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  • Writer's picturePatrick Aloisio

What are Cryptocurrencies Really?

Updated: Jun 27, 2022

Originally posted on Twitter, you can view the full thread on Twitter here

 

What is cryptocurrency? How does cryptocurrency work?


I can't believe most people didn't know this! Cryptocurrencies are labeled as currencies, but very few of them are trying to be a replacement for money. 👇 Here's a thread on what they REALLY are. 🧵


1/ Quick disclaimer: the term "Cryptocurrency" is a misnomer. That means the term is incorrect. At least, it's wrong to make it a blanket statement for all of the Crypto world. THE MAJORITY AREN'T TRYING TO BE CURRENCIES. A much better term would be "Cryptotechnologies."


2/ The brilliant @rocco_marchiori of @BlockwareMining has said this same thing, but I'm taking credit for saying it to him first... 😎 Now why would this term Cryptotechnology be better fitting than Cryptocurrency?


3/ I think the vast majority of people that aren't in the space and already educated on Crypto would be much more receptive to Crypto if they realized these Cryptocurrencies are really just new tech innovations. The term Cryptotech fixes this.


4/ Cryptotech gets rid of the lottery ticket / get-rich-quick / scam feel of a bunch of mysterious "new currencies." Instead it positions Crypto as the exciting, innovative, new tech of the future that it really is.

5/ The "currency" part of the term comes from these new technologies having their own ecosystems and needing a value to execute actions within their ecosystem. An easy example of this that everyone already knows would be GIFTCARDS!

6/ If you have a $25 Starbucks giftcard or make a deposit on the app, in essence you've exchanged USD for Starbucks bucks. These StarBucks can get you a handful of things in the Starbucks world from coffee to croissants. It's their own currency. But for other bills? Not so much


7/ Now does this mean Starbucks has launched a currency to overtake the world's monetary system? Of course not. BUT it still can be viewed as a currency in a way. You should view the majority of Cryptocurrencies in this same manner.


8/ Cryptocurrencies let you operate in their own ecosystem, but the vast majority are not trying to overtake the role of everyday money. Make sense? Good! Alrighty now that we cleared up the name, let's dive into some Cryptos! We'll start with the OG Crypto itself, Bitcoin.

9/ Contrary to what I just said for cryptocurrencies as a whole, Bitcoin is pretty beautifully designed as money. What are the 6 things that classify something as money?

  • Durability

  • Portability

  • Divisibility

  • Uniformity

  • Limited Supply

  • General Acceptability.

10/ Currently since BTC is not as generally accepted as money (can't spend anywhere), has volatility, and transactions can be costly w/o the Lightning Network, I think today BTC is best fit as a store-of-value or digital gold.

11/ @DanHeld has a phenomenal piece on gold vs bitcoin and the "store of value" stance. Link here I can see someday down the road BTC getting adopted as everyday money, but that will realistically take a lot of time.

12/ Ok, still with me? Let's take a look at the star #2, Ethereum. I think of Ethereum in two separate parts. Part 1 let's call it the invention of the road. Depending on what you're trying to achieve, developers can build different cars to do different things on this road.

13/ If you want to go fast, vs seat a lot of people, vs have a lot of storage space, you would have built a different type of car for each. Now for Part 2 Ethereum's smart contract language "Solidity" let's you build your vehicles, but what does every vehicle need to run? Gas!


14/ Ether, the native token of #Ethereum, is what allows all of these cars to go. When you make a payment of Eth to someone, execute a smart contract, etc, there is a certain amount of gas (Ether) required to make your car go.

15/ Some real world examples for this include trading on decentralized exchanges, using decentralized file storage, or minting art & collectibles in the form of NFTs. Check out this thread from @naval for great info on NFTs: Link here

16/ Ethereum is definitely the biggest player in this realm, but the others competing in the same manner are Cardano, Solana, and Polkadot to name a few. These all vary slightly by focusing their roads more or less on speed, security, and decentralization levels.

17/ Another type of Crypto that's very important to cover would be Stablecoins. They're called this because their value is unaffected by the demand for the coin, instead value is fixed to some asset, like the US Dollar. The most popular Stablecoins are Tether, USDC, and BinanceUSD

18/ Now why would people want these? Isn't the point of crypto to make money from price appreciation? No. Stablecoins can offer a way for people to earn yield on their money. Certain institutions like BlockFi or Gemini will offer interest for staking Stablecoins on their platform.


19/ These platforms tend to have a much higher return than a savings account with a traditional bank. They can offer returns because they also offer loans to people just as a traditional bank would. But the collateral used is their Crypto portfolio. Something a JPMorgan won't do.

20/ Stablecoins also are a way for people to reduce volatility when they think there might be a big market fluctuation coming. By switching to a Stablecoin, the current value is no longer moved by market swings. Plus it's much faster than converting back and forth to fiat.


21/ Let's say you have $500k in BTC and you might want to buy a house. But you're nervous about the price maybe decreasing by the time you find a house, so you swap it for $500k in USDC. That way you know the $500k value won't change by the time you decide to buy or not. Great!


22/ Are you starting to see how there's a wide range of applications & objectives in the Crypto world? There isn't one medicine for all diseases, one clothing style, or one company for everything (even if Amazon wishes that were true). Why would there be only one Cryptocurrency?

23/ Hopefully this thread helped give you some insight on a few of the different types of Cryptos! There are tons out there, so make sure you do your research. If you thought this thread was interesting or helpful, follow me @Patrick_Aloisio for more threads like this.


If you're interested in the Crypto world, these are some of the very best people you should be following:

Follow for more plain easy analysis.

 

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