understanding crypto is like having an aha moment when oprah winfrey coined the term on her show aha moments were usually about self-care or finding yourself but all aha moments boil down to this an important idea making sense all at once when we finally get crypto we see it can solve so many problems in the current financial system how blockchain can organize and decentralize the internet in ways we've never seen before my name is ben and in this video we're answering the question what is crypto let's get it to understand what cryptocurrency is first we have to look at what currency is a currency is a form of money issued by a central authority the value of currency used to be backed by the material used to make the currency in roman times coins were made out of four grams of silver the first watering down of roman money reduced the purity to 3.8 grams and the silver content in the currency continued to decline as new emperors came in and started cutting costs united states currency was backed by the gold standard until 1971.
before then the u.s dollar could be converted to an equal amount of gold fiat money is government-issued currency that's backed not by real-world assets but by the government that issued it paper bills have serial numbers that can be tracked by a central bank but most of the money you supply today is credit money electronic entries and financial ledgers that are managed by central banks gone are the days of carrying cash for everything our transactions are almost entirely digital now today the value of fiat is backed by collective trust in the government and considering the track record of most governments in the inflation and money printing we've seen recently let's just say it's a good thing we have a decentralized currency alternative cryptocurrency operates in a similar way to modern digital money but instead of being centrally validated by banks and other intermediaries cryptocurrency transactions are validated by a worldwide network of computers that don't operate under one central authority this is why we call them decentralized so if cryptocurrency is an alternative to fiat currency then why do we need so many of them as of june of 2022 there's almost 20 000 crypto projects registered on coin market cap one reason there are so many crypto currencies is that many crypto projects aren't created to be currencies at all they're blockchain projects making use of blockchain technology for other applications or creating solutions via the blockchain that's why i don't even call crypto projects cryptocurrency on my channel i call them crypto assets although most cryptocoins can be sent and theoretically used as payment many of them are purpose built to pay for activity on the blockchain in fact they would be inefficient and expensive to use as currency crypto assets are kind of like a swiss army knife of digital ownership it can be used in a variety of different ways to offer solutions and services to users much like a business while bitcoin was created specifically to be a decentralized currency other cryptos like chain link flow or ethereum were created to serve as a blockchain highway that other projects could be built on for example decentralized finance platforms nft marketplaces decentralized autonomous organizations or dows decentralized social media web3 gaming metaverse applications even ride sharing services operate on ethereum some blockchains were created to rival ethereum avalanche cardano finance smart chain and solana strive to be competitors of the ethereum blockchain that's why you may hear the term ethereum killers other blockchains were specifically built not to do everything ethereum can do for example theta blockchain is a purpose-built decentralized video delivery network decentraland is a token that supports a decentralized metaverse xrp is a payment settlement system that can process transactions globally projects that were built specifically to be currencies include bitcoin litecoin dogecoin and dollar peg stable coins like circles usdc and tethers usdt there are also privacy cryptocurrencies like monero and zcash to make transactions private and hard to trace for the sake of anonymity the internet created borderless global collaboration like we've never seen before blockchain is a way to put this collaboration on a ledger decentralizing data and making things more efficient for years technologists have been looking for a way to decentralize web services so they can't be influenced by any one person company or agenda they were the cypherpunks and we owe a lot of blockchains development to their commitment to making the internet as democratic and open as possible summed up best in the cyberpunk's manifesto by eric hughes he said privacy is necessary for an open society and electronic age we cannot expect governments corporations or other large faceless organizations to grant us privacy we must defend our own privacy if we expect to have any cyberpunks write code we know that someone has the right software to defend privacy and we're going to write it so is cryptocurrency safe well the short answer is that depends with any type of investment risk and returns depend on what you are willing to expose yourself to crypto is not just a new asset class entirely but a bleeding edge technology so that brings a level of risk with it as it stands the technology is still maturing but it's been proven enough for the world's largest investment firms to start accumulating tokens and coins as far as the security of the actual tech is concerned i'll break it down it's true that some blockchain networks prioritize speed over security and there are always hackers trying to alter blockchain code to try and make more tokens the good news is that the more prominent blockchain networks have been tested by hackers because they're almost always under attack the more computers a blockchain has validating its transactions the more secure a network is a 51 attack happens when more than 50 percent of the computers in a network are hacked or controlled by a group of miners or validators with bad intentions they can prevent transactions halt payments and reverse transactions allowing coins to be double spent now we've been talking a lot about blocks and chains and other tech stuff so now is a good time to explain just what the heck a blockchain actually is at its core a blockchain is just a fancy spreadsheet in the cryptoverse we call this a ledger the ledgers are cut up into chunks or blocks and these blocks are chained together in one giant file called a blockchain the giant blockchain of spreadsheets gets authenticated and verified so there aren't any double spins or other errors this is called consensus and it's a big part of what makes crypto so special consensus means computers are validating transactions and agreeing that the information is correct the two most common ways of achieving consensus in a blockchain are what's called proof of work and proof of stake bitcoin is a proof of work blockchain where specialized computers compete to solve complex math problems and are rewarded with bitcoin we call this mining the more people competing to solve blocks the more secure the network is new miners are incentivized to join the network as the value of bitcoin increases thereby making a positive feedback loop of network security of stake blockchains like cardano avalanche and polkadot are more scalable because they don't require expensive mining equipment or energy inputs like proof-of-work think of proof-of-stake like depositing coins into the crypto equivalent of a piggy bank users can store their tokens into one big piggy bank with other people and they're called delegators the person who keeps the electronic piggy bank up and running is called a validator the token protocol has rules that randomly select validators to add transactions to the blockchain which earns rewards that are shared by everyone who has stored their tokens in that validator so because major cryptocurrencies like bitcoin and ethereum have so many computers validating the network or so much hash power it is extremely unlikely that they will suffer an attack they're just too many computers or a bad actor to control networks that suffered 51 percent attacks are mostly dead projects that have fewer nodes to validate transactions we've covered what cryptocurrency is and whether it's a safe place to invest money but what gives cryptocurrency its value well value can either be innate or acquired valuables like artwork gold or any other asset have innate value because they're scarce an acquired value is something like trust in a country's government like for the dollar or the yen but ultimately it doesn't matter why people want something it only matters that enough people want it in the case of crypto limited supply of certain projects coins can make holding the asset more desirable simple supply and demand there's also the key element of what the asset can do that creates value many crypto tokens have utility that gives access to platforms they can give holders the ability to trade and create opportunities for wealth building make decentralized payments and easy peer-to-peer transactions or act as a long-term store value speculators also believe that crypto assets will increase in price over time as their utility becomes more widely used so let's break down some of the different types of cryptos starting with the most valuable bitcoin created in 2009 by anonymous developers satoshi nakamoto bitcoin is the first digital currency designed to be a form of payment that doesn't require a middle man for financial transactions the first bitcoins were mined by home computers but as bitcoin mining became more competitive and mining rewards continued to be halved every four years asic miners became a more profitable way to mine bitcoin there will only ever be 21 million bitcoin and bitcoin is divisible to eight decimal places smallest unit is called a satoshi after the creator buying small amounts of bitcoin is called stacking sats and can be one of the best ways to dollar cost average into bitcoin ethereum ethereum is a decentralized software platform powered by blockchain has a native cryptocurrency ether or eth that's used to pay for transaction fees making the price rise is ethereum games adoption the ethereum blockchain can be used to create and fund decentralized applications or dapps and other secure digital technology the ethereum blockchain's community ran and home to digital money global payments and applications right now the ethereum blockchain is proof of work and ether is mined the merge to ethereum 2.0 where ethereum will become proof of stake is expected to happen sometime in the summer or fall of 2022 crypto assets other than bitcoin are known as altcoins even ethereum although i would argue that ethan has become enough of a household name that it no longer deserves the label altcoin but all coins capture around 40 of the total crypto market cap as of today there are different types of altcoins with different use cases stable coins are cryptocurrency's bank account assets that are pegged to another asset like the us dollar stable coins are used for storing funds ramping fiat to crypto exchanges and trading crypto assets circles usdc and tethers usdt are examples of secure collateralized stablecoins that are backed by company assets and reserves utility tokens are a way to pay for blockchain functionality this means that ethereum's ether is a utility token along with cardano's ada governance tokens give holders voting rights for example uni is the governance token for the ethereum-based d5 platform uniswap security tokens are digital contracts that represent fractions of a real asset like a company recording ownership or stake meme coins are tokens that get their value from community buys and not fundamentals they're driven by hype and online communities privacy coins or cryptocurrencies that can hide blockchain transactions to create an anonymity so by now we know the basics of bitcoin ethereum and altcoins but what is d phi short for decentralized finance divide transactions are recorded and validated on a blockchain when two parties agree to exchange cryptocurrency this applies to payments securities trading insurance transactions lending and borrowing this is all happening outside of the traditional financial system but to do anything in crypto whether you're day trading loaning crypto or just buying pizza you'll need a crypto wallet a crypto wallet enables users to send and receive cryptocurrencies and is a central place to keep private keys crypto private keys are the cryptography number associated with a cryptocurrency that's similar to a password they prove ownership and signed transactions if you have the keys you own the crypto someone else gets access to the keys they can move your crypto i go into details on private keys in another video that you can find down below in the description so i've gone over a lot of the basics but you may be wondering why are crypto markets so volatile crypto markets are notorious for their volatility the price of crypto assets can increase and decrease dramatically more than almost any other asset we've seen in history main driver of crypto volatility are the bull and bear markets that follow bitcoin's four-year having cycles every four years the rewards for money bitcoin is cut in half disrupting the supply of bitcoin and renewing investor hype around the asset 2016 the price of bitcoin rose 7 thousand percent 2017 the price rose over two thousand percent now all-time highs were reached in 2017 and then again in 2021 when the price tripled from its previous all-time high like other assets news and speculation are responsible for price fluctuations between cycles but the extreme volatility seen in crypto is caused by having less liquidity after all as right now crypto doesn't have huge institutional investors in large trading firms holding giant amounts of assets yet but they're coming the price of all coins are directly affected by the price movements of bitcoin this is called bitcoin dominance if you zoom out the overall crypto market has trended upwards with major projects continuing to grow it's important to remember that not all crypto projects trend upward with some never returning to all-time highs many others disappearing altogether so some crypto projects die what should i buy well that all depends on your timeline and risk tolerance holding crypto over the long term can make big profits as long as the crypto you're holding is one that will be around continue increasing in value over the long term we are likely to continue seeing some of the big crypto projects in the long term bitcoin ethereum cardano binance coin xrp salon and polka dot are all within the top 20 projects based on market cap but not all projects stay on top in fact it's more of a revolving door doing research and staying connected to the latest in crypto news is a key part of making money in crypto so if you want to stay in the loop on the latest in crypto news and education make sure to go ahead and hit that subscribe button and make sure to turn the bell on for notifications the best bet is to buy projects that have staying power the further you move down the list of highest cryptocap projects the riskier they become lower market caps mean it doesn't take much to pump the price but it doesn't take much to crash the price either it's also important not to confuse dollar value with market cap just because a coin seems cheap doesn't mean that it has a lot of room to grow a lower price token with a gigantic circulating supply can have a higher market cap than a higher priced asset with a smaller supply when researching crypto projects make stronger allocations of the top 10 or 20 market cap projects that you believe have staying power stick to the top 200 for speculative investments bear markets are catastrophic for altcoins so be aware of where we are in cryptocycles many people believe that the value of bitcoin and ethereum will increase over the long term so dollar cost averaging into these assets is a simple strategy that's proven to be a dependable way to gain exposure to an asset without trying to time dips in the market investing in cryptocurrency may seem complicated but once you get the fundamentals you can look at it just like any other asset class and decide for yourself if it works for your portfolio crypto isn't just a cash grab it's a new means of doing business in the digital economy it's money that exists outside of the traditional financial system crypto is a once in a millennium opportunity to be one of the first people to invest in an entirely new asset class comment below with any other crypto questions you may have smash that like button and don't forget to subscribe that's all i got be blessed goodbye out [Music] you
