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Cryptocurrency for a 10-year-old

Complex terms like crypto or bitcoin are some of the highest-searched words on google these days. Here I’ve simplified my 5 years of understanding crypto in a 5 min story.


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Shivam Bhasin

5 months ago | 4 min read
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Complex terms like crypto or bitcoin are some of the highest-searched words on google these days. I heard of these the very first time back in my first year of engineering. Here I’ve simplified my 5 years of understanding crypto in a 5 min story.

Why has crypto gained popularity recently? What has happened? The answer is Covid-19 happened. In the past few months, people have seen inflation too closely. They understood that the value of money will degrade over time and putting money in assets is the real game. Earlier people used to invest in gold, stocks, and real estate, but now when the equity market is at its peak and real estate is not giving much return, everyone sees crypto as a good investment opportunity. In fact, not only people, but big companies like Tesla and Paypal have also put their cash reserves in Bitcoin.

Crypto is also a good option for our portfolio diversification. Let’s say I have 100 rupees to invest, I’ll put some in mutual funds, some in the equity market, maybe some in real estate, but some of it may be just 10 rs, will definitely go to crypto.

By diversifying my investment I’ll be able to cover any net losses. I’ll in fact diversify those 10 rs too in BitcoinEthereum, and maybe some unpopular ones like Basic Attention Token(BAT) or Dogecoin in some ratio.

What is crypto?

Imagine that you have to pay me a hundred rupees today. How would you do it? Of course, you can send me cash but if that’s not an option you’ll have to somehow transact that money through your bank account to mine.

Now, see how we need middlemen(banks) to do this transaction for us. We’re kind of dependent on banks and have trusted them with our money. But do we have complete transparency on how they operate? Can we trust them? We did see what happened with banks recently.

Now, imagine a world where we don’t need these middlemen. This exchange of value(money in our case) can be done online straight from one person to another without anyone in the midst. And this happens in an absolutely transparent way. In fact, the whole record is public. I got this outline from Investopedia-

”A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology — a distributed ledger enforced by a disparate network of computers.”

If you send me x bitcoins right now, transaction data will be stored in the public ledger online and anyone on this planet will be able to see that a transaction of x bitcoins issued at a timestamp between two individuals. Obviously, our identities will not be revealed but a public record would be stored.

Now imagine all transactions in the world using crypto. So that every record is publicly stored and available for anyone to see and check, making the system completely transparent.

Where did it come from?

Companies like Facebook, Google, and Amazon hold the personal data of almost everyone on this planet. They are apparently using it for advertisements as of now. But are we sure that they, are, or maybe, will not use it to manipulate us?

That led Satoshi Nakamoto, in 2009, to see the need for a decentralized way of exchanging value. A place where everything is up on the internet for anyone to see. That led him to invent Bitcoin, the first cryptocurrency ever.

Now blockchain is a chain of blocks where every block holds some piece of data within it. But how is a new block added to the blockchain?

There has to be a way to decide. When we are talking about a decentralized way, where we don’t need banks, some communities have come up controlling this addition to the block. So when we have a new block of data to be added to the blockchain, that’s where mining is required.

What is mining? It is solving a complex mathematical puzzle that is needed to add a new block to the blockchain. Earlier these puzzles were solved on mobile phones and laptops but as the system has grown over time, we need powerful machines to solve these.

There are around 21 million bitcoins that can be mined and right now we are somewhere near 19 million. It is said that by the year 2140 all the bitcoins will be mined.

After all the bitcoins are mined, people will still be able to participate in the transactions but there will not be any more of them coming into the system. And with every transaction, like if you send bitcoin to me, then we’ll have to pay the miner some fee.

I wish I could’ve mined bitcoins but it’s not in my plans anytime soon. Though there are mine pools, where we can just give our machines to be used for mining. Some miners are mining it using solar energy, or wind energy, everyone is trying their best to mine these, just like how earlier people used to mine gold in gold mines.

Future of Crypto

We can use this new technology to create more transparent and decentralized financial systems, also know as De-Fi. Now there are a lot of problems with the current one. They still use the oldest technology… people sitting in the village don’t have access to credits.

But with crypto coming in, the world will get even more connected, lending and borrowing will get better.

And blockchain doesn’t distinguish between people. Banks will prefer high-value customers because they are going to provide the best returns. But blockchain is a technology, it is coded, and the algorithm doesn’t know the difference between someone in a village and in a city.

Hopefully, the financial systems in the world will get more evolved in the upcoming years, a world where people are more connected financially too as they are connected socially right now.

Also, don’t take my words for investing money in any crypto. I’ve invested in it but you should do your own research too before putting your money in it. Let me know in the comments if you’d like more investment advice around crypto and I’d be more than happy to write about it.

Until next time, VISITOR!

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Shivam Bhasin

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Engineer | Learner | Writer

Simplifying things since childhood. Writes about JavaScript, application development, and self-help.


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