My Understanding of Cryptocurrency

I am not an expert. I am using this space, my personal blog to help me understand cryptocurrency from various sources. These have been mostly international. This is not investment advice.

Each cryptocurrency is a project that solves a certain problem. Bitcoin tries to transfer value from one individual/organisation to another without the need for an intermediary. Ethereum tries to use the blockchain to build applications. Some of these applications are famous for supporting applications like NFT. Other, some other so called alt coins try to solve specific issues based on Bitcoin and Ethereum by tweaking some of the underlying mechanisms. As an example, Basic Attention Token (BAT) try to provide a part of the value companies make by monetizing people’s attention.

When I invest money in any cryptocurrency, I look at it as investing in the project. Just like you would donate to an open source project or pay for subscription. I put in money that I do not mind losing.

The utility of the blockchain and the value of the cryptocurrency are intertwined. Higher the utility of the blockchain, more the value of cryptocurrency, leading to improvements in cryptographic security, leading in turn to more utility of the blockchain. In addition to this fundamental value of the cryptocurrency, there is speculation on the price which also affects the value of the blockchain.

Bitcoin has such a high value because it is believed that the longer a blockchain has existed, better is the security and the more valuable it is. Like wine.

The world of cryptocurrency uses memes to communicate and help others understand the projects and speculate on its value.

There are efforts to use some stock market techniques to understand the speculative aspects of the cryptocurrency. There are aspects of utility of the blockchain which also affect the price of the cryptocurrency and hence may not be fully applicable.

These are some of the threads that I have in mind with respect to cryptocurrency.

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