 1:1 basis, put them in a crypto investment account and earn 12% interest. When you want the cash, you convert your extra coins back into £. These are the sorts of applications that I think will become mainstream.

I don't think what's going on here is the same as the Big Short and the financial crisis. For one thing, crypto isn't big enough to cause a systemic failure of the global financial system. We have the banks to thank for that. Maybe a good reason to get rid of them??

@Mischance I hope that's a joke!

It's hard to explain without being very technical but essentially the blockchain is like a database of transactions -

It's so much more than that. It's a fully specced Turing complete machine.

Now if that means nothing to anyone, then maybe they shouldn't be dabbling in cryptocurrencies.

@DGRossetti Is it really necessary to understand Turing completeness in order to appreciate the uses/ potential of blockchain?

I don't have any idea how the Internet works, or TCP-IP, HTML or JavaScript, but that doesn't stop me using it or benefiting from it. 🤷🏻‍♀️

Mathematician algorithm to solve problems.