Popping my Steemit cherry: Explaining blockchain to my old man

Hello everyone,

Firstly, I wish to prematurely apologise for not following the traditional customs of Steemit by posting a photo of myself. Believe me, you wouldn't want to see my prepubescent mug plastered on this post. Instead I thought that I would post an image of my doppelgänger in twenty odd years to stimulate your imagination:

Okay, now that we're done with the platitudes please allow me to introduce myself. My name is Con and I'm a twenty one year old ethnic living in Australia. I stumbled across Steemit when I was researching the various blockchains that are available and what their various features and functionalities are. I absolutely loved the concept of proof-of-brain and due to my lack of one, I ironically thought that it would be the perfect platform for me to experiment on.

Currently, I am trying to drag my old man into Cryptocurrency as I've been following the market since I was 18 and have been kicking myself for not investing, until now. FOMO has kicked in very hard and from a bit of research I believe it is very logical to infer that blockchain technology and the cryptocurrency market is the future of commerce.

Constantine Sr. is very particular about his investments, especially when his son (who can't even grow a fucking beard) is promising him something that sounds too good to be true. Moreover, Papa Bear has said that he will consider investing in cryptocurrency if he can completely understand the technology, the market and its growth potential for mass adoption. He conceded that if I can write him a report that details the aforementioned aspects from start to finish that he will invest and use my research as a point of reference.

Constantine Sr. Pictured above ^

Therefore, I have come to the Steemit community to completely shit on what I have written so far and give me some pointers/suggestions.

Ladies & Gentlemen, I present to you my research and report thus far.
Do your worst...

1. Blockchain Technology

Blockchain technology was developed anonymously in 2008 by a person or group who was self-dubbed Satoshi. Blockchain technology is a continuously growing public ledger of transactions, called blocks, which are anonymised by cryptography and verified by Bitcoin ‘miners’. Mining is the process by which a computer runs an algorithm and processes high quantities of power in order to verify these blocks. Every time a block is verified by miners the Blockchain grows and the algorithm adapts making the process more difficult for the next transaction. Miners are issued a small fee for every transaction they verify, this reward process is referred to as ‘proof of work’. For context, when Bitcoin was valued at $8,000 it would cost a mining company $5,000 to verify enough transactions to produce one Bitcoin. Therefore, in order for person X to transfer money to person Y the miners have to verify the transaction and are compensated for their work.

1.1 Cryptocurrency within a Blockchain

Due to the sophistication of Blockchain, numerous ‘altcoins’ are developed to operate within a set Blockchain. Altcoins are the name given to ‘tokens’ or ‘coins’ that operate within a Blockchain that can process different various cryptocurrencies. E.g. Red Pulse Token (RPX) is an altcoin because it operates on the Neo Blockchain alongside other coins.

1.2 Anonymity

Although, Bitcoin and cryptocurrencies have a public ledger of all transactions a hacker or government agency can only verify that a transaction between an anonymous wallet address (more than 100 characters long) to another anonymous wallet address has taken place for a specific amount. Therefore, it is extremely easy to mobilize funds with anonymity. However, when liquefying one’s assets the Government requests a declaration of profits or losses for tax purposes. Small liquidations can be made without the ATO’s detection, however, with large sums of money those channels can be quite risky.

1.3 Store of Value

In aligning with basic economic principles the price of Bitcoin is determined by the laws of supply and demand. The supply of Bitcoin nominally increases everyday by a small margin by the process of mining. However, in reality the supply of Bitcoin is decreasing at a faster rate due to forgotten wallets, exchange fees or from accidental sending of it to the incorrect wallet. Thus, it is safe to assume that the supply of Bitcoin is fixed (for the moment). Moreover, Bitcoin can be stored off exchanges in private ‘wallets’, which temporarily reduces the circulating supply. Wallets are private cryptocurrency storage programs where only a person with a private key (username) and the password can access to transfer funds in or out.

Furthermore, Bitcoin has a strong market history of 9 years and is considered the Gold standard of cryptocurrency due to its deflationary nature, ‘fixed’ supply, high demand and high liquidity. The reason bitcoin has value is similar to why society has imbued value to Gold, because it is a finite resource that has consensus based upon its value. Moreover, the argument is commonly made that Gold has more tangible properties than Bitcoin – “at least you can make jewellery with Gold”. That is definitely the case, however, if Gold’s intrinsic value was derived from its applicability and not its perceived intangible value then its ounce for ounce valuation would be less than that of copper. Therefore, a store of value is built upon consensus and market history, and as the consensus increases and Bitcoin continues to perform its value will increase accordingly.

1.4 Decentralised

Perhaps the most appealing aspect of Blockchain technology is the fact that it is decentralised, meaning the Government has no involvement, albeit Governments do have some short-term market influence. Although, Governmental flaws may influence an economy and subsequent value of the local currency, Bitcoin & Cryptocurrencies do not inflate alongside any Governmental controls. In many cases an inverse effect occurs, where there is a lack of trust in the local economy and Government, Bitcoin is valued significantly higher. For instance, when Bitcoin was valued at $8,000 USD in the global market, it concurrently peaked at $14,000 USD in Zimbabwe.

1.5 Blockchain Hard Forks

When purchasing Bitcoin or other Blockchain securities one becomes a shareholder of the currency, so to speak. For instance, Bitcoin has been prone to numerous hard forks, which have been proposed by developers and supported or fervently detested by Bitcoin holders. A hard fork in essence, is a drastic modification of an already existing Blockchain resulting in a duplicate currency with a technological differential due to lack of total community consensus. For instance, Bitcoin has undergone numerous hard forks, which have resulted in duplicate currencies like Bitcoin Cash (BCH) and Bitcoin Diamond (BCD). Individuals who held their Bitcoin in their online wallets during the Hard Fork would receive a duplicate of their total Bitcoin in this new currency, i.e. if I had one Bitcoin I would now have 1 Bitcoin and 1 BCH. Thus, Bitcoin holders can choose whether or not to participate in the Hard Fork or can publically denounce it, effectively killing the project. This was the case with another proposed split, Segwit2x, which did not come to fruition. The weakness of this community consensus is academically referred to as the Byzantine General Dilemma.

2. Cryptocurrency Market

The cryptocurrency market never stops. When an investor in Australia is sleeping, a South African will be trading. Various start-ups and independent companies have tried to facilitate this market by creating cryptocurrency exchanges where one can exchange Bitcoin for any other cryptocurrency at a given price in BTC. Each cryptocurrency exchange varies in popularity, volume and markets. Generally speaking, as Bitcoin appreciates other cryptocurrencies depreciate relative to Bitcoin. Therefore, a particular token may have decreased in BTC value by 10% after BTC appreciated 20%. Ipso facto, one must constantly monitor the markets to ensure that real BTC gains are actualised. The economy of the cryptocurrency market is constantly growing and creating value through each new token or coin that enters the crypto ecosystem. No coin or token, bar scams, ever becomes completely worthless as no one would willingly exchange a commodity, asset or security for no return.

2.1 Bitcoin Safety Net

Bitcoin functions as a double edged sword for the potential investor. The dilemma is twofold. First, if one holds an overvalued asset that depreciates slowly relative to Bitcoin as the price of BTC increases, then overall losses will be hedged. Conversely, if one possesses another asset that is undervalued whilst the value of BTC is increasing, it may take a while for the market to respond and correct this error. Furthermore, if the correction is so drastic that it results in the value of the coin or token appreciating significantly in such a short period of time it may retract back to its original value resulting in no real gains. Therefore, when investigating in altcoins one must constantly be monitoring the market for any significant movements to ensure they are prepared for the volatile spikes. Hence, in fiat currency the investor will still most likely experience gains from his initial investment even if he loses BTC from market corrections.