Part One: The Basics (Warning: still fairly complicated).
A fever pitch of interest surrounds Crypto. Is it a desirable, albeit confusing, investment opportunity? A concerning environmental issue? A chance to decentralise finance? Or somehow, all three?
With our series, we’re going to try and straighten out exactly what Crypto is (so you can explain it at a dinner party if you’re ever allowed to attend one again). What its limitations and opportunities are and what difference, exactly, any of this might make to you.
First up - what is Crypto?
In a short period of time, cryptocurrency has been added to our vernacular, but few of us can explain what it is, not dissimilar to the telephone. Basically, Crypto is a generic term that refers to digital currency underpinned by cryptography and blockchain technology.
Others have tackled this and we recommend checking out this youtube clip for a visual explainer: Simply Explained
A crypto network is better known as a blockchain network, a decentralised public ledger for verifying and recording transactions.Every transaction on the blockchain is recorded and published for anyone to see. Once added to the blockchain, it cannot be changed. Users can therefore create, publish, monetise, and use applications on the network with confidence. Applications built on top of the network are often referred to as decentralised applications or “dApps”. These applications use the networks digital currency aka cryptocurrency or token as a medium of exchange.
As a user of a network or dApps, the only barriers to entry are an internet connection and enough cryptocurrency to pay for the transaction.
Cryptocurrencies are stored in a digital wallet. Two key components of wallets are the public and private keys. Think of a wallet as a PO Box on a blockchain network, the public key is the address of the wallet and can be shared with anyone. The private key is like a key that opens the PO Box, and only you have that. It verifies you as the owner of the wallet. If someone gets hold of this private key and they know where to look (public key), your cryptocurrencies are no longer safe.
To me, crypto should be referred to as Web 3.0 and cryptocurrencies as digital assets. It’s the third generation of the world wide web. It enables a future where, from anywhere in the world, strangers and their devices can interact with data, value, and each other via trusted decentralised networks and without the need for third parties.
For reference, generations of the internet can be categorised into the following:
Web 1.0 - The first iteration of the world wide web, which is the “read-only web.” In other words, the early web allowed us to search for information and read it. There was very little in the way of user interaction or content generation.
Web 2.0 – Then came the “read-write” web. It’s the ability to contribute content and interact with other web users. Think Airbnb, Netflix, and Facebook, which rely on user submissions. Users are the data, corporations own the platform, and the code is closed.
Web 3.0 – The third generation of the internet is “read-write-execute.” It is playing out in the form of blockchain and cryptocurrencies. Users own their data, contributors own the platform, and the code is open.
Tip: For more info on the Web 3.0 check this Medium article out: What Is Web 3.0 & Why It Matters
Coming up in the series we’ll cover: What should we know about crypto? What does crypto mean to me? Is it an ethical investment?
Disclaimer: Pathfinder does not recommend anyone buy or sell crypto, this is merely information to help people better understand it.
John is committed to making ethical investment accessible to all NZ investors. Before co-founding Pathfinder in 2009 John worked in law firms and investment banks in Auckland, London and Sydney. He has a BCom/LLB(Hons) from Auckland University and is a board member of Men’s Health Trust.