How Cryptocurrency ACTUALLY works.

How Cryptocurrency ACTUALLY works

Currency has evolved from bartering to coins, paper money, and now digital transactions, with value based on government trust. Cryptocurrency represents a new virtual era of exchange, operating on a decentralized system with a single ledger maintained by multiple copies across the network.

Cryptocurrency mining uses computer power to process transactions, rewarding miners with cryptocurrency. This decentralized verification allows shops to check funds across the entire network, making tampering easily detectable.

Cryptocurrencies enable instant international payments without traditional banking limitations like exchange rates and interest rates. Blockchain is a secure ledger technology that records transactions in blocks, making fraudulent alterations difficult due to hash dependencies.

There are over 4,000 cryptocurrencies, each with unique properties; for example, Ethereum is faster than Bitcoin, and Cardano is technologically advanced. However, cryptocurrency is highly volatile and speculative, influenced by news and social media, leading to inconsistent values.

Acceptance of cryptocurrencies as payment is limited, with fluctuating company policies on Bitcoin. Environmental concerns exist due to high electricity consumption for transaction verification, comparable to traditional banking.

Cryptocurrencies are perceived as ideal for criminal activity, but data shows a lower percentage of criminal transactions in crypto than cash. NFTs provide digital ownership of items using blockchain, but do not grant reproduction rights; many are simply JPEG images. Notable NFT sales include a Gucci Ghost for $3,600, Jack Dorsey's first tweet for $2.9 million, and a digital artwork for $69 million.

Dogecoin started as a joke but gained value through investment, based on the same technology as Litecoin.

The main perk of crypto is that you don't need banks anymore because everything is stored by the people on this ledger. You can make international payments almost instantly instead of it taking half a day, with no spending limits. Plus, you don't need to worry about exchange rates, you don't need to worry about interest rates, and even transaction fees are close to zero for some cryptocurrencies.

The Evolution of Currency and the Rise of Cryptocurrency

In the early days, there was no money—just bartering. You'd trade something you had for something you wanted, like offering a cat for a horse. But this system had flaws. What if the other person didn’t want a cat? Enter coins, made of precious materials like gold and silver. Everyone accepted them because they had intrinsic value. For example, the British pound used to be literally one pound of silver.

Then came paper money, which didn’t have value because of the material it was made from, but because the government said it did. A £10 note is essentially a receipt, a promise from the Bank of England that it’s worth £10.

As technology advanced, we moved to digital transactions. Now, money is just entries on a spreadsheet. When you buy something online, your bank updates your balance, and the seller’s bank does the same. You never see the money.

Cryptocurrency takes this a step further. It’s 100% virtual—no gold, no silver, no paper. It’s just the transfer of digital assets. Think of it as a giant spreadsheet, called a ledger, that records every transaction. But unlike traditional banking, where each bank keeps its own records, cryptocurrency is decentralized. There’s one ledger, but many copies, and anyone in the network can have one.

Cryptocurrency mining is when someone sets up a computer to process transactions on their copy of the ledger. In return, they earn cryptocurrency, like Bitcoin, as compensation.

How Cryptocurrency Transactions and Blockchain Work

When you spend cryptocurrency, like Bitcoin, the transaction isn’t just checked by one bank. Instead, every computer on the network verifies if you have enough funds. If you do, each computer gives the go-ahead, and all of them update their records independently. This decentralized system makes it easy to spot tampering. If someone tries to hack into one computer and change the ledger, the system will notice because "99.9% of the copies on the ledger are saying one thing, but one of them is saying something else."

Blockchain is the technology behind this. It’s not a currency itself but a way of organizing the ledger into blocks. Each block contains transaction data, a unique identifier (hash), and the hash of the previous block. If someone tries to change a block, its hash will change, and the next block won’t match anymore, making every block after it invalid. To successfully tamper with a transaction, you’d need to alter not just one block but every block after it, and do this on at least half a million computers. "Probably not gonna happen."

This makes cryptocurrency much harder to hack than traditional bank accounts, where sometimes all it takes is guessing a six-digit pin. With crypto, you’d need to hack into 500,000 uncorrelated computers at once.

People also invest in cryptocurrencies, hoping their value will skyrocket. They exchange regular money, like dollars, for Bitcoin, betting that it will become the next big thing and increase in value.

The Dark Side of Cryptocurrency

Bitcoin is just one of over 4,000 cryptocurrencies, each with different properties. Ethereum, for example, processes transactions faster than Bitcoin, while Cardano is considered technologically superior. Litecoin uses a newer algorithm. The speaker's personal portfolio includes 40% in Ethereum, 20% in Polygon, 20% in Cardano, 10% in Cartesi, and 10% in Litecoin. But this portfolio has been volatile, going "up and then down and then up and then down."

Volatility is one of crypto's biggest problems. Prices are speculative and heavily tied to the news cycle. A glowing article can send prices soaring, but "when Elon Musk posts a tweet that puts them down, they go way down."

Another issue is limited acceptance. While you can book holidays or donate to Wikipedia with crypto, many companies, like Microsoft, Tesla, and Burger King, have flip-flopped on accepting Bitcoin.

There are also environmental concerns. Crypto's security relies on verifying transactions many times, which requires a lot of electricity. However, traditional banking uses more electricity, and newer coins are more efficient.

Finally, there's a misconception that crypto is the perfect currency for criminals. In reality, only 0.34% of crypto transactions are criminal, compared to 5% of cash transactions. Bitcoin is pseudonymous, meaning transactions are traceable through public keys. "Cash is just a better currency for most types of criminal activity."

And then there are NFTs—digital ownership of something that others can still use or share. You'd be "the owner of the original," while everyone else shares copies.

NFTs and Dogecoin: The Strange World of Digital Assets

A lot of NFTs are literally just JPEG images, and people find it funny because buying an NFT doesn't give you any reproduction rights. If you buy the rights to something, you can create merch or sell licenses, but with an NFT, you can't. All you're doing is using the blockchain to prove that you have some ownership over that asset. Still, this digital ownership has value. An NFT of a Gucci Ghost sold for $3,600, Jack Dorsey sold his first tweet for $2.9 million, and a photo overview of one guy's art sold for $69 million.

Then there's Dogecoin. It was created as a joke, based on the same tech as Litecoin. People started sharing it and putting a bit of money into it because they thought it was funny. But that joke propelled its value to the point where some people became millionaires just because they bought Dogecoin when it was cheap.

Conclusion

Over 4,000 cryptocurrencies exist, each unique; Dogecoin started as a joke. Notable NFT sales include a Gucci Ghost for $3,600 and a digital artwork for $69 million. Despite perceptions, less criminal activity occurs in crypto than cash.