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For instance, through savings from the hard work at a job. Or you build a business that has value and you sell it. Or you sell a house. You created this value and it has to be bottled up somewhere. Like a genie in a bottle. So later you can unleash the value and make all of your dreams come true.
Originally it was resources you simply had on your land. The land itself. Later it was metals. Gold has some intrinsic value. It can be used as an electric conductor, for instance. It has antibiotic properties. The rest of the value is that for millennia, people have relied on it as a store of value. People buy necklaces or rings or other jewelry not only as ornaments but as convenient ways to travel with this store of value.
And for a long time, gold was used to back paper currency. And bitcoin is a store of value. Argentina is known for being a horrible country as far as how they treat their currency. And whenever it looks uglier than usual, bit- coin spikes. Because the wealthy have gotten smarter. So they use bitcoin. This is the canary in the coal mine.
A clue as to what will come. Argentina, in its wretchedness, has pointed toward the future. As our faith in humans disappears, our reliance on stable and trust- worthy data will rise. B To pay for things. And to sell things. First there was barter. But think about the problems of this.
For every two items, people had to figure out what the items were worth relative to each other. If I had a pair of shoes and wanted an apple, how many apples would I get for a pair of shoes? Do I need to cut my shoes in half? Money made out of hard-to-get metal became a common store of val- ue that can be easily traded because one side of the transaction always has the same value. So negotiation became much easier. What if supply went up and nobody told us?
It answers why the rise of cryptocurrencies is just an inevitable and natural evolution of money. From bar- ter to precious metals to government-controlled currencies to where we are now. We will see that even in the history of money, and not just the evolution of every industry, the demand for a data-based currency solves critical problems that must be addressed in the decades and generations ahead. Many things have to now happen.
James tells his local bank. They tell the local reserve bank. And finally Joe goes to his ATM and takes out the money. There was the possibility of human error at every step. There were also transaction costs at every step. These transaction costs are the built-in inflation of a centralized banking system. But sometimes it does. C Not only is human error a risk, but humans controlled the value they sent.
Hidden transaction costs are baked into every step of the system. Value is determined by supply and demand. These issues have always existed and they have toppled empires, but so far the United States has proven superior to the fallen and forgotten. Hopefully that will always be true. When and where and why and how is not known. All we know is direction. Direction is the philosophy of cryptocurrencies. Anyone who has a copy of it can do a full validation of the transactions in the full chain.
Historically, it was the central bank that validated the transactions. Now, blockchain allows everyone on the network to have a copy — and autonomously validates all of the transactions together. You can see how this eliminates not only the need for a central bank — but also the need for human intermediaries at all. Security: If James sends money to Joe, Joe gets it. Decentralized: There are no geographic borders to the currency.
Anonymity: Nobody needs to know about my transaction. Controlled supply: It should always be known by every party how much supply exists and under what conditions supply would stop and, in probably every case, whether supply has a maximum. For instance, the maximum number of bitcoins that will ever be mined is 21 million bitcoins. This aspect exists only because of the rise of data. But I will talk about it in Crypto Corner.
I will say this… Possible applications in the cryptocurrency space meaning the func- tionality is built into the data itself include data storage, the internet of things IoT , digital health care, escrows and wills and on and on. As I said in the last chapter, cryptocurrencies are just the natural evolution in money.
And there are plenty of reasons to look forward to their rise. Historically, cryptography was the art of keeping secrets from your en- emies using mathematics — or at least attempting to. Like the Enigma Machine. It was weak. Our cryptography today is very strong. You can put data through it and the cryptographic function complex math formula transforms it into something incredibly unfamiliar from its original state. The transaction is now there in the block. The more time passes by, the more the amber accumu- lates and the harder and harder it gets to remove the fly from the amber.
So a block can be likened to another thin layer of digital amber and the blockchain is the collective depth of the digital amber. Something like that. A blockchain A guarantees the correctness of its past and present data and B guarantees the correctness of its future state and data Blockchains replace intermediaries with mathematics.
Before block- chains, digital currencies had to run through central servers and be logged by central bookkeepers. Your money had to rely on several single points of failure before it would reach your intended destination. Blockchain solved that problem.
This is all greatly oversimplifying. Which is part of the privacy of the transaction and also ensures that no one source is controlling the validation and then possibly faking transactions or minting more money. But there are also downsides to these points. The good: A A standardized and neutral confirmation policy backed by soft- ware that has no human agendas.
What does this mean? Imagine I want to send Joe dollars to buy his house. This is OK, but at each step, someone could be untrustworthy. They are all humans, even the government humans subtly influence the price of the dollar and also share details of the transaction with unfriendly parties the IRS. Also, each step in the above has a transaction cost.
So inflation is built into the system. If this were a bitcoin transaction, enough miners need to approve that this transaction is valid. So even if a few miners are not trustworthy, the bulk of them will be, and we can trust that the transaction between Joe and me is legit. As well as have high security and avoid forgery. This reason is sometimes the basis for ICO rating. This was also originally the entire reason for the origin of money as opposed to a barter system which requires an exponential number of negotiations to determine the correct exchange rates between each object.
Crypto is just the next step after that. For bitcoin, the cost might be zero depending on your exchange , and miners get paid by getting more bitcoin depending on the computation power used to verify these transactions.
One more good: Blockchains are incredibly resilient. A blockchain can survive unaffected as long as just one stays alive. With bitcoin, nodes are running all over the world. The power is distributed. To kill it, you have to erad- icate it completely, globally, totally, without fail, all at once. This is very hard to do. The bad: Miners approve transactions one block at a time. A block is a set of transactions. Blockchains are slow. Blockchains are slow because blockchains are extremely inefficient — especially compared to Visa, MasterCard or PayPal.
Decentralization and censorship-resistance. Blockchains are inefficient. That software layer involves humans humans are bad , which invites good players and bad players to be involved hence, the Mt. Blockchains are very hard to scale. In exchange for security, trust, fewer middlemen and avoidance of gov- ernments and boundaries, society pays in computational costs, storage the same blockchain stored on millions of computers is a waste and slower transaction speeds.
And the software layer above the blockchain needs to evolve, which it is the same way internet software evolved post This is the ENTIRE reason multiple currencies exist and why there is a huge need to keep things simple and not get caught up in the hype. Coins can be divided into two types: A They keep the same rough philosophy of bitcoin security, limit on minting of new coins, elimination of middlemen and boundaries, validations of trades, impossible to forge. Unfortunately, the only way to know this is to read the code, and there are hundreds of thousands of people using these currencies right now, unaware of the trap they are in.
So… why more than one? Or you can just copy and paste from other currencies and add features you like. Sure, most of them will be useless. I think there will be many winners. Data-based currency is an important evolution. And the children inherit traits from the parents. There are many valid currencies. Because dollars are in America and euros work in Europe. This is based on the arbitrary and fictional geographic borders that were set up through human-led trade agreements, wars, etc.
With cryptocurrencies, there are no geographic borders. Bitcoin and ether, for instance, work just as well in every single part of the world. For instance, upon writing this book, bitcoin is very slow to validate a transaction. I found a possi- ble solution. Another problem: privacy. Bitcoin transactions have privacy.
Legitimate problems in certain cases and a lack of geographic borders are what create new cryptocurrencies. B A data-based currency can have some functionality. Your data sits on servers owned by Google or Dropbox. There is a potential for human error and privacy loss. This is a lot for this introduction. I will describe the size of the opportunity in a future issue.
Because in any eupho- ria, criminals are created. We saw it with internet stocks in ; we saw it with hedge funds in the s; we saw it with mort- gage-backed securities in and now we are going to see it in cryptocurrencies within the next year or so. But the industry itself will boom. This was a lot for one issue. And cryptocurrencies are a very compli- cated subject.
Like I said, to actually know for sure if a cryptocurrency is legitimate or not, the only way is to read the actual software that created it. The good news is that, unlike the dollar, the software is available. Geographic boundaries create new currencies. But geographic boundaries are man- made and artificial, and many possible untrustworthy middlemen are required. The ones I recommend you take a look at are: A.
Coinbase — the most mainstream option. Certainly the most established. Buying and selling is easy and your bitcoins are insured. ICOfuffer — Another great choice. Kraken is known for its security, support and low fees. Signing up and getting started is simple. If you can use PayPal or online banking, you can figure these out fairly quickly.
Cryptocurrencies are the first form of money you can store in your brain. Let me unpack what I mean by that. Your private key unlocks your funds. The exchange does. One great thing about cryptocurrencies is you can become your own banker — so keeping your crypto on an exchange defeats this purpose.
They have one vector of attack and, if hit hard enough, they come crashing down. So how do you secure your coins private keys? Store them in your safe, hidden compartment or in a fake can of hairspray buried in your backyard [somewhat difficult, highly secure] D. Well, sorry to send you off, but the easiest method, as usual, is to Google it. The security of your coins is as strong as the security of your device.
If you want maximum security, I suggest you either: A. Secure your money in your brain B. Secure your money in your safe C. Most recommended Secure it in a cold-storage wallet device although this choice is limited to a few coins. Remember: The reason crypto exists is so you can better control your own money. How to create a brain or paper wallet Cryptocurrencies are the first form of money you can store in your brain. There are many ways to do this. This process can get extremely compli- cated.
First step: Go to WarpWallet. You should be shown the same page. And put an email in the email box. I want to reiterate the importance of a strong passphrase. Meaning, given enough time, hackers could figure it out by testing out every possible combination of characters. Strong passwords are meant to make this process as cost-prohibitive and time-intensive as possible.
The purpose of a brain wallet is not having a paper trail. Write it in your journal, coded within every sev- enth word. Write it in a book by circling the letters on every third page. Get creative. Or just write it down and keep it in a VERY safe place.
If you go the paper wallet route, you have two choices: 1. Your QR code will make it easier to spend your funds in the future. More on that in a moment. One inside your home. One outside your home. And another elsewhere. You decide. You know best. Important: The privacy risk in other people knowing your public key is they can look up how much money you have on that particular address.
Something to keep in mind. Destroy all evidence before you log back in. Copy your public bitcoin address and go to your chosen exchange Coin- base, Kraken or whatever you choose. Pro-tip: Always send a tiny bit on your first go to ANY address to test it out. If your computer is compro- mised, hackers can replace your address with theirs in your clipboard. Access and spend your bitcoins If you chose the brainwallet option, simply open up your Warp Wallet again preferably offline and enter your passphrase and email.
Grab your private key. If you chose your paper wallet, you already have your private key. Get it. Claiming the funds requires specific software. There are varying degrees of safety when doing this. The first is a way to put ALL of your funds on a web wallet.
The second is a way to do a partial spend in which the wallet de- stroys your private key when the transaction is over, keeping the remaining funds secure. An email address is optional but helpful for re- covering your account should the need arise. Pro tip: Use a password manager like LastPass to create a character password with uppercase and lowercase letters, numbers and special characters.
Click it. Save your Wallet ID in a safe place. Wallet ID and Password. Be sure to check your email and verify that. And then, if you wish, enable two-factor authentication using your mobile number. Meaning, before you log in, you must verify a code sent to your phone. Not foolproof, but better than not doing it. If you happen to lose your password, you can use these words in this order to recover your funds. Use it. Write all of them down in a safe place. DO NOT store them on your computer.
Select your destination address 5. Select the amount 6. Press the blue currency tag at the top to toggle currency 7. After spending, the private key in memory is destroyed so the paper private key remains secure. Simply get a cold storage device. The ones I recommend you check out are Trezor or a Ledger wallets. Unfortunately, they are currently limited to a few coins. Both use state-of-the-art cryptographic technology to hold your pri- vate keys offline — even when the device is plugged into your computer.
But please. Do your own due diligence. Cryptocurrencies have a purpose. Politically, they are built to help you gain independence of your life from institutional whim. You can cut out the middlemen. Someone in Brazil can pay someone in Switzerland without having to get permission from someone or something in New York City. An evo- lution, as mentioned, theism to humanism to data-ism. Bitcoin is the first sketch. And I believe ethereum will lead the way. With this code, anyone can create a new cryptocurrency and set the initial supply in minutes.
Everyone on the network must recognize it is real. So while bitcoin is focused on being a store of value and a currency, ethereum is focused on smart contracts and the construction of decentral- ized applications on the blockchain. Law school — Property and contract law are the fundamental building blocks of commercial society.
Our contracts become that fly in the amber I mentioned earlier. Once set into the blockchain, they become immutable and unstoppa- ble. Moreover, data and programs are auditable by anyone. This means… A. Anyone can audit the blockchain and prove you did what you said you did.