Harry Howard for MailOnline
What is a cryptocurrency?
Cryptocurrency is a decentralized digital currency that can be used for online transactions.
This is the Internet version of money – unique objects of digital property that can be transferred from one person to another.
Unlike centralized currencies such as the British pound or the US dollar, there is no government body that governs cryptocurrencies or their value.
All cryptocurrencies use what is known as blockchain technology, an open ledger that records transactions in code.
Explaining blockchain, crypto expert Buchi Okoro told Forbes, “Imagine a book where you write down everything you spend every day.”
“Each page is like a block, and the whole book, a group of pages is a blockchain.”
Blockchain allows all transaction records to be recorded and verified to prevent fraud.
How do you buy them?
Cryptocurrencies can be purchased on so-called exchanges, the most popular of which are Coinbase and Bitfinex.
Exchanges allow ordinary people unfamiliar with the technical aspects of cryptocurrencies to simply buy them.
Exchanges allow traders to buy fractions of coins rather than whole coins.
This means they can pay whatever they want instead of shelling out tens of thousands of pounds if they buy an entire room.
However, most exchanges charge fees for investing.
As a rule, this is a small percentage of the amount of the purchased cryptocurrency, as well as a fixed rate depending on the size of the transaction.
In the UK, Coinbase charges a 3.9% fee on orders over £200 purchased with a debit card.
UK wire transfer purchases are subject to a lower fee of 1.4%.
What can cryptocurrencies be used for?
Cryptocurrencies can be used to make purchases and send money abroad.
However, at present, most retailers do not accept bitcoin as a currency.
One way to solve this problem is to exchange cryptocurrencies for gift cards, which can then be used in brick-and-mortar stores.
Cryptocurrency debit cards can also be used to make purchases. The cards are preloaded with the cryptocurrency of your choice.
As long as the user spends their cryptocurrency, the retailer will receive regular money as payment.
Cryptocurrencies are also becoming increasingly successful as a form of investment, although experts are warning against their will.
Fans have long referred to bitcoin as “digital gold” due to the fact that, like the precious metal, some consider it a good store of value.
However, given its dire need and the precipitous drop in prices over the past few months, the term is now being used with irony by many.
Why are cryptocurrencies popular?
Cryptocurrencies are popular in part because they eliminate the role of central banks and governments in the money supply.
With cryptocurrencies like bitcoin, a fixed number of coins are produced, which proponents say makes them immune to inflation.
There is no central authority that devalues the currency by producing much more coins.
Another reason for their popularity is that while governments can freeze bank accounts or even confiscate individuals’ money, cryptocurrencies tend to stay out of their reach.
This, however, has made cryptocurrencies like bitcoin popular with criminals looking to hide assets from the authorities.
Cryptocurrencies are also popular because you don’t need to open a bank account to start trading them.
The last aspect contributing to their popularity is, of course, the ability to earn large sums of money by investing in cryptocurrencies.
For example, despite the recent drop, bitcoin is still up nearly 11,000% since its inception in 2009.
What is bitcoin mining?
People create bitcoins and other cryptocurrencies through what is called mining.
Mining is the process of solving complex mathematical problems using computers that have the Bitcoin software installed.
These mining puzzles are getting harder and harder to measure as more bitcoins enter circulation.
Each time a puzzle is solved, a new group of transactions, called blocks, is added to the blockchain (a common record of a transaction).
Miners are rewarded by receiving bitcoins.
However, mining is currently out of reach for most ordinary people due to the huge costs involved.
Spencer Montgomery, founder of Uinta Crypto Consulting, told Forbes: “As the Bitcoin network grows, it becomes more complex and requires more computing power.
“Before, the consumer could do it, but now it’s too expensive.”
Bitcoin mining also uses a huge amount of energy, which is estimated to be about 0.21% of all electricity in the world.
This corresponds to the amount of energy consumed annually by Switzerland.
Are there crypto billionaires?
According to Forbes, 19 people in the world have become billionaires thanks to cryptocurrencies.
The richest is Canadian citizen Changpeng Zhao, whose fortune is estimated at $65 billion.
He is the founder of Binance, the largest cryptocurrency exchange in the world by daily trading volume.
Zaho also owns a relatively small amount of Bitcoin.
Other cryptocurrency billionaires include Sam Bankman-Fried, the founder of FTX, another cryptocurrency exchange.
His fortune is estimated at about $24 billion. In addition to owning half of FTX, he also owns $7 billion worth of FTT, FTX’s own cryptocurrency.
Coinbase founder Brian Armstrong also became a billionaire with a net worth of $6.6 billion.
The third person to make money in the crypto world is Gary Wang, the co-founder of FTX.
Prior to his foray into cryptocurrencies, Wang was an engineer at Google. His fortune is about 5.9 billion dollars.
Why are cryptocurrencies collapsing and is it related to the economy as a whole?
Many bitcoin fans have argued that since it has no central authority and is not controlled by central banks, it retains its value during economic downturns, global conflicts, or political changes.
However, this turned out not to be the case. In recent years, the bitcoin resurgence has followed similar ups and downs in the stock markets.
For example, when the coronavirus pandemic hit in March 2020 and global markets plummeted, bitcoin plummeted as well.
But then stock markets and cryptocurrencies grew more or less in parallel.
The fall in bitcoin over the past few weeks has again mirrored the decline of the Dow, Nasdaq and S&P 500.
Part of the need stems from Russia’s invasion of Ukraine and its impact on supply chains and oil prices.
While some cryptocurrency fans are hoping that the price of bitcoin will break away from the stock market at some point, as it has in the past, this has not yet happened.
The value of bitcoin also plummeted when China cracked down on bitcoin mining in mid-2021, and fell again when Tesla founder Elon Musk said last year that his company would no longer accept bitcoin for payments due to environmental concerns.