What Is Meant by Cryptocurrencies? And What Is Blockchain?

Five things you need to know about cryptocurrencies and exchanges. For the first time in history, you can put a trillion dollars in your pocket or send it to the other side of the world in seconds. This type of service opened a new page in economic history.

1. Crypto Is Data Currency, Blockchain Is An Accounting System

It would be a mistake to think that cryptocurrencies such as Bitcoin and Ethereum are just digital money. The US dollar can also be represented digitally. In fact, the majority of fiat money is used and exchanged digitally. So, what exactly does cryptocurrency do? Historically, there have been three types of tangible money used as fiat money. Metal money, invented in Anatolia by the Lydians in 550 BC, ranks first. The second was paper money printed by Kublai Khan in 1260 in modern-day China. The last type of fiat money emerged in the USA, this time as a fiat currency that was introduced by Satoshi Nakamoto in 2008 and is not guaranteed by a state.

This new money is a data money. With coins and notes, we make money from metal alloys or papers and assume that they have a value. In data money, we earn money for the right to send data privately in a public space. We value the right to send such data. By contrast, data coins can only emerge once the right technology is developed, as duplicating data is essentially free, easier than making fake money by cutting and pasting and categorically.

Blockchains make it possible to add a unique quality to infinitely replicable digital assets, and they do this in two ways. Using time as a marker of identity, they shape beings into a unique moment. Time is to cryptocurrency what a cup is to water. Secondly, blockchains allow people to maintain a ledger of data transactions that can serve as a record of all data transactions. Each new transaction is added to the others and included in a digital box we call a 'block'. Depending on the accounting technology (proof of work, proof of stake, etc.), blockchains need a certain number of people who can account for these transactions.

So who does this time-consuming and expensive job if it's not paid for? This job is done by 'miners' or 'accountants' for a cryptocurrency. In return, the Bitcoin blockchain gives Bitcoin, and the Ethereum blockchain gives Ethereum to those who help account for transactions. Therefore, each data transaction is unique, cannot be duplicated, and is recorded somewhere forever, without the need for banks or governments to ensure it remains authentic.

Picture taken from www.coinkolik.com

2. Crypto Currency Provides A Material Service

The conditions that made these data currencies and new forms of accounting possible required decades of work in accounting, materials science, and cryptography. This wasn't just the 'idea' of an extremely intelligent person. People are buying and selling illegal things not because of an urge to gamble (in fact, gambling is more often done with sovereign fiat currencies like the US dollar), but because blockchains give them the need for a bank and a government. They find data money valuable because it provides an intangible but material service without realizing it.

For the first time in history, you can put, say, a trillion dollars in someone's pocket or send them to the other side of the world in a second. This type of service opened a new page in economic history. Crypto is not a scam; It is data money that benefits from the provision of a material service.

3. Crypto Currency Is A Community Currency

Historically, there are few materials used to produce fiat money. However, communities are inventing and making money from countless different forms and types of money. Data money is no exception. When Satoshi Nakamoto introduced the idea of Bitcoin and blockchain, he also made an effort to create a community around it. To this end, he created a forum and provided a tool for people to use to imagine and transact with a new form of money. We're learning how, but we're doing it slowly.

In the beginning, the initial data coin community grew faster than Bitcoin itself. Subsequently, the value of the currency increased to more than 1 US dollar in April 2011. This was a revolution because the money of an unknown community suddenly became more valuable than the dollar, that is, the money of the US government.

4. Prices Will Rise For A While

Then, communities around the world learned that they could generate or use data currencies from other communities. And then three big waves came. Bitcoin's first wave was replaced by the Ethereum wave, which leverages a more advanced blockchain. Creating a 'Big Bang' of cryptocurrencies, the Ethereum blockchain has served as the infrastructure for 88 percent of all new crypto projects, enabling coins to break into the top 100 most valuable cryptocurrencies list. Now, a third wave is emerging, with projects building chains connecting different blockchains, such as Avalanche (AVAX) and Polkadot (DOT). What was Bitcoin in 2008 is now AVAX. People will learn about what's going on from publications like this article and buy it for two historical/sociological reasons.

First, it takes time for people to learn, gain confidence, and buy new things; especially if it is a new financial instrument. It took more than two centuries for more than half of U.S. citizens to purchase even a single stock. As more people learn about cryptocurrencies, they will buy them, the more people buy them, the more stable crypto values will become. Moreover, cryptocurrency markets never close; Rather, it is open 168 hours a week (at least four times longer than traditional exchanges). For example, the New York Stock Exchange, which opens at 09:30 and closes at 16:00, is open for retail sales 37.5 hours a week. Second, rising authoritarianism around the world is driving people to hold their investments in the form of a safe, vibrant asset that cannot be controlled by authoritarian governments. So, when you have an Ethereum wallet, it is possible to keep your money away from rogue governments as well.

5. Exchanges Weaken Blockchains

However, it would be a mistake to think that cryptocurrencies replace dollars and blockchains replace governments and banks. If there is no investment to be calculated, you cannot receive cryptocurrency as a gift from blockchains. So how do people get these? They purchase such data coins from centralized exchanges. And they buy it with US dollars (which is the most common fiat currency); Therefore, rather than weakening the 'dollarisation' of world trade, they contribute to its continued dominance. And when they buy from a centralized exchange like Binance (the largest in the world) or Coinbase (the largest in the US), they keep their money there.

These cryptocurrencies then become means of accumulation, whose transactions are never recorded on blockchains. By my last calculation, over 90 percent of all Bitcoin transactions are held as deposits on centralized exchanges and never truly and technically belong to their buyers. Therefore, if the exchange does not have the resources or motivation to ensure security, they will be like huge piles of money stored in a wooden box inside a small building made of paper. If you enter into an exchange, you can get the full money.

Since June 2011, a cyber attack has occurred every seven weeks around the world. And this number does not include frauds like what we witnessed on the Thodex and Vebitcoin exchanges in Turkey. However, bad apples like these do not set a precedent in the cryptocurrency boom. The world's largest centralized exchanges are strengthened by government regulatory agencies and banks that have invested heavily in security. For an ordinary trader, a well-functioning stock market and a well-functioning bank are the same thing when it comes to securing his savings.

However, a new initiative could replace the dominance of these centralized markets, which today number more than 25,000 and are organized under more than 342 exchanges. The emergence of decentralized exchanges such as Uniswap with its own coin 'UNI' provides users with the opportunity to trade without a central exchange by paying nominal transaction fees. If you buy your cryptocurrency from them, you do not keep it there and therefore there is no possibility of a cyber attack or asset-based fraud.