No website based around productivity and making money online would be complete without a discussion on cryptocurrencies, so in this article we’re going to try and break down what they’re all about into simplified language.

Hopefully, by the time you’ve read it, you’ll finally be able to understand the concept behind these new (ish) technologies, see their potential benefits and why they’re here to stay!

Why cryptocurrencies?

Whenever you buy anything online you inevitably make your payment by providing your credit card details, agreed?

Of course if you haven’t got a credit card then you may have to resort to a bank transfer but the bottom line is, you have no choice but to use the banking system as a sort of ‘middle man’ to make the transaction.

Well with the rise of cryptocurrencies and the blockchain, that’s all changing and it’s very exciting!

Imagine buying something over the internet without having to give out any personal information and without having governments, banks, or any third parties getting involved.

More importantly, imagine making the transaction without them charging you for their part in the process!

Well that’s what we’re talking about here in 2023 and the technology is becoming more and more prevalent so if you can get your head round the underlying principles now, you’ll be in a better position if and when the technology really takes off!

The thing is, the banking industry has been fleecing us for years but the majority of people have absolutely no idea how the modern financial system works, let alone how money is moved around the world and what makes the global economy tick.

So let’s start with a very simplistic explanation …

An overview – how the banking system works

I’m sure I don’t need to tell you that many years ago people would barter to get what they needed to live … two sheep for a cow, that kind of thing!

Then people decided that gold was a nice thing to have and started to collect it.

However because it was valuable to them, it wasn’t long before they were using small pieces of it as an early form of money.

Now let’s imagine that at some point Mr. X had 100 gold pieces but because hauling all his gold around became inconvenient, he decided he didn’t want to look after it himself.

So he got a trusted middle man to look after his gold for him, who in return would give him a piece of paper which recorded how much gold he’d entrusted to him along with a promise to give it back to Mr. X ‘on demand’ (… this is the origins of paper money).

Now over in another village, Mr. Y felt the same way and also got the trusted middle man to look after his 100 pieces of gold, for which he too received a piece of paper which recorded the amount deposited and a promise to return it if asked.

When Mr. X and Mr. Y deposited their gold, the trusted middle man looked after it and recorded the respective amounts in a ledger which showed how much gold both Mr. X and Mr. Y owned.

Fast forward a few years and let’s say that Mr. X wants to send Mr. Y 50 pieces of gold.

He does so by sending details of his intention to the trusted middle man (… in the modern world we use the credit card and a machine to do this) who will first check the ledger to see whether Mr. X has enough gold to make the transaction, before ‘sending’ 50 pieces on to Mr. Y and adjusting down the balance for Mr. X on the ledger from 100 pieces to 50 and increasing the balance for Mr. Y to 150 pieces.

Of course he never actually sends the gold pieces anywhere, he just changes the ledger, but if the ledger showed that Mr. X wasn’t good for the gold, the trusted middle man wouldn’t approve the transaction nor would he alter the ledger.

It all sounds lovely and everyone’s happy.

But somewhere along the way, the trusted middle man learned a trick and decided he could use this arrangement to his own advantage!

You see, our trusted middle man has built up enough of a good reputation that lots of other people have also ‘deposited’ their gold with him, as well as Mr. X and Mr. Y, and because he’s trusted, as you’d expect, he’s dutifully recorded everything in the ledger.

For this example let’s say he’s now got ten customers and he’s sitting on 1000 pieces of gold.

Which is when he starts thinking … what’s stopping him from loaning this gold out to a number of additional people and charging them some interest in order to make something extra for himself when they pay the loan back?

Not only that but, being a shrewd cookie who’s not got where he is today without ‘thinking outside the box’, he also asks himself …

… ‘why stop at 1,000 pieces of gold?’

What if he explained to anybody he was going to lend gold to, that the best (… and safest) thing to do was to leave it with him and they would be better off if he simply gave them a piece of paper showing that they owned the gold?

This way, even though he’s only holding 1000 pieces of gold, by issuing people with a note promising to give them the gold on demand, he can lend as much gold as he wants because all he’s really doing is giving out pieces of paper.

Naturally at this stage he’s thinking, it’s very unlikely that everybody will want access to all their actual gold at the same time and don’t forget he’s also got those loan repayments and interest coming in now too, so his coffers are swelling continually!

So, he decides to lend 100 pieces of gold to a 100 NEW people and simply record their new balances as 100 new entries on his ledger, by issuing pieces of paper promising to hand over the gold on demand …

… in other words, he really has created paper money because now there’s a total of 10,000 pieces of gold supposedly available, 9000 of which he’s literally created out of thin air!

Of course, not only will he get this ‘created’ money back for himself, with interest (… which in turn will make him very rich), but it will also, for now, increase the wider economy by 9,000 pieces of gold which is being circulated by the 100 extra people who borrowed it!

And herein lies the problem …

The original 1,000 pieces of gold are effectively devalued because everybody accepts the total amount available is 10,000 pieces based solely on the paper money issued by the trusted middle man, 9,000 of which technically belongs to him!

It’s called fractional reserve banking and although this is a highly simplified example, it’s fundamentally the way that the banks and financial institutions create money out of thin air and get richer while sadly, the ordinary man in the street gets poorer!

But the arrival of cryptocurrencies could change all that!

Bitcoin and the other digital currencies are based on something called the blockchain, an incredibly ingenious invention that was developed by an unknown entity who goes by the name of Satoshi Nakamoto.

The arrival of Blockchain technology could change everything!!

No-one knows whether he/she is/was a single person or a group of people but in 2008 Satoshi Nakamoto essentially published the idea of a ‘digital ledger’ that could be distributed, but not copied – a digital ‘chain’ technology that would create the backbone of a new type of internet transaction.

Sidenote: The adoption of the blockchain concept could literally change the world as this fantastic new technology can be used in so many ways, not only for money. It can be used for storing records of all kinds of contracts and transactions in a completely secure way (… in future negating the need for lawyers and solicitors in a house purchase for example) but for now it’s easier if we think of it just in terms of digital currency.

The way it works is like this …

The basic principle is that all valid transactions are added as a block of data to a chain of blocks of data that have gone before.

So, someone requests a new transaction.

The transaction is broadcast to a network of millions of computers around the globe (… called nodes).

EVERY SINGLE NODE on the network validates the transaction and the user’s status using known algorithms.

If ALL the nodes agree that the transaction is valid, it’s combined with other validated transactions that have gone before to create a new block of data which will be added to the ‘block chain’ that makes up the distributed digital ledger (… if even one of the nodes doesn’t agree, the transaction doesn’t get validated).

This new block is then added to the existing blockchain in a way that it cannot be altered and the transaction is completed.

The blockchain is then ready for the next transaction and all of this is being done WITHOUT the need for a trusted middle man!

And here’s why this is so important …

Because the digital ledger is NOT controlled by any one entity but instead as a collective of millions of nodes around the world, the transaction cannot be manipulated by any one individual, so the value remains true …

… in other words, no-one can devalue it by creating transactions out of thin air like the banks!

It really is incredibly exciting technology!

• Imagine being able to send and receive money all over the world without paying any fees because there’s no middle man taking his cut for making the transaction!

• Imagine the banks having no control over your money wherever you decide to spend it, whether you’re buying a property in Australia or sending a financial gift to a friend in Argentina!

• Imagine having one currency that you can use to buy anything in any country without leaving your home.

• Imagine never having to exchange money when you go abroad again … nor having to pay the extortionate exchange rate fees!

• Imagine banks or governments not being able to just ‘poke about’ and see how you’re spending your money or not being able to seize it (… and I’m not talking about seizing it from criminals, I’m talking about seizing it in extreme cases as they did in Cyprus in 2012/13 where ordinary people had as much as 60% of their savings literally taken from them)!!

• Imagine not relying on companies like PayPal to give you your money when you ask for it (… you may not know it but if PayPal decides for some reason that your account has been misused, it has the power to freeze all of the assets held in the account, without consulting you). Digital currencies do away with this problem because YOU have the only ‘keys’ to the part of the blockchain where your currency is stored so nobody can take that away from you!

In other words, this technology is going to revolutionise the way we do business because EVERYBODY will finally have COMPLETE CONTROL over their own money … which in turn will make buying things much, much cheaper and safer!

In a nutshell

Virtually all cryptocurrencies are powered by a blockchain, a digital ledger technology which is essentially a list of transactions that can be viewed and verified by anyone.

There are literally thousands of cryptocurrencies but the most well known include Bitcoin, Ethereum, Bitcoin Cash, and Litecoin to name a few, which all run on blockchain networks.

A blockchain network is secured by millions of computers (… nodes) all over the world meaning their accuracy is constantly being validated by a huge amount of computing power.

Because of the validation process of these networks, whenever you make a payment via blockchain technology it can be more secure than your traditional debit/credit card transactions.

Also, when paying by Bitcoin let’s say, you don’t need to provide any sensitive information which means effectively there’s no risk of your financial details or your identity being stolen.

Conclusion

Cryptocurrencies and the blockchain technology provide a genuine alternative to every financial service you use in your daily life and you can access it all with little more than a smartphone and internet connection, without the need for a middleman like a bank or credit card company.

But the technology is also evolving and is incredibly exciting because it has many uses beyond cryptocurrency.

• Blockchains for example are being used more and more in medical research

• They’ve been shown to improve the accuracy of all kinds of records, especially in healthcare

• And they’re proving to be massively helpful in streamlining supply chains.

These are just a tiny fraction of the potential benefits and new and exciting uses are being discovered all the time.

Some people even trade cryptocurrency as a side-hustle so if you’re interested in getting involved in the digital currency market and fancy investing in crypto then feel free to use this link to Coinbase, one of the biggest crypto brokers in the world, where we’ll both get a Bitcoin bonus to the value of £7.00 (… at the time of writing) once you invest £75.00 or more on their platform!