Cryptocurrencies (or “cryptos”, I’m sure you have heard about Bitcoin or Ethereum. The global market for crypto is valued at USD1.8 Trillion (yahoo finance), that’s 291 times Jamaica’s 2021 GDP, a goliath of an industry. Cryptos have made billionaires, are being adopted by governments, are creating new industries, and are even being used to support Ukraine’s war defence. Today I will explain what cryptocurrencies are to all the PEP students out there and anyone else interested in learning. But why Crypto? Financial literacy is a big issue globally, especially for young people and to complicate things they have to learn about an entirely new form of currency, is rough! But let me at least give you a little head start by explaining what cryptos are, because one day it may be the only way to spend and make money. To start we will define what a cryptocurrency is and then go through a crypto example using school lunches.
A cryptocurrency is a digital asset that can circulate without the need for a central monetary authority such as a government or bank. Cryptocurrencies used cryptographic techniques, encryptions used to secure information to allow people to buy, sell or trade them securely.
Let’s say we give everyone in your grade 100 crypto PEP coins, you are now a part of the PEP Network. You can use PEP coins to buy lunch every day. Tomorrow you will use 1 PEP coin to buy a patty and juice. The rest of your class plans to get lunch too, everyone uses WhatsApp to send their lunch order in the morning and your classes’ orders are automatically logged together as a “Block” of lunch orders. Now the network needs to make sure each class’s orders are collected securely and accurately, so they convert each block to a string of numbers using encryption. Encryption converts the orders into a puzzle that needs to be solved with brainpower or powerful computers. For this example, the puzzle will be a PEP mathematics problem, and since PEP is all about learning you will be rewarded a PEP coin, if you are the first person to solve the encryption. Anyone that attempts to solve the encryption is called a “Miner”. The faster the miners solve the puzzle the faster everyone’s lunch order goes in, so the speed is super important. Accuracy is just as important as speed, so we have to make sure the solution is correct; other students in the network check the fastest solution, and once enough students reach a consensus that the answer is correct the block of lunch orders is added to the “Blockchain”. The Blockchain is an electronic ledger that keeps track of all the lunch orders ever made. You and every other student can keep track of all the orders ever made by looking at the Blockchain. You could also buy, sell or trade your coins with other students. If for instance the lunchroom ran out of patty that day and you didn’t feel for anything else on the menu you could trade your coins for a friend’s bun and cheese. That is basically how Cryptocurrencies work, now let’s look at the good and the bad.
The Benefits
The major benefits of cryptocurrencies are; that no one person or company will have central authority over the currency, making it harder for criminals to gain control of a cryptocurrency and exploit coin holders. Secondly, no third-party bank is needed to oversee the transactions, lowering costs to you. If you check your bank account or your parents you will different fees the Bank charges to verify what is happening with your money, to make money transfers and to use their systems, like the ABM machines.
Finally, transactions on blockchain networks may settle faster. Banks are open on certain days and at specific times and they need time to verify that transactions are correct. Miners are incentivized with rewards to verify transactions as quickly as possible. In the real-world miners are actually computer programs that speed all day and night trying to solve the encryptions.
The Drawbacks
The first drawback was actually a benefit, no one person has authority, meaning no regulation, something goes wrong there is no one entity responsible for fixing your issues. Secondly, Criminals use cryptocurrencies to hide their illegal operations. The next and potentially biggest issue is environmental, it takes a lot of computing power to solve the encryptions, meaning a lot of energy. Each bitcoin transaction uses around the same electricity as one household does in 3 months. Finally, it is new, Cryptocurrencies are less than 14 years old, there is still uncertainty if they can be scaled for global use and crypto prices are highly volative if you plan to invest.
You now have a better understanding of crypto that the majority of the world. Impress your parents and grandparents with your knowledge.
Our next article will explain the innovative and crazy world of NFTs.
