CHAPTER 1 of Binary gold, Crypto

Introduction

Cryptocurrency is taking over the financial markets.

Since the bitcoin explosion of 2018 have cryptocurrencies been headlining in many an economy.

Governments having headaches in trying to regulate the emergent market without infringing on their own established policies.

Digital markets are booming with innovation thanks to the new and improved methods of payment associated with the blockchain-technology upon which Cryptocurrencies rely.

There is also a darker side to the story. The methods of encryption, which serve to protect users and user-information, enable Cryptocurrencies to be used on the Black Market and Dark Web for illegal and highly morally questionable purchases without being traced.

Despite this aspect, the technology and setup of cryptocurrencies opens up a world of possibilities.

The emergence of cryptocurrency in popular media is likened to the dot-com bubble from the mid-90ies until 2000. Considering the continuous growth and adaptation by the general public it may be concluded Cryptocurrencies (already being a multi-billion market) is here to stay.

What are Cryptocurrencies?

Cryptocurrency, frequently abbreviated to “Crypto”, is digital money.

Literal digital money.

An allegory:

Certain websites work with a system of credits.

You pay real money in order to get some credits on that particular site.

The credits enable you to access limited content, share private messages with content-creators or make donations as you please.

These “credits” are a form of cryptocurrency.

Real cryptocurrency however is different.

It is more far reaching.

“Credits” from the aforementioned website can only be used on the website itself.

They cannot be transferred to other websites and are “unique” in that regard.

They retain their value on this specific website but CANNOT be traded or used elsewhere.

Cryptocurrency does not have this limitation.

It is worldwide.

It is actual (digital) money.

What is the difference with classic money ?

The difference concerns security, transactional fees and authorization.

The money we use on a daily basis is verified and distributed through centralized authorities.

They decide on how much money is made, verify transactions and dictate the fees for the transactions made.

Cryptocurrency is decentralized; it means there is no central authority who does the verification.

This implies there is no CENTRAL authority who dictates the do’s and don’ts.

However, verification of transaction takes place through decentralized authority. Transactions and verification is being done by every person connected to the blockchain independently.

Let’s put this in perspective through an allegory.

In the classic financial system you have a person holding a sack of coins.

He exclaims that one coin equals 1 credit and he/she holds authority over its value and the way it is being spent by keeping logs.

He has the authority to validate and invalidate EACH AND EVERY transaction.

He has the ability to produce more coins or even withdraw coins from the market.

It implies he has the ability to change the value of the coin.

On top of that, each time a transaction takes place he demands a fee to log and confirm the made transaction.

With cryptocurrencies, things change.

A coin is created and distributed.

Each and every individual possesses coins to spent as he/she wishes.

The value of the coin remains unchanged as well as the amount of coins in circulation.

When a purchase is made, each and every individual using the coin verifies and confirms a transaction has taken place (without demanding a fee).

Verification is being done in secrecy so no one knows who the sender nor who the receiver is except for the two persons among whom the transaction took place.

The verification process deserves an allegory on its own:

Verification of transactions is like blind men standing near an ATM.

The second they hear the beeping from the ATM-machine they are informed a transaction has taken place.

They do not see to whom the transfer is addressed.

They do not see who the sender is.

They do not know the exact amount transferred.

But they know a transaction has taken place and can verify it thanks to the beeping sound.

When it comes to value things become a bit murky.

Back in the day, “classic” money was backed by precious metals like gold and silver.

A coin represented a set amount of gold and silver, it had inherent value.

Nowadays, “classic money” is no longer backed by precious metals.

Its value is determined by the amount of money in circulation and the transactions being made.

The current state of affairs is central authority saying “1 coin is worth 1 credit”.

They do so by either printing more money or invalidating made transactions.

The implications of this is the saying “making the rich richer and the poor poorer”.

To understand the sentiment, there is the need of understanding how monetary value is/was established.

Every currency is/was backed by a standard (nowadays it depends in which country you reside).

The most popular standard being gold.

This implies a set amount of gold represents the value of ALL notes of the currency in circulation.

Central authority (Banking system) decides the value by printing notes which represent parts of the total amount of gold.

Central authority (Banking system) can decide value by changing the amount of gold in relation to the notes in circulation.

This means a central authority (Banking system) is holding all the cards and decides how much you and others are worth.

Cryptocurrency does away with central authority but also does away with being backed by a standard.

It introduces value based on interaction, scarcity and perceived value.

Critics of cryptocurrency will point out the unsustainable nature and “empty box” it actually represents.

Partly, they are right.

Looking back in economic history (and mainly how money has been established) the same critique can be applied.

There used to be a time we did not talk about “payments” and “transactions” but about trade.

Trading flour for bread.

Trading 5 chickens for a cow.

Trades established due to scarcity (of means), value established through interaction and how much we perceived it would be worth.

Modern day currencies are no longer backed by standards either.

Only real difference between Cryptocurrencies and classic money?

Centralized authentication vs decentralized.

Pieces of paper held in your pocket vs digital strings of code held in a digital wallet.

Both alike yet vastly different.

Why binary gold?

Gold is scarce.

Its value is derived from its scarcity (and other factors like its applications in technology).

Gold has established value worldwide.

The gold price is a standard maintained throughout the entire world.

One gram/ounce of gold has the same value across the entire planet.

Cryptocurrency?

Has the same advantages.

One coin or token has the same monetary value throughout the entire world.

Almost all digital coins and tokens are scarce due to the fixed amount that will be created.

Once all coins have been “mined” no new coins will ever be produced.

This will skyrocket their scarcity and make them more valuable.

People with limited knowledge about the financial world will point out price-fluctuations when determining the value of cryptocurrency.

Gold, also, has such fluctuations.

The reason thereof is not the value of the coin/token (or gold) changing but moreover the value of the money you buy it with.

Gold prices fluctuate not because it became less or more scarce.

It fluctuates by reason that the money with which you are paying it for has no fixed value and inflates and deflates depending on decisions made by central authority and general health of the economy.

If central banking authority decides to print more money, the amount of money needed to buy gold will also increase.

Cryptocurrency has the same trend.

Criticasters will exclaim this does not pardon the volatility it exhibits.

They are right.

Part of its volatility has to do with the fact it is an emergent economic phenomenon.

Part of it has to do with application (of the technology the cryptocurrency uses).

And much of it has to do with community activity.

Cryptocurrency is organic.

Much of its value is a direct result of verified and secured transactions.

Of interaction among users.

Cryptocurrency has no value when there is no application or use.

Its value increases the more it “flows” (more transactions = higher demand = more intensive use = higher (estimated) value).

Like gold, and other precious metals, it can be stockpiled.

It can be stockpiled to such an extent that the entire market moves with a single transaction.

On the stock-market this is called a “whale-movement”.

The emergent Cryptocurrency market has a lot of these “whales” across the literal hundreds of different currencies already released and those to be released.

All cryptocurrencies are built in such a way that in the matter of years “whales” will disappear and the markets even out.

In the meantime, due to the volatility of many cryptocurrencies, it is advised to jump on the boat and start investing.

There is a lot of money to be made through speculation and investments (just like the Californian goldrush).

[History buffs will be quick to point out many participating in “the rush” did not get richer from it. They are correct by reason that those who did participate only understood the value of gold but had no basic knowledge on finance or economy. Those very few who did become rich did through sane investments and understanding basic finance. The same applies to cryptocurrency: i.e. not only understanding value but also understanding basic finance and economy is a requisite to make some decent cash.]

The emergent technology which makes cryptocurrency possible also offers an edge to actually develop new encrypting and calculating systems as well as new ways of thinking.

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