Understanding crypto is like having an aha moment.
When Oprah Winfrey coined the term on her show,
aha moments were usually about self-care or finding yourself.
But all aha moments boil down to this.
An important idea making sense all at once.
When we finally "get" crypto,
we see it can solve so many problems in the current financial system,
how blockchain can organize and decentralize the internet
in ways we've never seen before.
My name is Ben.
And in this video, we're answering the question,
what is crypto?
Let's get it!
To understand what cryptocurrency is, first, we have to look at what currency is.
A currency is a form of money issued by a central authority.
The value of currency used to be backed by the material used to make the currency.
In Roman times, coins are made out of four grams of silver.
The first watering down of Roman money reduced the purity to 3.8 grams.
And the silver content in the currency continued to decline
as new emperors came in and started cutting costs.
United States currency was backed by the gold standard until 1971.
Before then, the US dollar could be converted to an equal amount of gold.
Fiat money is a government-issued currency that's backed not by real world assets
but by the government that issued it.
Paper bills have serial numbers that can be tracked by a central bank.
But most of the money supply today is credit money,
electronic entries and financial ledgers that are managed by central banks.
Gone are the days of carrying cash for everything.
Our transactions are almost entirely digital now.
Today, the value of fiat is backed by collective trust in the government.
And considering the track record of most governments
and the inflation and money printing we've seen recently,
let's just say it's a good thing we have a decentralized currency alternative.
Cryptocurrency operates in a similar way to modern digital money,
but instead of being centrally validated by banks and other intermediaries,
cryptocurrency transactions are validated by a worldwide network of computers
that don't operate under one central authority.
This is why we call them decentralized.
So if cryptocurrency is an alternative to fiat currency,
then why do we need so many of them?
As of June of 2022,
there's almost 20,000 crypto projects registered on CoinMarketCap.
One reason there are so many cryptocurrencies is that
many crypto projects aren't created to be currencies at all.
They're blockchain projects making use of blockchain technology
for other applications or creating solutions via the blockchain.
That's why I don't even call crypto projects cryptocurrency.
On my channel, I call them crypto assets.
Although most crypto coins can be sent and theoretically used as payment,
many of them are purpose-built to pay for activity on the blockchain.
In fact, they would be inefficient and expensive to use as currency.
Crypto assets are kind of like a Swiss Army knife of digital ownership.
It can be used in a variety of different ways to offer solutions and services to users
much like a business.
While Bitcoin was created specifically to be a decentralized currency,
other cryptos like Chainlink, Flow or Ethereum
were created to serve as a blockchain highway the other projects can be built on.
For example, decentralized finance platforms, NFT marketplaces,
decentralized autonomous organizations (DAOs),
decentralized social media, Web3 gaming, metaverse applications,
even ridesharing services operate on Ethereum.
Some blockchains were created to rival Ethereum.
Avalanche, Cardano, Binance Smart Chain and Solana
strive to be competitors of the Ethereum blockchain.
That's why you may hear the term Ethereum killers.
Other blockchains were specifically built not to do everything Ethereum can do.
For example, Theta blockchain is a purpose-built decentralized video delivery network.
Decentraland is a token that supports a decentralized metaverse.
XRP is a payment settlement system that can process transactions globally.
Projects that were built specifically to be currencies include Bitcoin, Litecoin, Dogecoin
and dollar-pegged stablecoins like Circle's USDC and Tether's USDT.
There are also privacy cryptocurrencies like Monero and Zcash
to make transactions private and hard to trace for the sake of anonymity.
The internet created borderless global collaboration like we've never seen before.
Blockchain is a way to put this collaboration on a ledger,
decentralizing data and making things more efficient.
For years, technologists have been looking for a way to decentralize web services
so they can't be influenced by any one person, company or agenda.
They were the cypherpunks,
and we owe a lot of blockchain's development to their commitment to making the internet
as democratic and open as possible.
It's summed up best in the Cypherpunk's Manifesto by Eric Hughes.
He said,
"Privacy is necessary for an open society in the electronic age.
We cannot expect governments, corporations, or other large, faceless organizations
to grant us privacy.
We must defend our own privacy if we expect to have any.
Cypherpunks write code.
We know that someone has to write software to defend privacy,
and we're going to write it."
So, is cryptocurrency safe?
Well, the short answer is,
that depends.
With any type of investment, risk and returns depend on what you're willing to expose yourself to.
Crypto is not just a new asset class entirely, but a bleeding edge technology.
So that brings a level of risk with it.
As it stands, the technology is still maturing,
but it's been proven enough
for the world's largest investment firms to start accumulating tokens and coins.
As far as the security of the actual tech is concerned,
I'll break it down.
It's true that some blockchain networks prioritize speed over security.
And there are always hackers trying to alter blockchain code to try and make more tokens.
The good news is that the more prominent blockchain networks have been tested by hackers
because they're almost always under attack.
The more computers a blockchain has validating its transactions,
the more secure network is.
A 51% attack happens when more than 50% of the computers in a network are hacked,
or controlled by a group of miners or validators with bad intentions.
They can prevent transactions, halt payments and reverse transactions,
allowing coins to be double-spent.
Now, we've been talking a lot about blocks and chains and other tech stuff,
so now's a good time to explain just what the heck a blockchain actually is.
At its core, a blockchain is just a fancy spreadsheet.
In the cryptoverse, we call this a ledger.
The ledgers are cut up into chunks or blocks,
and these blocks are chained together in one giant file called a blockchain.
The giant blockchain of spreadsheets gets authenticated and verified
so there aren't any double spends or other errors.
This is called consensus.
And it's a big part of what makes crypto so special.
Consensus means computers are validating transactions
and agreeing that the information is correct.
The two most common ways of achieving consensus in a blockchain are what's called
proof-of-work and proof-of-stake.
Bitcoin is a proof-of-work blockchain
where specialized computers compete to solve complex math problems
and are rewarded with Bitcoin.
We call this mining.
The more people competing to solve blocks, the more secure the network is.
New miners are incentivized to join the network as the value of Bitcoin increases,
thereby making a positive feedback loop of network security.
Proof-of-stake blockchains like Cardano, Avalanche and Polkadot are more scalable
because they don't require expensive mining equipment or energy inputs like proof-of-work.
Think of proof-of-stake like depositing coins into the crypto equivalent of a piggy bank.
Users can store their tokens into one big piggy bank with other people,
and they're called delegators.
The person who keeps the electronic piggy bank up and running is called a validator.
The token protocol has rules that randomly select validators to add transactions to the blockchain
which earns rewards that are shared by everyone who has stored their tokens in that validator.
So because major cryptocurrencies like Bitcoin and Ethereum
have so many computers validating the network,
or so much hash power,
it is extremely unlikely that they will suffer an attack.
There are just too many computers for a bad actor to control.
Networks that suffered 51% attacks are mostly dead projects
that have fewer nodes to validate transactions.
We've covered what cryptocurrency is and whether it's a safe place to invest money.
But what gives cryptocurrency its value?
Well, value can either be innate or acquired.
Valuables like artwork, gold, or any other asset have innate value because they're scarce.
An acquired value is something like trust in a country's government,
like for the dollar or the yen.
But ultimately, it doesn't matter why people want something.
It only matters that enough people want it.
In the case of crypto,
limited supply of certain projects' coins can make holding the asset more desirable.
Simple supply and demand.
There's also the key element of what the asset can do that creates value.
Many crypto tokens have utility that gives access to platforms.
They can give holders the ability to trade and create opportunities for wealth building,
make decentralized payments,
and easy peer-to-peer transactions,
or act as a long-term store of value.
Speculators also believe that crypto assets will increase in price over time
as their utility becomes more widely used.
So let's break down some of the different types of cryptos
starting with the most valuable.
Bitcoin
Created in 2009 by anonymous developer Satoshi Nakamoto,
Bitcoin is the first digital currency designed to be a form of payment
that doesn't require a middleman for financial transactions.
The first Bitcoin were mined by home computers.
But as Bitcoin mining became more competitive
and mining rewards continued to be halved every four years,
ASIC miners became a more profitable way to mine Bitcoin.
There will only ever be 21 million Bitcoin.
And Bitcoin is divisible to eight decimal places.
Smallest unit is called a satoshi after the creator.
Buying small amounts of Bitcoin is called stacking sats
and can be one of the best ways to dollar-cost average into Bitcoin.
Ethereum
Ethereum is a decentralized software platform powered by blockchain.
It has a native cryptocurrency, Ether, or ETH, that's used to pay for transaction fees,
making the price rise as Ethereum gains adoption.
The Ethereum blockchain can be used to create and fund decentralized applications, or dApps,
and other secure digital technology.
The Ethereum blockchain is community-ran
and home to digital money, global payments and applications.
Right now, the Ethereum blockchain is proof-of-work and Ether is mined.
The merge to Ethereum 2.0,
where Ethereum will become proof-of-stake,
is expected to happen sometime in the summer or fall of 2022.
Crypto assets other than Bitcoin are known as altcoins.
Even Ethereum.
Although I would argue that ETH has become enough of a household name
that it no longer deserves the label altcoin.
But altcoins capture around 40% of the total crypto market cap as of today.
There are different types of altcoins with different use cases.
Stablecoins are cryptocurrencies' "bank account".
Assets that are pegged to another asset like the US dollar.
Stablecoins are used for storing funds, on-ramping fiat to crypto exchanges,
and trading crypto assets.
Circle's USDC and Tether's USDT are examples of secure collateralized stablecoins
that are backed by company assets and reserves.
Utility tokens are a way to pay for blockchain functionality.
This means that Ethereum's Ether is a utility token along with Cardano's ADA.
Governance tokens give holders voting rights.
For example, UNI is the governance token for the Ethereum-based DeFi platform Uniswap.
Security tokens are digital contracts that represent fractions of a real asset like a company,
recording ownership or stake.
Memecoins are tokens that get their value from community buys, and not fundamentals.
They're driven by hype and online communities.
Privacy coins are cryptocurrencies that can hide blockchain transactions to create anonymity.
So, by now, we know the basics of Bitcoin, Ethereum and altcoins,
but what is DeFi?
Short for decentralized finance,
DeFi transactions are recorded and validated on a blockchain
when two parties agree to exchange cryptocurrency.
This applies to payments, securities trading, insurance transactions, lending and borrowing.
This is all happening outside of the traditional financial system.
But to do anything in crypto,
whether you're day trading, loaning crypto or just buying pizza,
you'll need a crypto wallet.
A crypto wallet enables users to send and receive cryptocurrencies
and is a central place to keep private keys.
Crypto private keys are the cryptography number associated with a cryptocurrency
that's similar to a password.
They prove ownership and sign transactions.
If you have the keys, you own the crypto.
If someone else gets access to the keys,
they can move your crypto.
I go into details on private keys in another video that you can find down below in the description.
So I've gone over a lot of the basics, but you may be wondering,
why are crypto markets so volatile?
Crypto markets are notorious for their volatility.
The price of crypto assets can increase and decrease dramatically
more than almost any other asset we've seen in history.
The main driver of crypto volatility are the bull and bear markets
that follow Bitcoin's four-year halving cycles.
Every four years, the rewards for mining Bitcoin is cut in half,
disrupting the supply of Bitcoin
and renewing investor hype around the asset.
In 2016, the price of Bitcoin rose 7,000%.
In 2017, the price rose over 2,000%.
Now, all-time highs were reached in 2017 and then again in 2021,
when the price tripled from its previous all-time high.
Like other assets,
news and speculation are responsible for price fluctuations between cycles.
But the extreme volatility seen in crypto is caused by having less liquidity.
After all,
as of right now, crypto doesn't have huge institutional investors
and large trading firms holding giant amounts of assets yet.
But they're coming.
The price of altcoins are directly affected by the price movements of Bitcoin.
This is called Bitcoin dominance.
If you zoom out, the overall crypto market has trended upwards,
with major projects continuing to grow.
It's important to remember that not all crypto projects trend upward.
With some never returning to all-time highs.
Many others disappearing altogether.
So, some crypto projects die. What should I buy?
Well, that all depends on your timeline and risk tolerance.
Holding crypto over the long term can make big profits
as long as the crypto you're holding is one that will be around,
continue increasing in value over the long term.
We are likely to continue seeing some of the big crypto projects in the long term.
Bitcoin, Ethereum, Cardano, Binance Coin, XRP, Solana and Polkadot
are all within the top 20 projects based on market cap.
But not all projects stay on top.
In fact, it's more of a revolving door.
Doing research and staying connected to the latest in crypto news
is a key part of making money in crypto.
So if you want to stay in the loop on the latest in crypto news and education,
make sure to go ahead and hit that subscribe button
and make sure to turn the bell on for notifications.
The best bet is to buy projects that have staying power.
The further you move down the list of highest crypto cap projects,
the riskier they become.
Lower market caps mean it doesn't take much to pump the price,
but it doesn't take much to crash the price either.
It's also important not to confuse dollar value with market cap.
Just because a coin seems cheap,
it doesn't mean that it has a lot of room to grow.
A lower priced token with a gigantic circulating supply
can have a higher market cap than a higher priced asset with a smaller supply.
When researching crypto projects,
make stronger allocations to the top 10 or 20 market cap projects
that you believe have staying power.
Stick to the top 200 for speculative investments.
Bear markets are catastrophic for altcoins.
So be aware of where we are in crypto cycles.
Many people believe that the value of Bitcoin and Ethereum will increase over the long term.
So dollar-cost averaging into these assets is a simple strategy
that's proven to be a dependable way to gain exposure to an asset
without trying to time dips in the market.
Investing in cryptocurrency may seem complicated.
But once you get the fundamentals,
you can look at it just like any other asset class and decide for yourself if it works for your portfolio.
Crypto isn't just a cash grab.
It's a new means of doing business in the digital economy.
It's money that exists outside of the traditional financial system.
Crypto is a once-in-a-millennium opportunity
to be one of the first people to invest in an entirely new asset class.
Comment below with any other crypto questions you may have.
Smash that like button and don't forget to subscribe.
That's all I got.
Be blessed.
BitBoy out.