1. What exactly is cryptocurrency?
Imagine you are playing a real-life version of Monopoly, where paper money can only circulate in this chessboard world. Cryptocurrency is essentially such a "game currency", except that its playing field is the entire Internet world. Bitcoin, which was created in 2009, is like the gold in this game. The total amount is set by the program to 21 million pieces, and it cannot be issued in excess.
Unlike WeChat coins, these digital currencies are not backed by a central bank. Their value comes from two points: 1) blockchain technology ensures that they cannot be forged; 2) more and more people recognize their value. Just like shells in ancient times, when enough people accept shells as a medium of exchange, shells become currency.
Two, Blockchain: A Public Magic Ledger
Imagine the whole class is maintaining an Excel accounting sheet together: Zhang San transfers 5 points to Li Si, and all students' computers will sync updates. This is the prototype of blockchain—distributed ledger technology.
Each block is like a page of a ledger, recording all transactions within 10 minutes. Once this page is filled, it automatically generates a security watermark (hash value) and is copied to all computers on the network. If someone wants to tamper with the record, they would need to hack more than 51% of the computers globally, which is nearly impossible to achieve.
Three, Mining: The Accounting Competition of the Digital World
The work of miners is not really about digging holes, but rather a mathematical competition. Every 10 minutes, global mining machines are brute-forcing a math problem, and the first miner to solve it can receive a new Bitcoin reward (currently 6.25 coins per time). This process simultaneously accomplishes two key actions:
Verify the authenticity of all transactions within 10 minutes
Package transaction records into new blocks
Provide security for the entire network by consuming electricity
This is like a bank hiring security guards and needing to pay their wages; the Bitcoin network pays miners maintenance fees with newly issued coins. However, by 2140, when all Bitcoins are mined, miners' income will completely rely on transaction fees.
Four, Survival Rules for Investing in the Crypto World
In 2021, there was a real case: a university student used 3,000 yuan in capital to trade MEME coins, turning it into 2 million in three months, only to encounter a price drop to zero in his sleep. This story reveals the duality of the crypto market:
24-hour roller coaster: No price limits, Bitcoin once plummeted 30% in a single day
Borderless Freedom: Cross-border transfers arrive in 10 minutes, with fees as low as a few dollars
Jungle Law Market: 90% of altcoins will disappear within three years
For beginners, my advice is: first use no more than 5% of liquid funds to purchase Bitcoin/Ethereum, and consider them as digital gold to understand this new world. Remember, when the square dance aunties are discussing cryptocurrencies, perhaps it's time to be cautious.
Looking back from 2023, cryptocurrencies have come a long way from the absurd years of buying pizza with 10,000 Bitcoins (now worth about $300 million) and are undergoing a transformation from 'digital tulips' to Web3 infrastructure. Perhaps one day in the future, blockchain technology will become a foundational infrastructure like the internet, but will its tokens become mainstream currency? The answer to that may be revealed in the next decade.
Do you still think that cryptocurrencies are just a speculative game? Let's discuss your thoughts on this new world in the comments. In the next issue, we will dissect 'NFT Digital Collectibles' to see why a JPG image can sell for $69.3 million.
