Crypto 101-Part I

Most of us have by now heard of bitcoin, crypto currency, blockchain NFT etc.,

What’s most popular in all of these is of-course bitcoin due to the massive increase in the price over last 10-12 months.

I have titled the blog Crypto using it as a generic term as Crypto is more that just currency because of the tech behind it.

Even in 2017 bitcoin frenzy had caught the attention of all investors, however it died down so as the price crashed.

For next few weeks, I shall publish a blog to share some details on Crypto and its tech.

What is a Blockchain?

Let’s start from the basics.

The technology behind crypto which is called the blockchain.

Imagine blockchain like a bank passbook to keep track of your debits and credits.

Now imaging this passbook holds details of millions of people and the information is held on thousands of computers.

Each computer will need to verify the transaction and once it is verified, it is like recording it on the physical passbook in permanent ink.

The register records transactions for a set period of time which can be as less as 10 mins and once the register is filled, it is shut and assigned a code (alphanumeric) to identify it.

Once the register is shut a new one is started which is attached to the first one and that is how you get a chain of registers called a blockchain.

The fact that these registers are residing on thousands of computers, you will need to work backwards and unattach them before you can reach the original transaction and change it. This obviously cannot be done without being identified and that is what makes the technology unhackable.

What can I use Blockchain for?

The blockchain tech was created by the creator of bitcoin (pseudonym Satoshi Nakamoto) who had set out to put up a secure, faster decentralized financial system, available to all with or without access to formal financial system.

The backbone of crypto is blockchain that I described above.

Crypto is designed to be viewed as a medium of exchange or what we know as a “Currency”.

 Since then, of-course the technology behind crypto (blockchain) has become stronger and several use cases have been designed.

Here is a look at some of them:

Payments

According to the creators, today’s banking system is discriminatory as it puts all power in the hands of the banks and regulators where the small guy is on the mercy of the system and has no influence.

So, a system was imagined that would have no central authority and would work person-to-person and would enable use of funds without requirement of any entity.

Immediate and urgent settlement of a transaction instead of waiting for a payment system to respond with requirements of thousands of compliances.

Store of Value

Crypto has gone from strength to strength and is now considered akin to Gold as a store of value.

The argument is that crypto is not impacted by inflations and is a better store of value increasing in value over time.

All currencies across the world have lost value over time given the impact of inflation.

For example, with bitcoin it is argued that its supply mechanism will restrict inflation given that the supply is restricted to only 21 Mn coins.

Of-course price volatility has led many to question this premise.

However, this is still an evolving space.

Lending & Borrowing

Credit ratings, bank processes etc., have made it tough for people to borrow through the formal mechanism.

What if you could get a loan digitally, without even having to fill a single form or sign a contract? That’d be amazing, right? 

Decentralized finance applications seek to remove the “middleman” from the lending and borrowing process.

They allow individuals to lend and borrow funds almost instantly using cryptocurrencies. In addition, as cryptocurrencies are borderless currencies, you can lend or borrow from these platforms irrespective of where you live.

Asset tokenization.

Most of you might have of-late come across the term NFT (non fungible tokens).

Blockchain tech allows anything from art, real estate to copyrights to be created into a token making it hard to hack and take ownership of.

Millions of dollars have been spent by people to acquire these digital assets and more are being created.

In-fact Nike has just registered patent for a blockchain shoe called cryptokicks.

Gaming

Cryptocurrencies, in the form of non-fungible tokens (NFTs), are already disrupting the gaming industry.

In the gaming world, NFTs are crypto tokens that represent a unique digital asset inside a game.

As each NFT represents something unique, they have different values and are not interchangeable. This gives every user a completely authentic in-game item, the likes of which is owned by no one but them.

Digital cats called Crypto Kitties are the most famous example of blockchain-based NFTs.

Storage

The centralized cloud storage platforms have many major shortcomings from high fees to server outages.

This has hence created space for decentralized storage created through the use of blockchain.

In such a system, anyone can rent out their free storage space. 

If you had 250 GB free on your disk, you could rent it on a decentralized storage platform such as Filecoin and earn a passive income from it.

People who opt to buy your storage space would pay you in the storage platform’s native cryptocurrency.

We shall discuss more about this subject in the part 2 of the crypto blog next week unless you want me to publish one earlier in which you can follow my twitter handle irreverentinvestor@manver1974 and put a request.

Contact me on manish.verma@manishverma.co.in or +919920741569 for guidance.