CRYPTO: What you need to know

    Medium
    Business Spotlight 5/2022
    A figure in a black hoodie, with bitcoin in front of him
    Von Andrew Stone

    In 2010, a computer programmer called Laszlo Hanyecz traded a new digital form of money, called Bitcoin, for pizza. Hanyecz paid 10,000 Bitcoins for two pizzas, so at the time, one Bitcoin was worth about a third of a cent. This was more a trade than a purchaseKaufpurchase, but still, a big moment — the first known exchangeBörseexchange of this digital currencyWährungcurrency for a physical goodGut, Waregood.

    Today, 10,000 Bitcoins would buy quite a lot more pizza. That’s around €425 million at pricehier: Kurscurrent prices (although the price of Bitcoin is volatilevolatil, schwankendvolatile). This story shows how far Bitcoin, the original cryptocurrency, has come. According to the data researchRechercheresearch company Morning Consult, 20 per cent of adults in the US (and 36 per cent of millennials) already own some cryptocurrency.

    TAKEAWAYS

    • Bitcoin is the largest but not the only cryptocurrency (or digital or virtual currencyWährungcurrency). It allows people to do financial business online without to rely on sth.sich auf etw. stützenrelying on banks or other institutions.
    • The technology has great potential, but also practical problems that make it difficult to use as money for everyday purchaseKaufpurchases. Processing the transactions also consumes a lot of electricity.

    Bitcoin’s unknown creator or creators (using the name Satoshi Nakamoto) proposed this new kind of digital money in 2008. Since then, it’s been increasingly to adopt sth.etw. übernehmen, einführenadopted by people, companies and even a few countries. US investment bank Goldman Sachs estimated that Bitcoin could soon beat gold’s market share as digital assetVermögenswert, Anlage(gut)assets are more widely adopted.

    The name “crypto” comes from the technology used to create encryptedchiffriert, verschlüsseltencrypted communications. For cryptocurrencies, that means money. It also describes the world of all crypto assets, which at one time was worth about €2.7 trillionBillion(en)trillion. The movements of cryptocurrency are to verify sth.etw. überprüfen, bestätigenverified by a network of computers using encrypted communication, so there’s no need for a bank or other institution.

    Dream meets reality

    Saifedean Ammous, author of The Bitcoin Standard, described
    Bitcoin as “…a form of software that is peer-to-peer | peerdirekt | Gleichrangige(r)peer-to-peer ... it’s distributed over the internet, and anybody can download it and use it.” This statement reflects the original dream of crypto fans —
    digital currencies would be borderless, independent and available to all.

    Cryptocurrencies are not immune to global problems, however. The war in Ukraine is a big test. There are worries, for example, that Russia could use them to get around economic sanctions. Some call this unrealistic. Changpeng Zhao, the founderGründer(in)founder of the cryptocurrency trading platform Binance, told The Guardian: “The truth is crypto is too small [to help] Russia.” However, as the value of the roubleRubelrouble falls and the risk of hyperinflation in Russia rises, ordinary citizens might try to move their money to crypto if they can.

    There’s a high-stakes gameSpiel mit hohem Einsatzhigh-stakes game of financial cat and mouse happening, and time will tell who the winner is. Some exchanges have blocked thousands of wallethier: Wallet (digitale Geldbörse/Brieftasche)wallets from Russian users. The global crypto community, already a mixed group, will be deeply divided over this action. The situation to raise a questioneine Frage aufwerfenraises questions about how practical and durablebeständig, langlebigdurable crypto is and how independent it should be. As the war started, the priceKursprice of crypto fell sharply while the price of gold went up. A clear sign that crypto is not yet considered a safe place for investors.

    Despite the doubts, some big events in the crypto market have been happening. In September 2021, El Salvador began a controversial experiment, allowing people to use Bitcoin in all transactions (alongside the US dollar). It is a useful way to send remittanceÜberweisungremittances home from overseas, which El Salvador’s economy to rely on sth.sich auf etw. stützenrelies on, but businesses worry about Bitcoin’s volatile price. And in March, US President Joe Biden ordered his government to begin looking at ways to regulate crypto, including the potential to create their own coin.

    Where can I get Bitcoin?

    You can’t yet walk into your local bank with euros and walk out with Bitcoins. Cryptocurrency (also called digital or virtual currencyWährungcurrency) exists only online, and you can buy it through a cryptocurrency exchangeBörseexchange, such as Coinbase. This is not so different to shopping online — you create an account, connect a method of payment (bank account, credit card, etc.) and place an order for Bitcoin (or another cryptocurrency). The exchange buys Bitcoin for you at the current price, minus a transaction feeGebührfee. Some online payment platforms, like PayPal, also let customers buy, sell and hold cryptocurrency.

    When you first buy crypto, you get two “keys”: a public key, which is like an email address (used to send and receive currency), and a private key, made up of many randomzufällig (ausgewählt)random numbers and letters, which is like a password. The private key gives you access to your digital walletWallet (digitale Geldbörse/ Brieftasche)wallet.

    A cryptocurrency exchange can help keep your private key safe, which is important, because if you lose it, you lose everything. Bitcoin works on decentralized blockchain technology. There is no bank and no customer service number you can call. Without the private key, a Bitcoin account will stay frozeneingefroren, gesperrtfrozen forever. The New York Times reports that, of all the Bitcoin that exists today, as much as 20 per cent — currently worth more than €650 billionMilliarde(n)billion — may be lost forever, because of lost keys.

    Digital gold?

    A general argument against investing in crypto is that a virtual currency is not real, it’s just an idea. It’s valuable only because people think it’s valuable. Supporters say it is more than that. Yes, the technology is young and still maturing, but it is inherentlyvon Natur aus, grundsätzlichinherently valuable.

    The question of what crypto is good for in a practical way is not easy to answer. Some describe it as digital gold. Like gold, Bitcoin has scarcityKnappheitscarcity — its software to ensure sth.etw. sicherstellenensures that only 21 million Bitcoins will ever exist, for example. But the price of crypto doesn’t behave like the price of gold from an investor’s point of view. 

    As money for ordinary people, cryptocurrencies still have a long way to go — they’re still too slow and costlyteuer, kostenintensivcostly for everyday payments. True believers see it as the revolution, but for most investors, crypto is still an exotic asset class. They buy when they feel excited about the future but quickly run away as soon as the future turns dark.

    What about the other cryptocurrencies?

    By market capitalization, Bitcoin is easily the biggest cryptocurrency, but there are others that show how crypto is changing. The serious alternatives include Ether, Binance Coin, Tether and USD Coin.

    Some of these are quite different to Bitcoin. Ether, for example, is based on Ethereum, a newer and more sophisticatedausgefeiltsophisticated blockchain with the potential to offer completely new kinds of decentralized financial services. These could allow new ways to trade and invest without the costs and rules of old financial institutions.

    Then there are “stablecoins”, such as Tether or USD Coin. These are tokenWertmarke; hier: Tokentokens to issue sth.etw. ausgebenissued on a faster blockchain, like Ethereum, with enough US dollars in cash or assets to to back sth.etw. deckenback every token that’s issued, and their value is to be pegged to be sth.an etw. gekoppelt seinpegged to a real currency, usually the dollar. Stablecoins are much more promising for everyday use and could really be a rival for the traditional financial system.

    Where do Bitcoins come from?

    The Bitcoin system of cryptocurrency is a collective of many computers. Each one processes transactions for the whole network. The record of transactions is updated in “blocks”. To win the right to add a new block to the chain — this is the blockchain — the computers to compete with sb./ sth.etw. konkurrierencompete with each other to solve a very difficult computationalrechnerischcomputational puzzle, and the winner is rewarded with new Bitcoin. 

    The puzzles are important — they add scarcity, and therefore value. Just as anyone can look for gold, anyone can theoretically create Bitcoin, but it requires a lot of work. People have set up powerful computers to do it. The process, known as “mining”, is criticized for its high environmental cost. The competitionWettbewerbcompetition between computers automatically means duplicationDuplizierung, Vervielfältigungduplication, which is wasteful. Bitcoin mining reportedly uses more electricity than Finland, possibly much more.

    Most Bitcoin mining was done in China until authorities there stopped it, in 2021, because of environmental concerns (and possibly concerns about a decentralized currencyWährungcurrency they had no control over). Today, the biggest miners are in the US and Kazakhstan.

    The future of crypto

    “I do think Bitcoin is the first [encrypted money] that has the potential to do something like change the world,” said PayPal co-founder Peter Thiel. Bitcoin might have already done that. One day, it may be the basis of a new global financial architecture that includes other cryptocurrency services, as well as central banks and big financial players. This may already be developing. The Lightning Network, built on the Bitcoin blockchain, is to design sth.etw. konzipierendesigned to do many things that Bitcoin isn’t good at, such as allowing more and faster transactions.

    Cryptocurrencies will continue to develop in surprising ways. It’s far from the utopian crypto dream, but the most promise may lie in getting more automation into financial markets and making them more efficient. This could help economies grow, store value safely and help people trade with greater freedom at lower cost. And if the future is digital, cryptocurrencies, in one form or another, will surely be the backboneRückgratbackbone of our global financial system. In short, if cryptocurrencies didn’t already exist, someone would have to invent them.

    A BLUFFER’S GUIDE TO CRYPTO TALK

    Even if you aren’t invested, you can sound like you are! Here are some important crypto words:

    Fiat money

    Conventional paper money that is defined as official currencyWährungcurrency by a government.

    FUD

    “Fear, uncertainty and doubt” — this is what crypto fans say about the negative opinions of non-believers.

    Gas fees

    These are feeGebührfees that users pay to perform any function on the Ethereum blockchain. They are paid in Ether, Ethereum’s own cryptocurrency.

    Get cryptopilled

    To become obsessedbesessenobsessed with cryptocurrencies.

    Hodler

    HODL is an acronym for “sich (fest)klammernto hold on for dear lifehold on for dear life”. Hodlers are crypto investors who will not sell no matter what the market is doing.

    Sats

    Short for “satoshis”, from the name of Bitcoin’s mysterious creator(s), Satoshi Nakamoto. A “sat” is the smallest unitEinheitunit of a Bitcoin that can be sent, which is 0.00000001 BTCBitcoinBTC.

    Shilling

    This is the act of falsely promoting a particular cryptocurrency in order to push up the pricehier: Kursprice and make money from that.

    Shitcoin

    A cryptocurrency with no value.

    Stablecoin

    A cryptocurrency designed to have a relatively stablestabil, beständigstable price, typically by being to be pegged to be sth.an etw. gekoppelt seinpegged to a conventional currency, most often the US dollar.

    Wallet

    This is the protected file to store private keys and keep crypto safe. It allows users to send, receive and spend cryptocurrency.

    In the next issue of Business Spotlight, we take a look at the technology behind crypto -— blockchain.

     

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