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.

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

That, right there, is completely wrong.

A Blockchain is not a computer. It is a collection of information.

OP, imagine a spreadsheet with rows and columns. In this analogy, each row is a "block", the information is in the columns, and because the rows come one after another they are "chained" together.

Now imagine that the spreadsheet contains a list of financial transactions; 4 columns, showing that on day X, account A paid account B the sum of Y currency.

Now imagine that once a row is in the spreadsheet it can't be changed. You can only add new rows.

That's the fundamental idea behind it.

If you're reading that and thinking "That seems very simple, why are people making it more complicated?" it's because there are a lot of shysters out there who have figured out they can make a lot of money out of this by convincing people who don't know any better.

Stephen Diehl does a very good job of curating links to relevant explanations and critiques at mobile.twitter.com/smdiehl.

[quote lifesnotaspectatorsport]@Mischance I hope that's a joke! [/quote]
It is! But I will stick with the bank - I like my money to be somewhere comprehensible to me!

A Blockchain is not a computer. It is a collection of information.|

What do you think a computer is ?

@DGRossetti and @UnvarnishedTruth.

Would you agree that currency involves being current and tradeable?

Value does not have to be intrinsic, compare a Roman gold coin, a high denomination banknote and a Bitcoin. Maybe also a pack of cigarettes and tin of peaches.

But if it is doesn’t have intrinsic value it depends on a lot of physical, social and political things doesn’t it?

Even if a lot of computers independently store blockchain you won’t necessarily be able to spend it and your ability to spend it will probably depend on people and systems over which you have no influence.

Genuine question: Would you be more likely to be able to afford next winter’s fuel bills by buying Bitcoin (or Ethereum or…) or a heat pump with the same amount of pounds Sterling?

Would you agree that currency involves being current and tradeable?

and "fungible" . And at that point I have to leave the bus, as I simply don't have the smarts to be an economist.

My interest as in cryptocurrencies in as far as it goes is around the tech, not the scam promises around "investment".

Even if a lot of computers independently store blockchain you won’t necessarily be able to spend it and your ability to spend it will probably depend on people and systems over which you have no influence.

Genuine question: Would you be more likely to be able to afford next winter’s fuel bills by buying Bitcoin (or Ethereum or…) or a heat pump with the same amount of pounds Sterling?

There are apps already with Visa/ Mastercard linked so you can spend your crypto by converting to your local currency. In terms of its value, that's determined largely by the market (via crypto exchanges). So in that sense, I guess it's more like shares.

Over time, rewards are likely to be higher but so is the risk. You should never risk money you (a) can't afford to lose or (b) will need to use soon on any kind of market. But if you're looking at investing, over a short to medium term horizon, crypto looks pretty attractive.

My crypto's value has gone up 10% in a week. And still is still way off its all time highs. And like I explained below, there's good reason to think it will get there again because there's genuine value being created.

It's like investing in emerging markets vs the FTSE 100. You do your own research, you decide what risk you are happy with. There are plenty of rubbish/ scam coins out there but there are also coins with huge real-world potential.

Sorry first 2 paras below should be a quote from @Neome 's post

Maybe Blockchain / smart contracts / whatever will turn out to be super valuable. I personally doubt it, but I guess it is conceivable. The problem for crypto-enthusiasts is that they don't have ownership of that idea, but just one implementation of it. If Blockchain does have longevity, it will be a government-approved corporate-sponsored Blockchain, not the libertarian fringe bitcoin one.

For a very loose analogy, think of Napster. They were absolutely 100% right that the future of music distribution was MP3 / digital and zero marginal cost. However, any early investor in Napster will have lost almost all their investment and Napster is now basically irrelevant compared to Apple Music / Google Music / Amazon Prime / Spotify.

Investors in bitcoin / Ethereum face exactly the same problem - even if they're right that the underlying tech is useful (which I doubt) it's still unlikely their investment will pay off.

It's not like 'investing' in anything else though, is it. If I buy shares there are a million regulations to protect me, as the investor. Even if I invest in emerging markets. I can't go short selling, for example, as I am not a professional investor, so no institution or platform will allow me to do that. But with cryptocurrencies there is nothing stopping me short selling anything I want.

Also, as has been mentioned before, the value is linked to nothing underlying whatsoever, it's all purely speculation and nonsense. 'I'll buy that one because it's going up' is about as technical as it gets. You might as well put your money on the horses.

@CoupDeGrass There's nothing to stop governments and companies setting up their own blockchain or applications (I think I read somewhere that the US is considering a digital dollar!). No one has 'ownership' of blockchain tech, that's part of the point. But they'd already be massively behind the market leaders and there are hundreds of new projects launching every month on Ethereum, Solana, Avalanche etc.

I do agree that there will be many losers as well as winners. For every Apple Music there's a Napster. It's the same with every emerging tech. That's what makes it risky. No one's saying it isn't risky. But there's no logic to suggesting Ethereum will be overtaken by some new, as-yet-unlaunched government-sponsored alternative. What's the benefit for developers in switching from their tried-and-tested, interconnected, public, open platform to something new, unproven and regulated? 🤷🏻‍♀️

What's the benefit for developers in switching from their tried-and-tested, interconnected, public, open platform to something new, unproven and regulated?

The code is all open source, so a hypothetical fork is just as tried-and-tested as the original. The developers will move because the users will move. The users will move because laws and regulations are attractive for most people.

@grumpytoddler1

Well, I hate to break it to you, but there's not all that much regulation to protect you investing in shares either, especially since all the online brokerages started up. You can short stocks on eToro for instance and anyone can sign up for an account with them. Any shares or fund trading you can lose a ton of money and it's on you.

I wouldn't be daft enough to short shares and, even though the option is there on some of my crypto apps, I wouldn't be daft enough to do it there either. I do think governments will attempt to regulate some of the products companies in this space can offer - although probably with limited success. And I'd be fine with that personally.

Have to disagree though that there's no underlying value. As explained in my earlier post, there are plenty of revenue-generating applications being developed on blockchain. Not least in the finance space - google Celsius, Nexo, Aave. They're offering savings products, cheap loans, investment opportunities - at much better rates than any bank. You don't see the market here?

Simplest way to think of it is in traditional finance the bank is the middleman xhafgkn you fees. In crypto, blockchain technology means finance is decentralised there is noone who owns it or controls it nor can it be manipulated.

Say you had to send your friend in Australia £1000, in centralised finance you do a bank transfer and the bank charge you say £80 and it'll take 3 days. In decentralised finance I go to my digital wallet and send £1000 equivalent in say bitcoin. It costs me say £10 and it arrives instantly.

Whats not to love about that?

Then you have options to 'stake' your crypto like bitcoin or other crypto coins for high apy (interest rate) look at banks todays offering a pittance in interest rates on your savings. By diversifying and staking crypto you can earn far more interest, some are like 100%, I've seen some for 300%.

People can call it a ponzi or just for criminals but that is a very shortsighted view.

Of course its risky, like any investment! There is plenty of ma inflation in shares especially in the AIM market. Noone moans about that.

But hey u and other call is a ponzi, meanwhile ill continue to make an income of £8k a week from my crypto project I've invested in.

@CoupDeGrass Well, we will see! You're giving governments and big business more credit for swiftness and enterprise than I would ... especially as there's not even a rumour of anything other than digitising currencies (arguably most of our money is digital already).

Even if people preferred to trust the government or banks here (doubtful), that definitely wouldn't be the case in a lot of the rest of the world. Africa has some of the highest rates of crypto adoption. If your government is corrupt and your currency devalued, it's not hard to see why you'd prefer a decentralised alternative.

Plenty of people in Africa use EUR or USD already. Using a Western-government-backed electronic currency would be even easier. No need for every country to do their own.

Is this some weird marketing ploy for crypto?!

For those that advocate it, how do you feel re the huge drain on energy resources? Is that worth your £8k a week?

@lifeisnotaspectatorsport But there is loads of protection around investment in shares. Publicly traded companies have to abide by rafts of company legislation, have to have their accounts audited, have to have controls in place before they can even attempt to list, have to stick to rules around solvency or risk being disqualified as a director and prosecuted under criminal law.

And of course I'm sure you're not daft enough to short sell, but I know there is a large online community who are doing it. They are all unsophisticated investors and follow so called experts' trades. I think it's terrifying personally. If you want to do it, and you're sensible with what you can afford to lose, then great, but it's not a safe investment, it's essentially a gamble.

@grumpytoddler1 Publicly listed shares, yes of course. But the AIM for instance - nothing of the kind.

I'm not saying crypto isn't risky - it is!! I'm just trying to say it's not a pyramid scheme or ponzi as others have suggested. It's a gamble to an extent but so are many types of investment. Playing it too safe is also risky - look at the terrible returns of default funds in pensions. Put your money in a bank right now and it is actually losing value in real terms. Interest rates like 1% when inflation is 5% - madness. Obviously we still need banks for day to day spending but if you do have money to invest and you want long-term growth, then you're going to have to take a risk somewhere.

@Furries Not by me! I'm not trying to sell you anything. Nor am I making 8k a week, which does sound too good to be true ...

Re energy usage, this is caused by blockchains using 'proof of work' or mining to verify transactions. Bitcoin for example. Many others use 'proof of stake' which is approx 90% less energy - Ethereum is currently in the process of converting over to it. This will be the new standard.

@CoupDeGrass

El Salvador has had the US dollar as its currency for decades but has now also made Bitcoin legal tender. After all, any national currency is controlled by its central bank who can devalue or inflate it at will. Hence the appeal of something else ...

We'll see which way it goes. I don't have a crystal ball either! (Alas)

I have a little bit of crypto in the real world, it's lost me 10% so far. In contrast I also play a stock exchange game, based on real markets but its not real money. I am up 25% there. If only it was the other way round!

Yes AIM companies have to abide by company law too. All companies do, even private companies. This is in no way similar to shares, not even close. It's probably more similar to commodity trading if you want a comparator.

Perhaps I'm a dinosaur but I just think it's awful how ordinary, unsophisticated people can plough their money into this with no protection and no one overseeing any of it. And it's ripe for scam artists too. There's not even a bloody health warning like on a packet of cigarettes!

@Furries

Is this some weird marketing ploy for crypto?!

For those that advocate it, how do you feel re the huge drain on energy resources? Is that worth your £8k a week?

I'm not mining so the high energy use is irrelevant for me

Its not too good to be true. I really am making £8k a week from a crypto project. My bank balance is enough proof.

As for the environment argument I suppose you dont buy anything made from China right, given they pump out almost 30% of the world's carbon emissions. I mean can you justify that? But I suppose your need for products is okay though.

So it's like the currency for John wick type activities in the sense of being untraceable ect ?

And obviously legal activities too