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What is Cryptocurrency?
A beginner's guide from someone who doesn't actually know
There’s something in the air these days, and no, I’m not talking about the novel coronavirus! The buzzword on everyone’s lips right now is “cryptocurrency”, and it’s spreading like wildfire. Famous celebrities such as rapper Snoop Dogg, actress-turned-lifestyle-tycoon Reese Witherspoon and chef/restaurateur Tom Colicchio have lent their names and endorsements to the hot new trend, and more people are jumping on board every day!
Don’t know what cryptocurrency is? Don’t fret—you’re not alone.
It can be easy to get confused when talking about something so new and fast-growing, especially if you’re not a digital guru like me.
That’s why I’ve brought in our intrepid tech reporter (me doing a slightly different voice) to answer some questions that you and I might have about the fast-growing world of crypto.
Thanks for joining us today.
Now, I’m sure you have a lot of insight to share with our readers today, but let’s start with the very basics. What is cryptocurrency?
That’s a great question. You see, traditionally, money is made out of paper, metal, or occasionally giant, immovable stones. It’s easy to see, easy to handle, easy to toss into a shopping center fountain or stuff into your pants while inside one of those blower-phonebooth things, but not easy to send over long distances.
I don’t understand.
Here’s an example: say you’re at a baseball game, and you want some peanuts, but you’re sitting all the way in the middle of the row. It’s very hard to complete a transaction. Sure, the vendor can throw the peanuts to you, but how are you getting money back to the vendor? Paper money is very difficult to throw accurately.
You could just pass it down the aisle to the vendor, though, right?
You could, but think of all the people involved in that transaction. Legally speaking, you’d owe each person who handled that money a processing fee, likely to be paid out in a share of your peanuts. By the time you’ve paid out all involved parties, you’ve barely got any peanuts left—and don’t even get me started on the Cracker Jack.
But don’t worry! This is where cryptocurrency comes in.
You see, cryptocurrency isn’t made out of paper or metal. It’s made out of “ether”.
And what is that?
A pleasant-smelling colorless volatile liquid that is highly flammable, often used as an anesthetic or industrial solvent.
That sounds dangerous. I don’t want to blow the peanut vendor up.
Ah, but this is the beauty of cryptocurrency. You don’t carry it around with you—it’s kept stored in a safe, underground location. That’s where the name comes from: it’s a “Crypt o’ Currency”—in this case, tens of thousands of gallons of that sweet, volatile ether, sloshing underneath in a mostly-abandoned graveyard we bought last year.
What happened to the bodies?
Don’t worry about the bodies.
If I don’t carry the ether around, how can I spend it? I’m hungry and want those peanuts.
The ether doesn’t have to go anywhere to be spent—you simply transfer ownership of it using what’s known as “the blockchain”.
Now, what is that?
It’s really quite elegant. It’s a giant metal chain, like the ones you would moor a battleship with, but shinier.
I’m starting to think you don’t actually know anything about cryptocurrency.
No one does! The important thing is that you keep talking about it.
I see. So, this “blockchain”—
It’s very heavy, which makes it resistant to fluctuations in the market. You grab a hold of this chain, follow it around the block, and it leads you directly to the crypt. Once there, you pour your hard-earned ether into the giant above-ground funnel, and as soon as you’re finished, you’re issued an NFT.
What’s that stand for?
No one knows. But it usually consists of a cartoon drawing of an ape.
An ape? That’s dumb.
Is it worse than putting Andrew Jackson on your money?
Now, the picture of the ape signifies how much ether you’ve poured into the crypt. There’s very subtle differences in each drawing—virtually indistinguishable to the layperson, but immediately evident to other “cryptids”, which is what people who trade crypto are called. Usually it has to do with what kind of hat the ape is wearing.
Do the drawings look really stupid?
Yes. Those are the most valuable ones.
We live in a time of wonders.
So, walk me through how this transaction would work. I’ve got a poorly-drawn picture of an ape on my phone, and I’d like to turn it into peanuts, perhaps even some cotton candy. How do I go about it?
Right. Well, first, you would yell “peanuts!”
Not right now, though.
[whining] But I’m hungry now.
I think I have a granola bar in my bag. [digging] Here.
Ooh, chocolate chip!
So, once you’ve gotten the peanut vendor’s attention, you ask what kind of ape the peanuts cost. They’ll tell you, and then you look in your camera roll for an ape that’s the right kind. One wearing sunglasses, or perhaps a tiara or Viking helmet.
Okay, I found one. He’s wearing a propeller beanie.
Perfect. Now, throw your phone at the peanut vendor.
He dropped my phone!
He kick-saved before it hit the ground. It should be fine. Now, watch what he’s going to do here—he’s going to hold his phone up to yours, and take a picture of the ape. Now he owns the ape, and with it, gallons of that sweet, sweet graveyard ether!
He can simply throw your phone back to you—
[fumbling] ah crap I dropped it too
—and the transaction is complete.
My screen is broken.
It’s fine. It’s just a little crack. You can buy a new one with one of your other apes.
Wait, how many apes am I supposed to have?
It’s hard to know exactly what’s right for your own needs, but most cryptocurrency experts suggest that you should be leveraged to at least 200% of your real-world assets in NFTs. They don’t have to all be apes, either—they can be pictures of other people’s tweets, NBA highlights, or even pictures of pizza.
Do they have to be poorly-drawn?
This sounds like an overly-complex way of buying peanuts. I could just walk down the row and hand the guy a $5—this hypothetical game’s not even that crowded. I mean, it’s baseball. No one cares about baseball.
It’s not just for peanuts, though. Cryptocurrency can buy many things—pizza, Teslas, illegal drugs, other forms of cryptocurrency—the world is your oyster.
Can I use it to buy oysters?
Yeah. Sorry, there are still some limitations.
Well, I have to be honest with you: this all seems like a convoluted mess that’s bound to end up with a lot of people losing their shirts while a handful of clever early-adopters scam them out of their money with the false promise of massive returns. And that’s not even getting into the negative environmental impacts and criminal activities it enables. It just seems like a really bad idea.
Wow, you’re really down on crypto.
What? Oh, no, I was watching the baseball game. MLB is terrible.
They’ve got their own crypto now, you know.
Of course they do.
—Scott Hines (@actioncookbook)