Surely you have heard of it or read about it. Cryptocurrencies are on the rise. But what is it in fact? And how do they work? And is it just temporary hype or is it really a technology of the future? We look at the set in more detail and try to give an overview that is understandable for everyone. Let’s get one thing clear: there are simpler things than cryptocurrencies.
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increase money? A matter of speculation!
One thing must be said up front. Cryptocurrencies were actually only created to initiate a way to increase money. It is simply the next chapter opened for this purpose. Just in a spectacular way. Just think back in time. Raw materials were traded. The price? negotiable. Milk for the meat, rice for the eggs, etc. All of this is very commonplace. But when the bank was born, a certain revolution began. You had an institution that you could borrow money from but which in turn collected the expenses, and you had one that held your money and returned it with interest. The starting signal to rise in silver looks rather unspectacular today. But he had everything.
All that glitters is not gold
The weak point of the whole: Today, you get almost no interest on your savings. You borrow money at unbeatable prices. Inflation is significantly higher than the interest rate offered by banks. What forms of investment are the most promising? Gold has long been considered a crisis-proof currency. But gold is also subject to massive price fluctuations. It is a subject of popular speculation. Then there are many risky forms of investing. Consider bonds with guaranteed interest rates or home ownership savings contracts or securities and funds that are traded on an exchange. We are already in the high risk zone. But if you have common sense, you will make good profits. You need a business that is on the verge of a massive boom or an evergreen business that keeps growing. And ideally, stocks are in high demand, so they are not available at bargain prices. Then business explodes.
And now cryptocurrencies come into play. Their value is artificially calculated, so to speak. Their value is based on the amount of cryptocurrency and demand in the crypto exchange market. However, both are difficult to assess. And with that, we’ve come to the point where we dig a little deeper into the subject – for a better understanding.
About blockchains and cryptocurrencies
The idea of cryptocurrencies is not that young. But the technology was lacking to do this. And it’s called blockchain. What is that? Basically a public, distributed database. A pretty huge one more, or a kind of logbook. In the case of cryptocurrency, it is used to manage monetary transactions. “Chain” because transactions are added in chronological order.
What is all this for? Until now, every time we made a transaction on the Internet, we always needed a third party to process the payment. It was the only way the sum of money could pass from the sender to the receiver. This institution was called a Trusted Third Party, essentially a bank. She guaranteed that everyone got what they should have. Only expenses incurred in certain cases have been retained. If you want a transaction to take place directly between two parties, i.e. peer to peer, it becomes a bit more difficult. Because you want to be sure that the money went to the right person and that neither too much nor too little was deducted from your own balance. And the blockchain takes care of it. Encryption is provided first. And then you need “proof of work”, a standard trusted worldwide. This was defined in a document under the pseudonym of Satoshi Nakamoto. Who is behind all this ? This has long been puzzled. How it works in detail, we try best not to discuss. There are tons of beautiful illustrated explanations about it. We prefer to limit ourselves to the question of whether the whole thing really has a future.
Bitcoin as an example
Bitcoin is the best known, oldest and most valuable cryptocurrency. In the beginning, if you made your graphics card available for computer processes, you could generate parts of the blockchain and get bitcoins for it. their value? In the penny range, so no longer an ideological idea. It took about 10 years before the company took off. Suddenly, these things had value. Initially a few US dollars. But soon it was $100 and up. Only there were few opportunities to convert these values into bank accounts. It also turned out that most of those who had been diligently “mining” couldn’t get their bitcoins back because they no longer knew the encryption password… Now what? The price has rapid ups and downs. It first topped $10,000, then $20,000 and even over $60,000 in 2022. And then back down to under $20,000. All within 2-3 years. It feels like a wild roller coaster ride. And her too. We know that it is becoming more and more difficult to generate new bitcoins because the blockchain is so huge that you have to invest immense computing power to get something out of it. This leads to scarcity and an increase in value. At the same time, the number of bitcoins is regularly increased artificially by splitting them.
Hype or fixed part of the future?
The fact that entire countries are considering recognizing cryptocurrencies as a means of payment is a testament to the stability of the technology. There are more and more exchanges where you can trade them. And even businesses are starting to jump on the bandwagon. The fact that the price is more than volatile speaks in favor of the hype theory. A complete failure is just as possible as a price explosion. Because they are perfectly suited for money laundering, it can also happen at any time that states put a stop to all this. Crypto exchanges can stop the service at any time – savings are then exhausted. And there have never been more thefts than Bitcoins and crypto passwords. The whole enterprise is and remains something for the brave.