how cryptocurrency works

How Cryptocurrency Works; Crypto 101

Cryptocurrency: the money of the future? Just the latest investment craze? A finance bro scam? What IS it and how do I find out how cryptocurrency works??

You’ve clicked the right article my friend, because we’re going to break down all the things you need to know about what crypto is, how it works, and how it differs from something like cash.

How Cryptocurrency Works

Much like MC Hammer, you can’t touch cryptocurrency.

Crypto, short for cryptocurrency, is a type of money that was founded and exists solely online. Created in 2008, crypto took the world by storm in 2020 when Covid absolutely ravaged global economies.

Currently, it’s mostly used as a type of investment, rather than an actual currency. Most likely if you go to your local bodega they aren’t going to take crypto as a form of payment.

But you can find a crypto exchange and use your dollars to buy an investment in crypto.

Crypto is decentralized currency, meaning that there is no one governing body that oversees it. That means there’s no Treasury department, no Congress, no Parliament, in charge of creating and then distributing cryptocurrency.

This makes crypto exciting and scary and weird! Good thing we made an entire video on how crypto works, what decentralization is, what blockchain technology is, and exactly HOW bad crypto is for the environment!

The Problem with Cryptocurrency

Read almost any crypto headline and your anxiety (and confusion) will shoot through the roof.

You’ll see headlines like “Crypto Skyrockets After Elon Tweets!” “Bitcoin Crashes Hard.” “New China Crackdowns Spell Trouble For Crypto Everywhere”.

I can feel the stress rising as I’m writing this! The two biggest problems that I see with crypto at the moment are that 1) not enough people understand it but want to get involved, and 2) crypto evangelists are way too aggressive about it.

Evangelists have said that crypto is the solution to everything from inflation to civil unrest to climate change.

With SO many promises and SUCH large claims of transformation, crypto begins to feel a bit like a snake oil. Oh, you can cure cancer and clear my skin? Seems sus.

This leads to people doubting it just on it’s face, instead of on the actual facts.

Keep Learning About crypto

Crypto is a brand new kind of money, and what happens when you first try new things? You have to work out the kinks.

Precisely *because* it’s so new, and *because* there is no one governing body, crypto works very differently from ‘regular’ money, like cash or credit cards.

That’s what makes it so crucial to understand how cryptocurrency works. You have to understand what the blockchain is before you can become a master of it.

Crypto is prime ground for scams, for theft, and for people who simply don’t know the details of it to lose money. The FTC has a handy and easy to read guide on cryptocurrency scams that I think everyone should read.

Please note: I am not saying that crypto itself is a scam. I’m saying that it’s a tool that scammers can use to scam. Just like the stock market is a tool that Bernie Madoff used to scam people out of $64.8 billion. Bernie Madoff doesn’t make the entire stock market a scam, and the crypto scammers out there don’t mean that crypto itself is fake.

That’s why we keep learning! We keep reading! We think about our personal investing goals and what strategies and tools are best to reach them!

Learning how cryptocurrency works is step one in determining if cryptocurrency is a good fit for your investment strategy.

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2 thoughts on “How Cryptocurrency Works; Crypto 101”

  1. Thanks for covering this important topic and for bringing financial education to your audience that is outside the typical finance bros.
    There were a couple pieces that I really wished you highlighted specifically because of your audience: The biggest one is that Bitcoin improves financial access. Anyone can participate in this system without needing approval from anyone. That means that anyone with internet access can now transact with the entire world without needing government documents or even a parent’s (or a husband’s, God forbid) permission. No one will deny your bitcoin transaction because of the way you look and, in fact, they couldn’t stop you if they tried.
    I’m glad you pointed out the scams in the cryptocurrency sphere. The way that scams occur is by using marketing to co-opt Bitcoin’s earned legitimacy, security, and decentralization and apply them to pyramid scheme like cryptocurrencies that market themselves under the guise of “blockchain”.
    I wish the energy use issues you’ve highlighted weren’t judged as being “bad” for the environment; there’s a lot of nuance to dive into that might make you realize Bitcoin’s energy use is actually GOOD for the environment, as counter-intuitive as that sounds. Much of the energy used by the bitcoin network is energy that would have been lost or wasted including natural gas flaring or losses along transmission lines bringing energy to population centers whereas bitcoin miners actually move to the source of energy to minimize transmission losses.

    Thank you again for covering this important topic!

    1. I mean one can only cover so much in 15 minutes 🙂 The real truth about the crypto energy use is that Bitcoin is BAD for the environment- but like I say all the other things are too. None of them are GOOD for the environment. There’s just degrees of bad. Where you choose to put your money is a personal choice and how much each one’s environmental impact matters to you is also personal.

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