You invest in ETFs, shares, real estate, gold, savings accounts or similar, have recently heard about these "cryptocurrencies" and would now like to join the discussion with the cool kids? Then please read on. This series of articles reveals the basics of the crypto world, touches on a variety of topics and remains superficial at beginner level - the perfect basis for delving deeper into individual areas on your own or shining at the regulars' table with dangerous half-knowledge.
Part 1 deals with cryptocurrencies in general and the added value they can generate. Please forgive me for simplifying some of the facts (and thus making them more target group-oriented).
𝗪𝗮𝘀 𝗶𝘀𝘁 𝗱𝗲𝗻𝗻 𝗷𝗲𝘁𝘇𝘁 𝗲𝗶𝗴𝗲𝗻𝘁𝗹𝗶𝗰𝗵 𝘀𝗼 𝗲𝗶𝗻𝗲 𝗞𝗿𝘆𝗽𝘁𝗼𝘄ä𝗵𝗿𝘂𝗻𝗴?
A cryptocurrency, such as Bitcoin, is a digital and decentralized currency. Similar to a bank account, you can hold, receive and send coins of this digital currency. To use a cryptocurrency, you need a so-called wallet (comparable to your bank account), which stores your address (comparable to the IBAN of your bank account). Another user of this cryptocurrency can then send digital coins to your address. Of course, you can also send your coins to other addresses. A cryptocurrency can therefore replace or supplement your bank account if it becomes widespread enough. Just like fiat money, there are different cryptocurrencies that are independent of each other.
𝗪𝗮𝘀 𝗺𝗮𝗰𝗵𝗲𝗻 𝗱𝗶𝗲𝘀𝗲 𝗞𝗿𝘆𝗽𝘁𝗼𝘄ä𝗵𝗿𝘂𝗻𝗴𝗲𝗻 𝗮𝗻𝗱𝗲𝗿𝘀 𝗮𝗹𝘀 𝗻𝗼𝗿𝗺𝗮𝗹𝗲𝘀 𝗚𝗲𝗹𝗱?
If you use ordinary fiat money, e.g. the euro, a central institution has control over this currency. The institution decides how much money is printed and sets a framework for how much interest the money can be invested/lent for. These framework conditions for issuing and investing money can change at any time to your advantage or disadvantage.
The issuing institution thus has an instrument in its hands to react to economic changes / goals. At the same time, it also gives a currency security. Countries use this currency as an official means of payment. As a citizen, for example, you can be sure that you can pay with euros in any store in Germany. You also have the confidence (or not) in the government and the institution that they will maintain the purchasing power of your money as far as possible and will not allow hyperinflation.
With cryptocurrencies, there is no centralized institution that controls and manipulates them. Instead, cryptocurrencies require a network of computers (known as nodes) that communicate with each other, generate coins and send them from A to B. With many cryptocurrencies, anyone can operate such a node and thus support the network. How exactly this works and under what circumstances new coins are generated is determined by software. The code of this software is usually publicly accessible and therefore calculable. Nevertheless, in theory cryptocurrencies are trustworthy and protected against manipulation. In practice, this also applies to some cryptocurrencies. More on this in part 2.
In contrast to central institutions, the quantity of coins and whether / at what intervals new coins are created is predictable. For example, the total number of Bitcoin is limited to around 21 million. However, these 21 million Bitcoin will only gradually be brought into circulation over the next 100 years. New coins are also constantly being created in the Ethereum network, but there is no maximum number of coins. Iota is an example of a cryptocurrency that is limited, but where all coins are already in circulation. So there will never be more Iota than there is today. To change these rules, the consent of the majority of the network is necessary. There is no government or institution that can adjust the parameters on its own authority. At least if a cryptocurrency is truly decentralized.
So with every cryptocurrency, you know from the outset how the availability of the currency will behave over time. Bad (or good) surprises due to changes by a central institution are ruled out. This also means that such a currency cannot be manipulated in order to react to economic changes / goals. There is also no government that you can trust or distrust to maintain the purchasing power of your coins. The purchasing power of a cryptocurrency is measured solely by how strongly its users believe in it. Or how strong supply and demand are.
𝗢𝗸𝗮𝘆, 𝘂𝗻𝗱 𝘄𝗮𝘀 𝗸𝗮𝗻𝗻 𝗶𝗰𝗵 𝘀𝗼𝗻𝘀𝘁 𝗻𝗼𝗰𝗵 𝘀𝗼 𝗺𝗶𝘁 𝗞𝗿𝘆𝗽𝘁𝗼𝘄ä𝗵𝗿𝘂𝗻𝗴𝗲𝗻 𝗺𝗮𝗰𝗵𝗲𝗻, 𝗮𝘂ß𝗲𝗿 𝘀𝗶𝗲 𝗮𝗹𝘀 𝗭𝗮𝗵𝗹𝘂𝗻𝗴𝘀𝗺𝗶𝘁𝘁𝗲𝗹 𝘇𝘂 𝘃𝗲𝗿𝘄𝗲𝗻𝗱𝗲𝗻?
Cryptocurrencies can also be used to store other information, thereby replacing or supplementing other central institutions. For example, it is conceivable that land register entries could be stored, making today's very expensive, bureaucratic and lengthy process much cheaper and faster. There are also solutions within the crypto world for verifying and identifying people or granting loans. The probability that a central authority can be replaced by a crypto network is very high.
The magic words here are "decentralized applications" (DApps) and "smart contracts", which can be used to program existing cryptocurrencies.
Smart contracts are intelligent and programmed contracts that are automatically executed when certain criteria are met. Anyone who has ever bought something on Ebay classifieds knows the problem: either the seller has to send the goods first or the buyer has to send the money first - one of them is taking a risk. Of course, you could use a middleman as a trusted intermediary. However, this is expensive and far too time-consuming, especially for smaller transactions. However, if there is a smart contract, the crypto network takes on the role of middleman. Only when the seller and buyer have fulfilled their part of the (purchase) contract is the contract executed and the buyer/seller receive the agreed equivalent value.
In contrast to apps that are executed on smartphones, DApps are executed in a decentralized / distributed manner in a crypto network. For example, the Ethereum DApp UniSwap can be used to exchange different cryptocurrencies for each other.
𝗣𝘂𝗵, 𝗱𝗮𝘀 𝘀𝗶𝗻𝗱 𝗲𝗿𝘀𝘁 𝗲𝗶𝗻𝗺𝗮𝗹 𝗴𝗲𝗻𝘂𝗴 𝗜𝗻𝗳𝗼𝗿𝗺𝗮𝘁𝗶𝗼𝗻𝗲𝗻 𝘇𝘂 𝗞𝗿𝘆𝗽𝘁𝗼𝘄ä𝗵𝗿𝘂𝗻𝗴𝗲𝗻. 𝗞𝗮𝗻𝗻𝘀𝘁 𝗱𝘂 𝗻𝗼𝗰𝗵 𝗲𝗶𝗻𝗺𝗮𝗹 𝗸𝘂𝗿𝘇 𝘇𝘂𝘀𝗮𝗺𝗺𝗲𝗻𝗳𝗮𝘀𝘀𝗲𝗻, 𝘄𝗮𝘀 𝘀𝗼 𝗴𝗲𝗶𝗹 𝗮𝗻 𝗞𝗿𝘆𝗽𝘁𝗼𝘄ä𝗵𝗿𝘂𝗻𝗴𝗲𝗻 𝗶𝘀𝘁?
With pleasure! The advantage of cryptocurrencies lies not in their 24/7 availability or transaction speed, but in the fact that they do not require centralized authorities over which we have no control. Cryptocurrencies cannot be adjusted at the whim of a government/institution, but always remain predictable, emotionless and trustworthy. They therefore cannot be manipulated. This applies to at least some cryptocurrencies, but more on this in the next part. They can also automate processes that currently require central authorities and map them much more cost-effectively.
𝗦𝘂𝗽𝗽𝗲𝗿! 𝗪𝗶𝗶𝗲 𝗴𝗲𝗵𝘁𝘀 𝘄𝗲𝗶𝘁𝗲𝗿?
In part 2, we get a little more technical and take a look at the security of cryptocurrencies. You can find the 2nd part here: https://app.getquin.com/activity/QHAzXeXlSO
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