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What is Cryptocurrency?
- Last updated: May 24, 2023
“Born too late to explore the seas, born too early to explore the stars, born just in time to witness the rise of the cryptocurrency revolution”
Caelen
Harry Satoshi
Bitcoin and The Birth of Cryptocurrency
Bitcoin (BTC) is an open-source, decentralized, peer-to-peer digital currency and payment system introduced in 2008 by a developer going by the alias Satoshi Nakamoto when they published their revolutionary paper: “Bitcoin: A Peer-to-Peer Electronic Cash System“.
Launched in the wake of the global financial crisis, it shall forever hold the title as the very first cryptocurrency.
Cryptocurrencies are digital assets which use cryptography and decentralised technology to secure transactions and control the creation of additional units of currency, making them nearly impossible to counterfeit, double-spend or censor.
The day Bitcoin went live on the 3rd January 2009, a monumental milestone was quietly achieved.
The successful creation of a borderless universal internet currency that can be used by anyone, anywhere to securely store and transfer wealth over the internet without the need for a bank, government, or central authority to approve and validate transactions.
In the years since, Bitcoin has become one of the world’s largest currencies, has served over 420 million users and counting, and has become a popular investment vehicle for Kiwis. However, it is important to understand that despite much of the userbase being made up of speculative investors, Bitcoin is being used all around the world for to enhance individual autonomy, sovereignty and freedom.
More than a New Class of Investment
It’s no secret that Bitcoin has skyrocketed in price over it’s short history, seeing 1500% gains over the past 5 years alone . This is credited to a multitude of reasons, with the most prominent being that there is a pre-set limit to how much Bitcoin (BTC) can exist.
A fixed supply of units set at 21 million BTC, hardwired into Bitcoin’s software that will likely never change.
Having a fixed supply of currency that can ever enter circulation is key feature of almost all cryptocurrencies, and it's a distinct difference between crypto and government issued currencies like the NZD and USD. Government issued currencies (fiat currency) are printed from thin air on a regular basis, which debases and reduces the purchasing power of all pre-existing currency in circulation.
Like any asset with a fixed total supply, when demand goes up, so does Bitcoin’s price. And when demand drops, prices follow. Because interest in Bitcoin and crypto has drastically fluctuated over the years, (despite an ever growing userbase), investing in Bitcoin is appealing to those with a high risk tolerance and a willingness to take a punt on the currency wars of the 21st century.
Here at Cryptocurrency NZ, although we believe Bitcoin is a remarkable innovation and a great long term investment, we also think price speculation is missing the point of the true value Satoshi Nakamoto and Bitcoin has sough out to achieve in the current times.
However we also understand that Bitcoin’s investment appeal attracts interest, followed by exploration of the fundamental ethos.
The Rise Of Cryptocurrency & Altcoins
As you are now aware, Bitcoin is not the only cryptocurrency in existence. All other currencies which are not Bitcoin are referred to as ‘alternate currencies’, hence the term ‘altcoin’. The first of these was created in 2011 (Namecoin) and since then the number of altcoins available has soared. In fact, at the time of writing there are over 20,000 different cryptocurrencies available and counting.
Although there are over 20,000 cryptocurrencies in existence, there's decent chance that 95% of them will not be in active development and usage in 15 years time. The majority of the cryptocurrencies in existence are clones of a handful of other coins, with a few differences in code added in. Especially coins designed to pump & dump - otherwise called 'Shitcoins'.
For example, Litecoin – one of the earliest altcoins, was originally a copy of Bitcoin (BTC). Because Bitcoin is open-source, all of the code used to create it is public, so anyone with a bit of programming knowledge can easily create their own cryptocurrency.
This doesn’t mean all other cryptocurrencies apart from Bitcoin are mere clones with no real world utility or innovative features.
There is a plethora of extremely promising coins and projects in the cryptocurrency markets, with most niching towards their own unique use cases and value propositions – with excellent examples being Bitcoin, Ethereum, Monero, Tether and XRP.
Unlike the locked systems of the USD or NZD, the cryptocurrency market is vast, dynamic and constantly evolving. All 20,000 of these coins are competing against each other to secure foot holds of utility and demand in various niches. Cryptocurrency NZ believes this darwinistic nature, mirroring natural selection, is ultimately a positive force for innovation and technological advancement in crypto.
How to Store Cryptocurrency in NZ?
Cryptocurrencies are stored in cryptocurrency wallets – secure digital accounts which you set up yourself, without having to go through a bank or government agency. This provides crypto users with an enhanced level of anonymity, autonomy and ownership over their finances, allowing them to store and transact value regardless of their nationality, socio-economic status or geo-location.
The concept of self banking is one of the most liberating benefits of crypto, as it puts all users on a level playing field regardless of how much they own and what country they were born into – a revolutionary solution to the approximate 1.6 billion individuals on Earth who presently do not have access to a bank account, or the hundreds of millions of humans living under totalitarian regimes.
The Blockchain
The creator of Bitcoin, Satoshi Nakamoto, has become a legendary figure because he created Bitcoin, but also because he is credited for devising the first blockchain network – a revolutionary technology who’s application goes far beyond decentralized digital coins.
Blockchain technology is the key technology that underpins Bitcoin and almost all cryptocurrencies – a digital record-keeping system which tracks and records all transactions and balances on the crypto networks – acting as a the digital brain and distributed ledger.
The Bitcoin blockchain is a public blockchain, meaning it is possible to view every transaction and wallet balance dating all the way back to the first BTC transaction ever made – which can viewed on the BTC blockchain here:
https://www.blockchain.com/btc/tx/f4184fc596403b9d638783cf57adfe4c75c605f6356fbc91338530e9831e9e16
Cryptocurrencies are stored in the blockchain, and your wallet represents your interface for sending and receiving payments on it.
Bitcoin / Cryptocurrency Mining
If the Bitcoin blockchain stores and records all transactions and balances on the BTC network – who is in charge of making sure every Bitcoin transaction is lodged, recorded and verified in this distributed ledger? This is the role of the Bitcoin miners.
Essentially, Bitcoin miners are individuals, companies or even governments who run specialized computer hardware to solve complex mathematical problems to process transactions, who compete with other miners to add a block of transactions to the blockchain.
Individual miners lease out their computational power to the network and record and authenticate transactions in real time. Now picture this on a mass scale, with tens of thousands of individuals leasing out their computer/s to run the Bitcoin network, in exchange for the reward they receive for their input. This is called mass collaboration powered by collective self interest.
When a block is successfully added, the miner is rewarded with newly minted Bitcoins as well as transaction fees from the transactions included in the block. This process ensures the decentralization and censorship resistance of the crypto networks.
Censorship Resistance - Decentralization
Because the powerhouse behind Bitcoin’s blockchain is decentralized and is spread across hundreds of thousands of miners across the world, there is no central location or weak point that can be targeted in an attempt to shutdown the network. As long as the Bitcoin network has miners authenticating and validating transactions, Bitcoin users can still send, receive, store, and spend BTC.
This, in combination with mining nodes having a complete copy of the blockchain, means that shutting down the Bitcoin network would require an international effort spanning across every nation on earth where Bitcoin miners reside, costing billions of dollars in manpower and resources. And even then, if a single miner with a copy of the blockchain survives, so does the Bitcoin network.
Source: PBRG
Where is Cryptocurrency Legal?
Bitcoin and other cryptocurrencies are legal in almost every jurisdiction of importance including New Zealand, however there have been multiple failed attempts to ban Bitcoin by countries such as China, Russia, Vietnam, and Cambodia. Meanwhile countries like Japan, Estonia, Canada, South Korea, and New Zealand allow cryptocurrency to be legal as they form policy around this technology.
In June 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender. Their congress legislatively approving a proposal to embrace the cryptocurrency marks a dramatic step forward for wider adoption. However, China on the other hand, a country not known for respecting basic human rights or financial freedom, has notoriously outlawed crypto for it’s 1.4 billion citizens.
In May 2022, China prohibited financial institutions from engaging in any crypto transactions, next banning all domestic crypto mining, and then finally outlawing cryptocurrencies altogether. All of which can be circumvented with a VPN and secure connection.
What is Web3 - the Future of the Internet
As we speak, many of the smartest minds in the world are laying the foundations for the next generation of internet, known as web3.
- Web 1: also known as the “read-only web” or the “static web,” represents the early days of the internet. It emerged in the 1990s and was primarily focused on providing static web pages with limited interactivity. It was mainly used for information retrieval, where users could access websites and consume content, but it had many limitations in terms of user contributions and interactivity.
- Web 2: also known as the “read-write web” or the “social web,” is the phase that followed Web 1 and is the internet that we’re currently familiar with. Web 2 emerged around the mid-2000s and introduced significant advancements in interactivity, user-generated content, and social networking. It enabled the rise of platforms like Facebook, YouTube, Twitter, and other social media sites where users could create and share content, interact with others, and participate in online communities. Web 2 is characterized by dynamic websites, user collaboration, and the dominance of centralized platforms – still with many limitations.
- Web 3: refers to the vision of the future of the internet, aiming to overcome the limitations and challenges posed by Web 2. It seeks to create a decentralized, user-centric, and secure internet ecosystem by leveraging blockchain technology and other decentralized technologies. Web 3 focuses on empowering users, giving them control over their data, and enabling peer-to-peer interactions without relying on intermediaries. It introduces concepts like decentralized applications (DApps), smart contracts, cryptocurrency, and user-owned digital assets such as NFTs. Web 3 represents a future promoting a more transparent, private, and inclusive internet where individuals have greater control and ownership over their online experiences. Transferring power back to the user.
Cryptocurrencies like Bitcoin are the native currency of web3, securing a dynamic where the users themselves have sovereignty over their own data, finances, interests and internet exploration. These technologies prove to be extremely disruptive for this reason, as the promise of self banking, decentralized social media, and innate digital rights threaten much of the power and control that exists in the established matrix of banking, internet, finance, social media, news and beyond. Without a doubt an incredible time to be alive.
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