In our last article, we ventured into the future to investigate Web.03. We learned how it may potentially turn the world upside down for the better. That was the first of a three-part series that we now continue. After all, we are about real estate. Before we can understand how Web.03 will impact the real estate business, we must learn what it is. Having tackled the enormity of that topic, we move on to how we will trade in the new economy of the blockchain; cryptocurrency. When we ask when cryptocurrency began, we get more opinions than facts. There’s a lot of that with this topic, which is understandable, given it is ground-breaking stuff. The consensus is that cryptocurrency originated with Bitcoin and was created in 2008. Bitcoin’s inventor was Satoshi Nakamoto, who may or may not be a real person or persons.

The Emergence Of Cryptocurrency

That cryptocurrency arrived in 2008 was not surprising. This was the time of the global financial crisis. Our reliance on banks was rewarded by the great recession of 2008–2009. Financiers engaged in irresponsible lending practices. Cowboy banks and financial institutions okayed so-called subprime loans to borrowers with low credit scores. Significantly, they came in mortgage-based packages. Often, no serious paperwork accompanied those loans. Lenders shovelled mortgage-backed securities (MBS) to investors, but never considered a market downturn. Banks were so convinced of the housing market’s stability that they gobbled up MBS products. When house prices plummeted, borrowers were unable to pay their debts. As the banks repossessed houses from the defaulters, they couldn’t sell them at the same value as the loans. Subsequently, the balloon burst. A list of banks and financial institutions went under. Suffering taxpayers had to bail out the banks.

Imagine how popular banks were. Ultimately, those who made the most money escaped justice, while the tax payer bailed out the bad guys. It’s a story that’s been repeated. Enough was enough. The Ponzi scheme of the banking elite and its benefactors has gone too far. Something had to be done. An anonymous person or persons named Satoshi Nakamoto saw the need to disintermediate financial institutions from payment transactions. They conceived of a peer-to-peer payment system unfettered by a third-party parasite. Their system would depend on “proof of work” and exclude banks from authorising transactions. Proof of work means a mechanism of decentralised consensus. It requires a network of members to actively solve an arbitrary maths puzzle to prevent anybody from gaming the system. This is achieved by building foolproof source code. They got to work and, voila! We have Bitcoin.

What Is Cryptocurrency?

Cryptocurrency doesn’t just mean bitcoin: there are thousands of coins, tokens, and decentralised applications with unique use cases and characteristics. When thinking of cryptocurrency, consider it like any other currency. Yet, whereas cash is made of paper and plastic, crypto is a series of ones and zeroes. Given that traditional cash is on the way out, what’s to be considered? As we go cashless, any alarm about not “holding” your money should be easily rationalised. Now, if we want to compare it to cash, remember that every note you spend has its own unique serial number. The serial number corresponds to the important information about that note: where and when it was printed, etc. A country’s central bank stores this information and shares it with banks and smaller governments. Meanwhile, your debit and credit cards bear the number of your account.

Your financial transactions are recorded on a central system. You use your account and PIN to access your account. Your bank allocated your account after you provided your personal information. The central bank and government share this information. If you deposit a $50 note into your account, the central bank records that transaction. It acknowledges that the note bearing the unique serial number has been moved into your credit. Crypto works the same way. Each crypto coin you purchase is analogous to the serial number on the bill. As you can divide the $50 bill into smaller pieces, you can divide up crypto likewise. Take Bitcoin, for example, you can divide it into 100 million pieces. Each piece is known as a “Satoshi.” Every Satoshi is like a cent to a dollar. But instead of a bank account, cryptocurrency has a wallet address.

How Does Cryptocurrency Work?

Cryptocurrency and non-fungible tokens (NFTs) are digital assets in a physical form. It’s just as our regular currency is when we tap on and off on purchases with our card or phone. Crypto can be bought and sold on trading platforms. When a user trades with crypto, a message is sent to the network of that particular currency. The network members receive information about that transaction. When a user transfers a crypto unit to another network member, they send an electronic message. That message contains the instructions about the transaction. All network members view the message. That transaction then joins a group of other transactions that sit in a block on the chain. The information about those transactions is then turned into a block, which is transformed into a cryptographic code. Miners then check the code is valid. If the network agrees, the transaction proceeds.

When we talk about “members,” we refer to the computers in the network. Similarly, the code acts as the miner. The other owners of that particular coin don’t inspect every transaction. However, every transaction is publicly searchable via a blockchain explorer. A bank does not hold the information centrally. Instead, it exists within the network of computers where that cryptocurrency is kept. This is the ultimate accountability, as each transaction is permanent and cannot be erased. As such, there’s no risk of a swindler expunging it. If only banks had such watertight accountability! And that’s where the advantage lies: there is no central bank involved. Nobody collates your details. There is no keycard, but your digital wallet. You are not required to provide personal details to obtain a crypto wallet. Therefore, your personal information isn’t attached like a bank account. Having said…

Cryptocurrency In Australia

In Australia, crypto exchanges must be registered with AUSTRAC. The exchange must provide details of all transactions with crypto. When you buy crypto, you aren’t taxed. and there is no GST. However, you are taxed when you sell your crypto for a fiat currency. A large trade is subject to a capital gains tax. The tax is only relevant at a certain level of income, otherwise, it stays off the radar. You may think this is a deal-breaker, and by being taxable, it defeats the purpose of buying it. But that is to make the major mistake of conflating crypto with investment. Some view it exclusively as an investment, and therefore regard it as a fiat return. But that’s to miss the entire point about cryptocurrency; since this is a currency for the future.

The relative value of crypto today in dollars or whatever is irrelevant to its future value outside of present monetary values. Few retailers accept cryptocurrency, but more are starting to. When the web moves to the blockchain, that’s when crypto will come into its own. You mustn’t conflate the future value of crypto with its fiat value. This is why the volatility of the market shouldn’t worry those investing for the long term. Supposedly, the buyer understands that crypto is to overturn the current financial system. This brings us to the other concern about where it gains its value. You could say the same about regular currency. The more users take up crypto, the more value it assumes. The same is true of printed money.

Where Does Crypto Derive Its Value From?

Gold and dollars back some tokens. US dollars back USDC. London gold backs Paxos’ PaxG. You can redeem these in dollars or gold using their respective tokens. Full regulation and auditing vouchsafe their reserves. However, gold doesn’t back regular currency. The gold standard does not back the US dollar, and neither is the Australian dollar backed by gold. Both cryptocurrency and the dollar are based on the principle of trust. The scale of community involvement determines their value. As such, cryptocurrency is volatile right now, but the dollar is equally precarious. This is why cryptocurrency owners aim to build communities. Computers that process cryptographic transactions earn cryptocurrency on every transaction. This incentivises their use.

How Secure Is Cryptocurrency?

The greatest fear of those new to cryptocurrency is security. We’ve all heard tales about how easily hackers steal crypto. But that’s not entirely true. Firstly, not every cryptocurrency is the same. The code of the coin has a structured purpose. Some cryptographers build coins expressly mindful of security, while others go for a speedy transaction. Those who build weaker coins don’t survive the market, as the flaw in their design soon undoes them. Monero is one such coin, which has extensive privacy features. Think about that, because when we fear hackers, remember that when they steal most cryptocurrencies, they have a problem. Cryptographic transactions are a pain for hackers, because they’re so secure. A hacker who steals Bitcoin is more likely to trade it for Monero. Indeed, hackers favour Monero for that reason.

Understand, too, that a bank holds its data in a central location, while cryptocurrency exists on a blockchain network. A hacker could more easily target the bank than the blockchain. To hack Bitcoin, they’d need to simultaneously hack half the computers engaged in the network. Bitcoin uses millions of computers worldwide, so it’s impossible. The risk lies in hackers targeting exchanges. The more vulnerable currencies have fewer computers in their network. The point of failure is therefore extremely remote, unlike a bank’s. The greatest danger is losing your keys to your crypto wallet. The account numbers assigned to your wallet are your keys. Because it’s anonymous, you can’t use your ID to get back in. Experienced owners store their crypto in a hardware wallet, which is like a mini-computer that resembles a remote controller. And no bank can shut down your crypto wallet, or block your transactions.

Why Does The Government Hate Crypto?

From everything we’ve explained about them and the blockchain, you can understand why the government is reticent about cryptos. Anything that prevents a government’s control does not sit favourably with them, so they’ll advise against it. Remember, crypto eliminates the third party that aims to wet its beak on every transaction you make. This is its strength. The community continues to grow despite the volatility of the market. It won’t stop either, because the concept is too enticing. When coupled with Web.03, which the latter is based on, it will revolutionise finance. With crypto, you can spend, save, and borrow without the government looking over your shoulder. Even the efforts at regulation in Australia will amount to very little. The ultimate conclusion in a crypto world is the end of government as we know it. Because without that financial system, there’ll be no need for it.

Conclusion

Cryptocurrency is an evolutionary continuation of currency for the digital age. It’s as dangerous or safe as the communities that support it. When viewed as such, it’s a more attractive alternative, given the freedom it brings. And what is money anyway? There is nothing more or less legitimate about crypto than anything else that humans use to barter with. Again, it’s the start of the crypto journey: we don’t know exactly what comes next. But good ideas have a way of taking hold. In our final part, we’ll learn how this new currency and Web.03 are changing the real estate industry. Yet, for now, property owners will sell their homes the traditional way. If you’re one of them, contact Perfect Agent. We’ll match you free of charge with the ideal agent for you!