In recent years, cryptocurrency has become a hot topic all over the world. What started as a small, digital experiment has quickly grown into a major part of the global economy. But what exactly is cryptocurrency, and how does it work?
Cryptocurrency is a type of money that only exists online. Unlike dollars, euros, or yen that is used every day, cryptocurrencies aren’t printed or controlled by any government or bank. Instead, they are digital and rely on a technology called blockchain to track and secure transactions.
The most well-known cryptocurrency is Bitcoin, which was created in 2008 by an anonymous person or group of people using the name Satoshi Nakamoto. Since then, thousands of other cryptocurrencies have been created, each with their own features and uses.
At first, many people didn’t understand cryptocurrency or didn’t trust it. It was new, and some thought it was just a trend that would fade away. But over time, more and more people started to see its potential.
Today, cryptocurrencies are used for everything from buying goods and services to investing and transferring money across borders.
Some may wonder if the bare fundamentals of economics undermine cryptocurrency—and they wouldn’t be wrong. Many principles of basic economics seem to challenge the very idea of crypto and its underlying purpose.
“It’s not a tangible, value-producing asset. It’s not a thing. It’s just out there in cyberspace, secured by blockchain. I’m supposed to trust the experts, I guess, and just hope that everything works out for my well-being. The whole thing sounds highly suspect, at least at this stage in the game,” said Brooks
This reveals that even the field of economics views cryptocurrency as suspicious and untrustworthy, particularly in its early stages.
Brooks highlights that most of the crypto market operates within something called blockchain technology and that we, as individuals, have little control over it. Instead, it is left up to so-called “experts.”
Another common question among the general population is whether cryptocurrency can be considered a legitimate currency or if it is more akin to a speculative asset.
“Not even ardent crypto supporters can deny its speculative nature, that’s part of what contributes to the volatility. We tend to think that typical currencies are portable, uniform, durable, divisible, limited, and accepted by others as valuable. While crypto checks some of those boxes—one (i.e., limited) particularly well—we’re a long way removed from it being a mainstream accepted currency,” said Brooks, ” And until more regulation and standardization appear, we’ll likely stay a long way from that. Then, if there becomes such regulation and standardization, that’ll probably deter some people who are currently using crypto for those exact reasons.”
Even within crypto’s most passionate supporters acknowledge its speculative nature and the challenges it faces in gaining mainstream acceptance. There is still a lack of trust, both in terms of safeguarding users’ money and their personal information.
“One major factor is that a number of crypto investors are in the market without knowing much about it. So, they buy sporadically and sell sporadically—generally when news prompts either behavior (e.g., see post-election euphoria, for example),” said Brooks, “The problem is, the average retail investor—and this is true in any market, not just crypto—tends to get in when things are expensive and get out when things start to fall”.
Many individuals just dive into the market not knowing anything, also showing that is may not be best to do it when in a bad state or in a panicked rage.
As crypto is still a new thing so not many people know much ways to manipulate the market or understand the market in the fullest. After all one minute the market could be very high and plummet down causing mass lossage in funds and investments into certain cryptocurrencies.
“On the one hand, the supply and demand factors at play here at the same as they are in other markets, past or present. On the other hand, what makes crypto different from most other assets – if one can call crypto an asset – is that it can’t be as easily or readily produced, said Brooks, “But why are crypto prices so high right now? It sure seems like it has very little to do with supply and very much to do with demand. It doesn’t seem to me that value, all of the sudden, has drastically increased in the last six weeks.”
This shows crypto may not be the most stable of markets to buy in but it may be worth it to only buy minor bits and pieces of the market to still hold something in said markets. It also may prove valuable to own some amount of crypto stocks as it could increase majorly in value like in 2011 or in 2020.
“Nobody knows, and anybody who tells you otherwise with 100% confidence thinks too highly of himself. From my perspective, as you can read above, there are all sorts of hurdles that need to be cleared before crypto becomes anything near a mainstream currency. While there are some pros to it – were there none, there’d be no interest, or at least not the level that it’s attracted – the cons far outweigh it at this point” said Brooks.
Crypto is still in its beginning phases of being made to become a currency, although rare, some stores and countries are starting to use crypto as a method of payment since it doesn’t require conversion either, just buy and pay without ever having to convert back and forth between your nation’s currency and a different nation’s currency.
Chris Arnold teaches Principles of Computing, had better things to say about cryptocurrency,
“Cryptocurrencies are based on blockchain technology. They are trendy, and people seem to like the idea of making money on cryptocurrencies. That’s probably why it’s popular,” said Arnold
This may prove important since this explains the main reason for why crypto currencies are becoming very popular among people especially the younger generation of students, and adults.
But that is another thing is that popularity is the driving force of crypto with out that driving force crypto may not be as big as it is now, plus with popularity a crypto coin called “Dogecoin” came out and was brought up pretty quickly since it likely came out during Covid year (2020), and Youtube was heavily used.
“Cryptocurrencies are risky, especially if they lose value. It’s an investment just like any type of object or currency that has value. Another disadvantage of cryptocurrencies is that it relies on blockchain technology and uses a lot of energy resources, like electricity. This type of technology is getting better, but still uses a lot of energy and can be bad for the environment,” said Arnold
Crypto may be risky so it may be only be worth buying when it is very stable or has flattened and may go up. Either way crypto has many risks including getting scammed out of a product and not getting a refund or simply losing all the value in the crypto you bought.
Brooks provided a good perspective on cryptocurrency from his perspective. This so far shows that cryptocurrency may still be worth investing in but it may not become a currency or an official payment method until a few years later when it is better developed and has a bigger background to back it being a good method to both buy and transfer funds with.
Arnold who stated similar things, though crypto may be risky as said before, may not develop into a type of currency that can be used widely until later in the future when people start better accepting it.
