Crypto For Dummies
So you're excited about Crypto Currencies because deep down you know that this shit is futuristic. The issue is that every time you bring up the topic with friends and family they ask you all sorts of questions that you might not have answers to. Some are outright critics not interested in anything you have to say, but others are genuinely curious to learn more.
They ask questions and say things like: what drives the value? this is a bubble! Can't the government decide tomorrow to outlaw it? Haven't you seen that Jamie Diamon said it's a scam? what intrinsic value does it have? others might say, I believe in block chain technology but I think the whole coin thing is a scam. Hackers can hack your money, have you heard of Mt. Gox?
How should you respond to these critics?
Let's start from the end. Block Chain technology is widely recognized for it's security. It is more secure than the most secure Swiss bank. How so? because when steeling from a bank, you only need to hack into one company's security system, whereas with Block Chain you have to rewrite the history on thousands or millions of computers. This can only be done if you can single handedly amaze more than 50% of all the computing power or coins of a particular crypto currency. This is why Banks like Bank of America, and virtually all others, have filed for Block Chain technology patents. The banks understand the superior security of the Block Chain. If so, how did exchanges like Mt. Gox get hacked?
When holding your coins in an exchange, you are relying on the exchange's security to keep your coins safe. You may notice that when your coins are on the exchange, you lose access to your private key. In other words, it would be more safe to have your own private wallet on your computer (that you've backed up in case your computer gets fried). That being said, the exchanges are LLC's or registered companies and if they are negligent with their security and lose your assets you can sue them. (historically almost all exchanges have paid back the stolen coins) Either way, think of the exchange as the brick and mortar place where you go to exchange USD for Euros. If that one shop, down the block from your house, got broken into would you immediately assume that US dollars or Euros are now less valuable? No! because the dollar wasn't hacked but rather a single exchange that didn't take the right security precautions was. The same logic applies to BitCoin. BitCoin was never hacked! a couple of exchanges were.
Will the Government decide one day to outlaw it? Maybe, but not the US government. They would have to censor the internet for that to happen and will be joining forces with the likes of Iran by doing so. I like to tell people that the genie is way to far out of the bottle for that to happen. The US government will not deem hundreds of billions of dollars as illegal, rather they will find a smart way to tax it and make their unfair share.
What intrinsic value does it have? That's a tough question. I like answering it by asking the asker the same question about gold. What intrinsic value does gold have? you could lick it or stroke it or whatever but that's not very useful. Crypto on the other hand, has many use cases, some of which are described below. Gold is scarce (rare and hard to find) and so are Crypto Currencies. You should only purchase those that have a limit on how many will ever be distributed. If there seems to be no limit, try to understand how the algorithm is coded to distribute the coins. (e.g. Steem uses an interesting mechanism for staying scarce even with no coin limit. It has to do with the way the coins are "powered up" which removes them from circulation)
So why can't the Block Chains be disassociated from the coins? Because the security of the Block Chain depends on having hundreds, thousands or even millions of people, from all around the world, confirming transactions. These people leave their computers running and are spending money on electricity (or in the case of POS on the coins themselves) and will only do so if they have a financial incentive. By confirming transactions and receiving the new coins that are hitting the market, the miners/validators have that financial incentive.
Is it a bubble? Perhaps at the moment. It is difficult to say what the true value should be but when you look at the use cases of Block Chain technology and Crypto currencies and you understand that virtually every business model can be 100 times more efficient on the Block Chain then you start to understand what the hype is all about. Why should anyone use reddit if they could use Steem instead and get rewarded for their time and effort!?
Block Chain technology and the Crypto Currency's that grease the wheels of this new economy are here to stay. Not only are they here to stay, but they will replace many existing businesses, in the very near future, by deeming them obsolete. Why for instance would we need clearing houses and any and all other forms of middle men (escrow services etc.) if we can do it all on the Block Chain for a fraction of the price and with way better security efficiency and speed?!?
To conclude, you must be passionate when explaining this new technology to newbies. Make them feel like you are telling them about this thing called the internet in the early 1990's. Tell them that in 5 years from now saying something like "it runs on the Block Chain" will sound as dumb as saying that your website works on the internet, it'll be obvious. If explained properly, your friends and family will inevitably come running back to ask for you help with understanding this revolutionary tech and getting a better understanding of how they can invest in and take part of the greatest revolution of the 21st century.
For more coin related articles follow me at @rroston. Feel free to add a comment or question below and I will do my best to get back to you.
