Why I fell in love with Crypto and why you should too? -Part 2
By: Danielle Shaul
Tags: Bitcoin, Change, Cryptocurrency, Economics

Why I fell in love with Crypto and why you should too? -Part 2 Danielle shaul Follow Dec 23 · 8 min read

If you have read my previous article (if not, go and do it now!), I was addressing the world’s financial future, which is in the hands of the governments and central banks, who are just out of control. Currency is being printed heavily, causing the money that we are working so hard for, to lose its value. Our purchasing power diminishes because of the current monetary policy which is just a fancy term for “printing money like crazy.”

Why are cryptocurrencies any different?

A cryptocurrency is a digital asset based on blockchain technology. A blockchain is a decentralized, distributed peer to peer network. Now that might sound like rocket science, but it’s actually quite simple. We will look at the principles that are in the fundamentals of every asset that wishes to define itself as a cryptocurrency. So bare with me while I explain this thing that is gonna change your world.

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Decentralize — killing the middleman

Before we kill it, we need to understand why we needed it in the first place. In the first stage of every network or system, there is chaos. How would justice have been done before we had courts and judges and juries in the current judicial system? How were decisions reached in a democratic society with no politicians? How was money handled before banks existed? We had to handle those things ourselves, which leads to a big mess. Then, at some point, we start delegating. We delegate those tasks to a middle man to make decisions, reach verdicts, and represent our best possible interest.

Then this someone gains control, he is in charge of the decision making and everybody is happy and things are going quite well. But at some point in time, this middle man has too much control and too much power, which then turns to corruption (i.e central banks, politicians, and more).

If you, for example, think that this article is awesome and as an act of appreciation, want to transfer some money into my bank account. The process that happens behind the scenes is not a direct transaction from you to me or from your bank account to mine (assuming our bank accounts are in different banks). Your bank will send a request to the central bank or another third party, and this central bank will send a request to my bank.

This makes the central bank a single point of failure. What will happen if the central bank servers are down? What will happen if the bank decides to ban specific countries from these actions? Or you can’t transact over 100$? or you can’t transact at all? Looking at financial crises around the globe, these scenarios are not far-fetched.

Distributed — not controlled by anyone

Think of the blockchain as a ledger database. As the name implies this ledger is a set of blocks. A block is a group of transactions, and we can think about it as a page in the ledger.

Many parties hold copies of the ledger. Therefore, no single authority can take away your asset or change “history” to suit their needs. This is an immutable audit trail where you don’t have to trust anyone to be the source of truth. These digital files record every transaction made on a cryptocurrency’s network and are available to all users — and the general public — for review.

By having the transaction records distributed among the nodes in the network, new transactions can be added to those ledgers only if the whole network agrees on this transaction. No one controls the network, but the network is controlled by its own users. One can not suddenly change the rules, and say “on Sunday, we don’t approve transactions over 10K, for customers whose their first name starts with D,” because it needs the network to agree with it.

So can you just transfer one million dollars from an imaginary balance sheet? This is where miners come into play, they validate and organize the new blocks and in return, get a reward. Different miners get to validate the transactions every time, which supports the decentralization aspect.

Transparent, yet private

The consumer’s identity is as anonymous as they want it to be. The public ledger only contains cryptic numbers known as cryptocurrency public keys for the sender and receiver of each transaction.

Because of the decentralized nature of Bitcoin’s blockchain, for instance, all transactions can be transparently viewed by either having a personal node or by using blockchain explorers that allow anyone to see transactions on the network. This means that if you wanted to, you could track Bitcoin wherever it goes.

All Bitcoin is traceable but it is impossible to establish who has ownership of Bitcoin if it was purchased anonymously. If Bitcoin is purchased on a KYC exchange, then the Bitcoin is directly tied to the holder of the KYC exchange account.

A large portion of the 2008 events were able to happen because of a lack of transparency in the financial status of big banks, as well as a limitless public trust in those banks. Certainly, while the 2008 crisis may have challenged society’s trust in major financial institutions, overall, that sense of trust remains high. However, transparency remains a major issue.

This is where blockchain technology can help prevent future crises like the one from 2008. If every asset’s value and ownership is securely recorded in a shared ledger that is entirely transparent and immutable, the corrupt practices that allowed institutions to hide their struggles will no longer be possible.

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Controlled supply

No one can change the predetermined and publicly published circulation schedule of a cryptocurrency. The government cannot arbitrarily create more cryptocurrency out of thin air and devalue it like they have the US dollar. Cryptocurrency has the same characteristics as precious metals used to back a currency, they are hard to mine and have a limited supply. Therefore, the Banksters can not inflate away your wealth.

A problem with fiat currencies is that central banks can print more money when they feel there is a need. Whether the reason is to jump-start the economy or to help pay off the national debt, an artificial increase in the money supply creates inflation by driving down the overall value of a currency. Bitcoin, for example, is not subjected to inflation as Bitcoin is capped at a maximum of 21 million coins.

Although Bitcoin and gold are currently inflationary monies, according to the traditional definition of inflation, their inflation rates are predictable and constantly decreasing. Similar to gold, Bitcoin’s annual inflation rate will eventually reach zero percent.

Venezuela hyperinflation, for instance, is on track to reach over one million percent by year’s end. Venezuela's usage of Bitcoin is increasing drastically. This should not come as a surprise. It is extremely difficult to make any payment in the collapsed state of Venezuela. Cash is scarce and traditional payment networks are so overloaded that it regularly takes hours (and good luck) to pay the equivalent of four dollars to a taxi driver in Venezuela. As a result, a growing number of merchants, from grocery stores to restaurants and utility outlets, are accepting a variety of cryptocurrencies as payment.

Limitless transactions — Solving the inequality

Cryptocurrency can be sent via the internet, immediately to and from anyone, anywhere, anytime, in any amount, with very low fees. You do not need to rely upon the goodwill of a financial institution to approve your transaction.

It is estimated that there are two billion unbanked people worldwide who are limited to transacting in cash, which is feasible only in local transactions or in relatively small amounts. Bitcoin enables the unbanked to participate in the global market where Bitcoins are accepted. Bitcoin offers a stable banking system that’s robust and accessible to everyone.

“Banking of Africa” is a documentary that follows the journey of Bitcoin pioneers as the African continent seeks to leverage cryptocurrency to increase their independence from a banking system that fails them. I highly recommend watching it to really understand how bad the unbanking problem is in developing countries.

Photo by Pawan Sharma on Unsplash

Owned by the community

If we look at miners, for example, anyone can be a miner. Mining is the action of verifying a transaction while getting a reward for it, since the act of mining creates new coins, we call it mining.

The common types of mining protocol being used today are proof of work and proof of stake. Mining protocol is the way the network chooses a miner to validate a transaction and receives a reward as a result. In proof of stake, for example, you stake your coins to be probabilistically assigned a chance to be the one validating the block — the probability based on the amount of cryptocurrency staked. You don’t need a banking license or a regulatory process to take an active part in the network and make gains (though there is a cost barrier for mining).

Another communal aspect is the open-source code. This means that every developer can read the code and contribute to the changes agreed upon by the network, again no small letters, just lines of code to read and you understand the rules of the game.

All records are public. All technical specifications, white papers, and source code files are published for the public to see. Ask the Federal Reserve why they resist with all their might a public audit? Let alone any transparency whatsoever.

Freedom is real

The corona pandemic not only demonstrated how fragile human nature is but also emphasized how easily governments can take away our freedom and to isolate us backed by whatever they find reasonable.

I truly believe that this is just the first sign that a change needs to be made in the way governments control their population. The financial system is just one of those areas that need to be disrupted. We are seeing the US economy, which is the one driving most of the financial systems worldwide, dramatically losing its power when the US dollar value is decreasing.

I believe that, as a global society, we put too much trust in the hands of people who, like most other humans, don’t really understand the outcome of their actions. However, by joining forces and creating a community-based financial system, we can all play the roles we want and have equal opportunity, which can really change the world.

Photo by Damir Spanic on Unsplash

Is it not too late?

To all the people that ask me, is this the time to really get into Bitcoin now that the price has increased so much, I will say, that the longer vision of cryptocurrency and the decentralized economy is just in its first phase. I personally see the macro perspective and see how big a decentralized system can grow because of its borderless and permissionless nature. For a more detailed answer, follow me on medium to read my next post about my game in the cryptocurrency space.

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