What is a blockchain- what is a cryptocurrency — explanation for beginners and dummies
I’ll start from the negative part. Many new members won’t invest because it all appears to be a pyramid scheme. In truth, in some ways, it is a large pyramid scheme made up of multiple mini pyramids.
However, big companies like Microsoft, IBM, telegram, Google etc are deeply into cryptocurrencies. That’s how large it is. This year, 2018, Mark Zuckerberg the founder of Facebook has said that he will devote the whole year to studying cryptocurrencies. You see? huge stuff, right?
To benefit in every pyramid scheme, you should either be the founder or one the first few to get in.
Every other person loses or gets stuck.
All other coins apart from bitcoin are called altcoins. They are the mini pyramids.
But it doesn’t work like MLM where you’d have to get more people under you in other to grow the pyramid.
Some heavy investors are sponsoring the media to publicize it so that more people will join. Therefore no such work for you, all you basically have to do as an investor is to get in early when a new pyramid is growing, then get out before it starts collapsing.
That’s the pyramid scheme side of it.
I must warn you that many people do not agree with this my initial explanation of it, but when you observe it all closely, you’ll come to the same realization as me.
You can also see it as stock market/forex trading where the currencies being traded are the ones manufactured by startups around the world. That is, every new company manufactures its own currency and calls it cryptocurrency. That’s how it is at the moment. Anyone can wake up any day and build their own cryptocurrency.
The value of the currency increases as more people join the pyramid. There are huge investors and collaborators at the background manipulating the prices. Huge investors are called whales. They invest thousands of dollars, compared to small investors that invest $10, $20.
They invest a lot of money in a dead and dead cheap currency, the value starts rising, the rest of the world starts investing in the currency, then they sell off their investments at a higher value.
Their huge sell-off will cause a crash in the prices and the rest of the people who don’t get out early too will lose. :D
Now there is a catch when the prices fall, if you don’t sell off, you won’t lose anything. Picture it as buying a plot of land valued at $15 in January. In March the value of the plot of land falls to $10. If you sell off at that point, you have lost. But if you hold on (or HODL as its misspelt in crypto lingo), the value may come back right up to $20 in September, you can then sell at that point.
Another thing to note is that most top 100 cryptocurrencies are generally going up constantly despite the intermittent fluctuations in price. You just need to hodl for a long time. Ripple coin, for instance, grew 36,000% in 2017 alone, though there were lots of fluctuations in the pricing in between. Which means, if you had invested $1000 in January 2017, in December, your money would have grown to $360,000 :)
What other kinds of investment would you have done that will yield that kind of alien profits?
FUD
Apart from massive sell-off, when whales want to invest a huge amount of money in a certain coin, they may release negative news to the media about that coin to cause people to panic and sell off. When people are massively selling off a coin, the prices of that coin drops, the whales can then buy large amounts of that coin for cheaper. A game, right?
This is called FUD (fear, uncertainty and doubt).
Now about the technology behind it called Blockchains. The technology is revolutionary and will definitely put an end to the system of banking and money we currently have in the world now.
HOW IS CRYPTOCURRENCY AND BLOCKCHAIN RELATED?
Good question, it turns out that the way blockchains were built, they cannot function without a cryptocurrency. So every blockchain has its own cryptocurrency.
The reason is that blockchains are basically software that process transactions and executes smart contracts (more like an escrow system).
But then each transaction that takes place in that blockchain must be verified by more than half of the ‘computers’ on that blockchain.
The computers are owned by random people around the world. That process of verification is called mining.
So each transaction is broadcasted to all the computers on the network. The transaction has to stay pending for 3–10 mins until over 51% of computers do some calculation each to verify that transaction.
The problem is, nobody wants to sacrifice their computer to be verifying transactions for other people. To solve that problem, the blockchain has to generate a new currency (cryptocurrency coin) and use it to pay ONLY the first person that verified that transaction.
So people basically buy computers specifically built for such verification and keep in their houses. The computers are called mining rigs.
A good rig costs $3,000 — $5,000 and will make you $10 — $50 per day. You just have to plug it into electricity.
WHAT WILL ANYONE DO WITH CRYPTOCURRENCY?
Now according to human nature, no one wants to own any virtual property that they can’t exchange for anything in real life. So the miners need the currencies they are being paid to have a real life value in FIAT currency (Dollars, Naira, CAD, AUD etc).
What the blockchain creators do is to build another software platform where the mode of payment for goods and services inside that platform is the cryptocurrencies they are paying the miners with.
WHAT ARE ICOs?
The company that developed the blockchain announces this new platform to people, creates extra millions of more coins in their cryptocurrency and announces how much each currency is worth in FIAT currency eg. 1 of our coins is worth $3 USD. If you buy it, you will be able to spend it to buy weapons inside the game we are building.
Lots of people will buy it up using real money, the blockchain company will use that real money to finance the building of that gaming platform.
The process of selling their coins to the general public is called ICO (initial coin offering). ICOs has disrupted the VC investment industry, the crowdfunding industry etc.
FRAUD?
The blockchain company creates only a limited number of coins before deploying the blockchain. So only a limited number can be bought and sold. Those who buy it early can decide to sell it at a later price to latecomers, make a hell of a profit, abandon the late comers with the coin and move on to another ICO.
So, it turns out that most people who buy cryptocurrencies aren’t really interested in using it, they just want to buy cheap and sell when the value rises to newbies rushing in.
SO WHAT IS BITCOIN?
Bitcoin is the first blockchain that was ever built, it was proposed in 2008 and built-in 2009.
bitcoin (with a small ‘b’) is the cryptocurrency built into Bitcoin.
Ethereum is the second biggest blockchain after bitcoin, it was built to allow other people build smart contract applications on top of it.
Ether is the cryptocurrency that runs on ethereum. But people tend to mix them up, but its all good as long as the message is passed.
What is A DAO?
A DAO is an organisation whose decisions are made by the computers on the blockchain. Any person using that blockchain can raise an issue “hey guys, we need to donate $2m of the money we raised during the ICO to earthquake victims”.
DAO stands for Decentralized Autonomous Organisation.
The rest of the people in the blockchain will vote using the computers they used to connect to the blockchain like they normally do to verify any transaction. If more than half of the computers vote “yes”, then the company that built the blockchain will use the money to fund the earthquake victims.
WHAT WILL HAPPEN TO YOUR MONEY IF SOMETHING HAPPENS TO THE INTERNET?
Sure, if the internet goes down, your money disappears with it. More realistically, if the website keeping your wallet gets hacked or runs into trouble, your money will be gone.
These days, at least one exchanger goes down partly or fully with millions of dollars of people’s money per month. An exchanger called Parity had a bug in their code that caused the loss of over $200m worth of people’s Ethereum money.
One called Bitfinex ran into problems with the US government so they froze all US accounts that didn’t transfer out before November 9, 2017. The one happening today is that people are unable to withdraw over $700m worth of bitcoins from one other exchanger.
An ICO called electroneum got hacked the moment they went live and lots of people’s money got lost.
All of these have happened within the first 2 weeks of this November.
I hope this short write up has given you a general overview of what the whole bitcoin, cryptocurrency thing is all about?
NB: If you need help building a blockchain, a token or going on an ICO, I can help as a developer or a guide. Chat up or email realdavepartner@gmail.com
Here is a full course I made for newbies on this topic, it explains all the terminologies and concepts in simple English
- https://www.udemy.com/course/1405126
- How to buy bitcoin: signup on coinbase.com (does not accept Nigerians) , luno.com (if you are a nigerian and have your bvn), localbitcoins.com (if you have your driver’s licence/intl passport). Paxful.com , Abra.com .
As a beginner, just split your money and buy bitcoin and Ethereum. Then chill. That’s all you need to do, you can make a plan to buy a little more each month.
If you sell within a year of buying it, it will be too soon because the value is expected to skyrocket too soon. - How much do I buy? Don’t invest money you cannot afford to lose. Whatever happens, don’t sell, hodl (hold).
- when you understand cryptocurrency trading more, you can use your bitcoin/ethereum to buy more altcoins (other coins), eg. IOTA, Litecoin, NEO etc.
- Do I need to buy 1 full bitcoin? No, you don’t need to buy 1 full bitcoin, you can buy fractions of it. Same with all cryptocurrencies.
- What is the minimum I can buy? usually there is no minimum. But some platforms will impose a minimum trade limit on members. On luno.com for instance, I have bought for as low as N2,000 ($7).
- How do I buy altcoins? To buy Altcoins, you need to transfer your bitcoin from luno, localbitcoins, coinbase or paxful to an exchanger that has the coin you are looking for. Example of such exchangers are binance.com, poloniex.com , bittrex.com , cryptopia.co.nz, coinfalcon.com etc
This is not childs play, if you mumu yourself, you transfer your money into oblivion, so be careful. I have made a video on how to do this here:
8. After a lot of requests from people that read this article, I created this detailed course on udemy, take the course How to trade bitcoins and other cryptocurrencies
I run a daily cryptocurrency channel on youtube, there I tip off people on which coins are going to sell fast so that you can buy and double your money in profits, here is the channel, click the link and subscribe immediately: Crypto Developer
Download telegram from your play store and search for “Crypto tip off” , then join the group. If you are reading this with your phone click here
I am on Twitter, Instagram and here on medium follow me: @iamdavepartner
You can chat me up on any of those channels. I will reply.
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