Cryptocurrency For Dummies Series – Ep.1: The Basics

Have you ever paid 60 million dollars for
a pizza? Well one programmer in Florida has. In this video you will learn the basics of
cryptocurrency, about it’s history and how the price of a cryptocurrency is determined. What’s going on guys welcome to a new series
about cryptocurrency. The first episode will be about the basics
of cryptocurrencies. Click the subscribe button so you don’t
miss out the future episodes, which will come out in the next couple weeks! This video is divided into four sections,
which are The basics of cryptocurrency, history of Bitcoin, How the price is determined and
a summary. Let’s get started! Bitcoin was the first decentralized cryptocurrency,
and it was created by Satoshi Nakamoto. It is online money that you can buy, sell
and exchange for different stuff all around the world. There are over 1600 other cryptocurrencies
besides Bitcoin, like Litecoin, Ethereum, Ripple and so on. Comment down below what’s your favorite
cryptocurrency! The part “crypto” comes from how the cryptocurrency
is protected, and the part currency comes from.. Well the fact that it is a currency. As the “crypto” part of the name suggests,
cryptocurrencies are very safe.

Cryptocurrencies are a digital asset, there
is no physical form. Unlike physical money, cryptocurrencies aren’t
issued by the government. This means that there is no inflation with
cryptocurrencies, because governments can’t print more money as they wish. If you don’t know what inflation means – simply
put it means that you lose your purchasing power. For example, if you have 10 dollars, you could
buy one pizza for 10 dollars. But because of inflation the pizza will cost
11 dollars next year. This means that you can’t buy it anymore,
so you lose your purchasing power. One reason for inflation is the fact that
dollar bills can be printed by the government. More and more bills are printed all the time,
which makes the value of the dollar weaker. The maximum amount of bitcoin that will ever
be created is 21 million, and according to the book “The early bird gets the bitcoin”
that amount is estimated to be mined by 2024. So Bitcoin can’t be just “printed” more
and more until it’s worth nothing. But how are cryptocurrencies created? Cryptocurrencies are created with mining. No it is not mining gold with pickaxes, it
is the system that processes creating the currency and verifying the transactions.

To put it short, blockchain is a document
that tracks all the transactions ever in the history of the cryptocurrency. Group of transactions that have happened in
the past ten minutes are called a block, that the bitcoin miners “mine” using not their
pickaxes, but their computing power. The mining verifies the block, which prevents
fake transactions. But why would anyone waste their computing
powers to verify these blocks? Well, verifying these blocks can give you
currency, like bitcoins as a reward.

For example, One block contains 12.5 bitcoins,
and every ten minutes those bitcoins are given to the lucky miner. The lucky miner is the first one, whose computer
guessed the right 64-digit number when verifying the block. I’ll talk more about the blockchain in a
future video, so that is all about it for now. But do you know how much 12.5 bitcoins is
worth? While it doesn’t sound much, at the moment
one bitcoin is worth $11,800, so 12.5 would be worth $147,500. Did that make you sharpen your digital pickaxe
already? Cryptocurrencies are a safe money because
of this mining process. They are also kept in wallets like every other
currency, but instead of a normal wallet you store it in your computer.

So your computer is your wallet. This means that your cryptocurrencies won’t
be pickpocketed while you walk in the street, only if you lose your computer. Even though cryptocurrencies are very safe,
this doesn’t mean that they are stable, the price changes all the time, as you can
see in this chart. In couple hours the price of Bitcoin went
from $11,000 to $12,000 dollars. This means that Bitcoin, and other cryptocurrencies
are very volatile, but more about the price later in this video, let’s first move on
to the history of bitcoin, so you’ll get a better idea on how cryptocurrencies became
so popular. As I mentioned earlier, Bitcoin was the first
decentralized cryptocurrency, created by Satoshi Nakamoto. No one really knows who the creator Satoshi
Nakamoto is. It is not sure if it his real name or if it
is just a made up name. Bitcoin’s Co-founder was Hal Finney, he
is not anonymous, but he also doesn’t know who Satoshi Nakamoto really is.

At least that’s what he claims. Anyways in 2007 Satoshi Nakamoto started to
develop Bitcoin, and in 2009 the first block, also known as the Genesis block was mined. After 11 days first transaction was made from
Satoshi Nakamoto to the co-founder Hal Finney. On February 22, 2010 Bitcoin was first traded
in the real world. A programmer paid 10,000 bitcoins for two
pizzas. This day is known as Bitcoin Pizza Day.

As mentioned earlier, one bitcoin is worth
$11,800, so I really hope they were good pizzas, because they would cost $118,000,000 today. I wonder if there were any pineapple on those
pizzas.. Comment down below what’s your opinion about
pineapples on pizza! Well anyway, let's move on with the history
of Bitcoin. On july 2010, bitcoin’s price raised from
$0.008 to $0.08. Five days later, Bitcoin joined exchange called
Mt. Gox, and was slowly starting to become the Bitcoin we know today. Less than a month after joining Mt. Gox Bitcoin
was hacked, and 184,000,000,000 Bitcoins were created. This problem is now fixed, and the cap on
Bitcoins is back to 21,000,000. In 2012 Coinbase, the most popular cryptocurrency
exchange was founded. Coinbase kinda works like a stock exchange,
but instead of stocks you exchange Bitcoins. Coinbase made exchanging bitcoin easy. In 2012 a Bitcoin bank also got listed as
an official European bank. In the early 2013 the first Bitcoin ATM was
created. Now the price of one bitcoin was already over
$130. The price went down for a while, because FBI
shut down a criminal black market, that used Bitcoin, because Bitcoin hides your identity.

In the late 2013 the price was already up
to $503. The day after Senate meeting about Bitcoin,
the price rocketed to over $1,200. On 2013 companies like WordPress and Shopify
added Bitcoin as a payment method, which increased the potential for more Bitcoin users. In February 2014 Mt. Gox lost 744,000 bitcoins,
and everybody’s money was gone, with no trace of the criminals. In February 23, 2017, Bitcoin reached its
all time high value. One bitcoin was worth $19,891.00. So imagine if you had bought bitcoin with
1 dollar back when it was $0,008. You could have bought 125 Bitcoins. And if you would have sold those with the
all time high value, your one dollar would now be almost 2,5 million dollars. Nice! Still couldn’t afford that 60 million dollar
pizza tho..

So how is the price of cryptocurrencies determined? Because Bitcoin is decentralized currency,
it means that it isn’t issued by a central bank or backed by the government. Cryptocurrencies also aren’t linked to gold
or any other currency. Yes you can buy bitcoin with dollars, but
you can’t change bitcoin to a fixed quantity of gold or dollars. This doesn’t really matter since you can’t
do that with dollars or any other currency either anymore.

But things like inflation rates, economic
growth and so on don’t apply to bitcoin like they affect physical currencies. The price of the cryptocurrencies come from
the supply and demand on the market. The supply chances all the time, since more
currencies are generated all the time. Like Bitcoin is mined at a fixed rate, until
it reaches the maximum of 21,000,000 Bitcoins generated. When supply is at a lower rate than demand,
the price rises. The price is set by the market.

The price of the currency reflects expectations,
when everyone has high expectations for the currency, more and more people want to buy
the currency. Because demand is higher than the supply,
the price will rise. When people think that cryptocurrency doesn’t
have potential in the future, they want to sell their currencies. This makes demand lower than supply is, so
the price of the currency crashes. Because cryptocurrencies aren’t linked to
any money or banks, and you don’t receive part of the companies like in stocks for example,
the price of cryptocurrency is very volatile.

Speculation in the market can make the price
rise or drop hundreds of percentages in a month. There are also other factors that affect the
price, like the amount of competitors and regulation for example. Let’s imagine a worse case scenario, that
the government one day decides that cryptocurrency is illegal, well the price just crashed, because
no one wants the currency anymore. Competition in the crowded field keeps the
prices down, but Bitcoin’s high visibility gives it an edge over its competitors. Let’s now summarise the video. Bitcoin was the first decentralized cryptocurrency,
developed in 2007. Cryptocurrencies are a safe online money,
that can be used to buy, sell and exchanged for different stuff globally.

There are over 1,600 different cryptocurrencies,
like litecoin, bitcoin and ripple for example. Cryptocurrencies are created with mining. Not with pickaxes, but with computing power. Blockchain documents all the transactions,
mining these blocks verifies the transactions and rewards miners with currencies. This process makes cryptocurrencies safe. Even though cryptocurrencies are safe, they
are not stable, but very volatile. The price is set by the market.

When demand rises the price rises, and when
supply rises the price falls. And the most important thing: You can buy
2 pizzas with $118,000,000. Thank you for watching this video. Leave a comment down below, what is your favorite
cryptocurrency? If you are new here click the subscribe button
to improve your financial knowledge. I make 2 videos every week! Have a nice day and I’ll see you later!.

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