What is Cryptocurrency and Why It's Not Scary: Ambassador Toolkit Item #1

in steemit •  2 years ago

I've been preaching the word of Steemit pretty much since I started here a couple months back. Many people have been willing to listen, see my page and my payouts, and know that earning have been successfully cashed out and used to pay for things like groceries, mortgage payment, etc. The most difficult thing I've encountered is when the inevitable question arises, "Where does the money come from?"


I really can't blame anybody for asking this, I did myself when first told about Steemit. It really is an important factor when something can be seen as a scam or legitimate. This post is going to go through how I answer this crucial question and a brief necessary introduction into cryptocurrency.

[I'm not an expert on this, so feel free to leave comments of things that are inaccurate, to improve and/or include. Keep in mind that this is for a non-crypto audience, so I don't want to get too technical, merely provide a good model they can understand and relate to.]

How Much is my US Dollar Worth?


Before we look at cryptocurrency, lets talk about the fiat (or government backed) money using the US dollar as an example. Up to the 1970's United States currency was on the gold standard, meaning that someone holding a $100 dollar bill technically held $100 dollars worth of gold. A simple way to think of this is that all the money in "people's pockets" was stored in Ft. Knox.

President Nixon removed the US dollar from the gold standard in 1971, meaning NOTHING physical is what determines the value. From this time on, our money has been determined by non-tangible things such as:

  • Supply and Demand for the US Dollar through trade of goods or (bond) exchange markets
  • Viewed strength of the US economy (example: high vs low national unemployment rates)
  • and others (but lets keep this simple)

My whole point here is that the Dollar bill in our pocket is really changing in value from moment to moment, even though we still see the same physical dollar. Nowadays our money holds value because we and others have faith in it's worth and that it's spendable.

What are Cryptocurrency and Blockchains

Cryptocurrency


Cryptocurrency basically means "a currency that is not backed by a government." The crypto part simply means that cryptography was used to secure transactions (like what happens when you swipe your credit card) and to control creating new currency (versus the US who can print more money and minimize counterfeiting.)

Much like the "off the gold standard" US dollar, Bitcoin is valued in a similar way, by the non-tangible factors. Now, the US had a long time to "build up trust" in it's currency before getting off the gold standard, so it can make sense as to why it still holds value. Having a trusted track record goes a long way when it comes to trade.

Blockchain


Have you ever seen those US dollars with a stamp on it for a website like http://www.wheresgeorge.com, which let you see where that specific dollar in your hand has been previously? Now imagine that this dollar was tracked on that website EVERY time it changed hands, not just when someone thought to visit and input the serial number. Now imagine EVERY dollar was tracked EVERY time it was spent. You would be able to see in sequence, how every piece of US currency moved if this was the case and take a rather large database to handle it.

This is how you can think of the blockchain, as a database that has tracked every dollar, every time it changed hands. This would also include those times when a tourist needs to exchange the Euro's in their pocket for US dollars to spend while here. The blockchain is a long string of sequential "money exchange" records with the new records (or blocks) being added on every second to keep it up to date.

Bitcoin


Bitcoin was the first cryptocurrency which was started back in 2009. So you may ask, how did Bitcoin build up trust since there was no long track record available when it started? It's not backed by a precious metal or anything that we could ask to trade in our Bitcoin for. This is where the blockchain (i.e. public ledger) comes in to play.

The first transaction using Bitcoin was made in 2010 to buy two pizzas for 10,000 Bitcoin (BTC.) In today's market, these same 10,000 BTC are worth in excess of $6 Million US dollars. Over this time, the transparency of the blockchain allowed individuals to see all the transactions that took place for EVERY Bitcoin, building up people's trust in it having value.

Nowadays there are hundred of companies the accept Bitcoin as easily as they take your MasterCard, Visa or Debit Card including Microsoft, Virgin Galactic and Expedia. An even larger list can be seen here. There are even more places, like Walmart, where you can use a Bitpay (Pre-loaded with Bitcoin) card to make purchases. Here is a blog of somebody who show's the successful transaction: Here

Benefits of Cryptocurrency

Accounts Cant Be Frozen


Some people are concerned about their governments being able to freeze their bank accounts or assets. Since cryptocurrencies (by definition) aren't backed by a government, they aren't controlled by one either. There is no way for you Bitcoin account to be frozen.

Decentralized Systems are Resilient to Attacks or Disasters


Cryptocurrencies are typically what they call "decentralized," meaning that there isn't a single location running the whole system, but rather many computers around the world who are synced up with each other. This means that if something happened (like a natural disaster) the system would still function if say, the only computers in the US were effected. The others around the world would still keep things going.

Final Thoughts

Cryptocurrency and specifically Bitcoin are not as scary as they're typically made out to be. Bitcoin is by far the most establish of these currencies and even though it does fluctuate a bit in value (just like the US dollar,) it's a rather stable market. I typically liken these to blue chip stocks when giving someone an analogy.

The Steemit website pays bloggers and other content creators in the cryptocurrency Steem. Now while this is a newer currency, and I can understand some concerns investors may have, I don't see anyway those who pay nothing in, yet get money out, can't lose. There are multiple ways that Steemit users can get and spend their earnings, transferring it to their Bitcoin wallet (and using the Visa Shift Card, their Bitpay Card or to their bank account (through a Bitcoin wallet.)

Don't let something scare you just because you've never heard of it.




Image Sources:
Bitcoin and Dollar
Dollar Bill Graph
Bitcoin Accepted Here
Blockchain
Cryptocurrency
Frozen Account
Decentralized System

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Great information as always, @sykochica! Thank you for curating it and helping us make sense of it, so we, too, can become better ambassadors of the site. Love it.

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Thank you!
This is by far the most difficult piece I've found in getting people to give things a try. This has been high on my to-do list for a little while, glad to have it done. :)

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...and for someone who is also new to it, explaining it so it doesn't sound like a scheme is hard, so now we can all sound more intelligent and I personally feel less ignorant to how it works.

Do you feel that decentralized systems are sustainable over long periods of time?

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While I'm definitely no expert, I do feel that way. Both because of resiliency and transparency.

This video by @piedpiper is one of my favorites on the topic: https://steemit.com/steemit/@piedpiper/what-are-blockchains-and-cryptocurrencies-and-why-do-we-care

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I second this!

Great explanation. This is all new to me. Your post gives me a better understanding. Thank you. I upvoted, reposted and followed.

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Thank you!
I've been wanting to see the 'word of mouth' campaign re-invigorate and things like this help that a lot (imo.) This can be a difficult topic to discuss, especially when friends/family ask good important questions.

I'm still filling out my checklist of things like this to make talking about Steemit easier, have you found any other areas that you've found hard to explain/talk about? I'd love to focus on those for people.

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Keep pluggin' & steemin'!

Great stuff! Just recommended you to Steemplus, and think I'm going to get me a Visa Shift Card now so thanks for that link...
Plopping $100 or so into it from time to time then using it later in the week at Walmart, etc, looks like - on average - would be a smart way to "earn interest" much better than savings account or "rewards". Even tho I'll occasionally take a loss, the graphs for the last year are in favor of gaining. On average anyways!

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Oh nice!! TY! And I'd love to hear how the Shift Card goes for you! I've been searching for posts/videos of people successfully using btc based cards. I think they it's impactful for people to see them 'just work.'

I'm with you on the 'smart way' parts. While I'm always careful to not give financial advice (I'm def no expert,) I'm totally on the same page with you there...slowly earning a little over time is something I'm a fan of. I can't wait till I get my btc card! :P (in progress)

But what a great tool to show others..I can spend btc/steemit earnings with this...as I pull my card out. (music plays in the background, clouds part, lol...jk on this part)

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Great commercial idea, haha! I emailed Coinbase to see if they have plans and/or how long to add Steem, so that users can do direct USD/Steem transactions ever - esp for Shift card use. Changelly told me they're working on cc/debit purchases direct to Steem as well. It'll be awhile to get my card in the mail but I hope to post a "smart way" article in the next day or two, and then will photo and blog some purchases as I go to keep people up on the results. Thanks again!
Best, Guy

Thank you for writing this. I basically understand cryptocurrency because I've been around it for years. my partner @sean-king has dabbled in it since 2010, but I still find it hard to explain to others succinctly. This is the best summary I've found!

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Thank you!
That really means a lot coming from someone that's been in the crypto circle. Outside of purely 'hearing' about bitcoin (and maybe an alt coin or two,) signing up on Steemit was my first direct exposure.

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That's a good term for my experience...inside the crypto circle. Yes, I've heard of alt coin as well and etherium (SP?). I've even made a bitcoin purchase or 2! It's intimidating but not that hard. Steemit is more crypto experiential because there is something to do on the platform - read and write content. Whereas Bitcoin you just jump through hoops to acquire it, hold onto it as you try to find somewhere that accepts it.

Cool and clear article @ sykochica. Upvoted and followed! (;

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Thank you!
Have you found any other Steemit and/or crypto topics that are difficult? I'm really trying to 'fill holes' with things like this :)

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In this moment no, thank you! keep sharing your articles they are very good! (;

excellent post, valuable information, expeditious and explicit, of great understanding, @sykochica congratulations and thanks for sharing

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Thank you!
I hope many find it helpful! :D

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Resteemed and upvoted. Thanks for writing this.

If I could hug you through the internet right now, I totally would. This stuff is perfect! Thank you!

You've presented some good information here on the role "faith" plays in the utility of a currency. When faith in a currency is lost people turn to other forms of currency to trade with which they trust more.

However, I'm not sure you dealt with the question, "Where does the money come from?" I emphasize "the" because I interpreted the question to mean, "Where does the money in steem come from?", not the more generalized questions "what is money?" or "where does money come from?"

The people I encounter want to understand "What is the source of the money used for steem payouts?", and "Are investors' funds used for curation and content payouts?". In other words, people want to understand the flow of funds in the steem ecosystem to validate it's not a scam or decide if it's a worthwhile investment and if so how to determine ROI. All very reasonable questions, questions I myself have yet to hear a good explanation for.

The Steem whitepaper explains a lot, but does not do an adequate job of addressing Steem's model of sustainability. It does a great job of explaining the incentives and features aimed at encouraging adoption, platform growth and high quality, market driven content, but does not claim such incentives will guarantee success (i.e. will be sustainable) or predict a rate of growth.

Most people prefer to be handed solutions and answers to problems rather than doing the hard work themselves. That may or may not be laziness, but one thing is certain: saving labor or reducing its' costs creates wealth. Difficult challenges drive creativity and learning. Whether the Steem platform is a sustainable ecosystem remains to be seen and nobody knows the answer. There are so many factors to consider that it's easier to conduct an experiment (creating a company, hiring admin staff, programmers, marketers ...) than to construct a provably sustainable model. Nobody has a model to accurately predict what a free market will reward with growth or dwindle to destruction. If it could be predicted it wouldn't be free.

Perhaps the answer is allusive and difficult to articulate because Steem is an experiment in progress and the analysis is ongoing. What feedback metrics need to be monitored to determine Steem's sustainability? How does one assess Steem's health? Is looking at the market capitalization sufficient or irrelevant?

I have never seen an actual "business plan" for a crypto company. Aside from describing features and arguments for why such features will produce an emergent property of sustainability, what could be said to convince investors that will happen that isn't highly subjective? There is nothing, it's a judgment call and the wisdom or folly of it can only be proven in retrospect.

This is one of the better overviews I've seen on Crypto. Its detailed enough where I can send and link this article to friends who are on the fence about crypto currencies, and this will give them a great first look into understanding crypto, especially bitcoin. Thanks a lot for this article.

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Thank you! That was the goal here. A non-crypto explaination of crypto, lol

Your articles about the cryptoworld are just great! Thanks for writing them!

Just wanted to say thanks for this comprehensive explanation of crypto. I'm writing a post now about how I actually purchased steem and would like to just refer people who are super new to crypto to your article. I hope the link is ok. If not just let me know. Thanks again.