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How Crypto Works


How Crypto Works

“Crypto” – or “crypto currencies” – are a type of software system which provides transactional functionality to users right across the Internet. The most important feature of the system is their decentralised nature – as provided by the blockchain database system.
Blockchain and “crypto currencies” have become important elements to the global zeitgeist recently; typically as a result of the “price” of Bitcoin oscillating wildly. This has lead many people to join in the market, with many of the “Bitcoin exchanges” undergoing huge infrastructure stresses as demand has soared.
The most important point to understand about “crypto” is that although it actually serves a real and legitimate purpose (cross-border transactions through the Internet), it does not, in any practical sense, provide other financial benefits. In other words, its “intrinsic value” is strictly limited to the ability to transact with other participants; NOT in the storing / disseminating of value (which is what most people think of it as).
In actual fact, “Bitcoin” and the like are just complicated payment networks – NOT “currencies”. This will be covered more deeply later; the most important thing to realise is that “getting rich” with BTC is not a case of giving people any improved economic standing – it’s the process of being able to buy the “coins” for a low price and sell them at a higher price.
To this end, when considering “crypto”, you need to first understand how it actually works, and where its “value” really lies…

Decentralized Payment Networks…
As mentioned above, the main thing to remember about “Crypto” is that it’s predominantly a decentralized payment network. Think Mastercard/American Express/Visa without the central processing system.
This is important because it highlights the real reason why the “Bitcoin” proposition has received attention; it gives you the ability to send/receive money from anyone around the world, so long as they have your Bitcoin wallet address.
The reason why this associates a “price” to the various “coins” is because of the misconception that “Bitcoin” will somehow give you the ability to make money by virtue of it being a “crypto” asset. It doesn’t.
The ONLY way that money can be made with Bitcoin is due to the “rise” in its price – buying the “coins” for a low price, and selling them for a MUCH higher one. Whilst this has worked out well for many, in practice it was based on the “greater fool theory” – essentially the principle that if you manage to “sell” the coins, it’s to a “greater fool” than you.
This means that if you’re looking to access the “crypto” space today, you’re basically looking at buying any of the “coins” (even “alt” coins) which are cheap (or inexpensive), and riding their price rises until you sell them off later on. Because none of the “coins” are backed by concrete assets, there is no sensible way to estimate when/if/how this will work.

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Future Growth
To all intents and purposes, “Bitcoin” is, sadly for many, a spent force.
The epic rally of December 2017 indicated huge adoption, and whilst its price will inevitably continue to grow into the $20,000+ range, buying one of the coins today is basically a massive gamble that this will occur. But will it?
The smart money has already moved on to the majority of “alt” coins (Ethereum/Ripple etc) which have a relatively low price, but are continually growing in price and adoption. The key factor to consider at in the modern “crypto” space is the way in which the various “platform” systems are actually being used.
Such is the fast-paced crypto space; Ethereum & Ripple now look like the next “Bitcoin” – with a focus on the way in which they’re able to provide users with the ability to actually utilise “decentralized applications” (DApps) on top of their underlying networks to deliver aditional functionality. But whop knows, they may be ururped by newer “currencies” with more attractive features, cost and scale.
This means that if you’re looking at the next level of “crypto” growth, it’s almost certainly going to come from other platforms out there, and not just Bitcoin.

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