Yuri Popovich had seen how the houses of his neighbors burned to the ground in Kyiv and needed a safe place to put their money. So it did what millions of amateur investors have done in recent years: it resorted to cryptocurrency.
“It was impossible and unsafe to store funds in the form of banknotes. There was a high risk of theft, we also had cases of looting. Therefore, I relied on a” stable and reliable “cryptocurrency. Not to speculate, but simply to save.” , he says.
The digital asset that Popovich chose in April was land, a “stable currency” whose value was supposed to be pegged to the dollar.
It collapsed in May, causing a defeat in the cryptocurrency market whose victims include Popovich. He lost $ 10,000 (£ 8,200).
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How cryptography works
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What is a cryptocurrency?
A cryptocurrency is a decentralized digital asset built on a blockchain. The first, and still the largest, cryptocurrency is bitcoin, and its blockchain is secured by miners through a working test system. But there are other cryptocurrencies as well. Ethereum is the second largest, and is used as a platform to build other decentralized projects, such as stable currencies, NFT i shit coins.
What is a blockchain?
A blockchain is the decentralized ledger that tracks ownership of a cryptocurrency or other digital asset. New transactions are added to the end of the blockchain and the use of cryptography includes a record of each previous transaction. There is no “official” blockchain, but the network as a whole is kept consistent by a consensus algorithm as a working test.
What is the work test?
The working test is the consensus algorithm used to secure bitcoin, ethereum and many other major cryptocurrencies. It calls on “miners,” who manage the computer nodes that make up the physical infrastructure of the blockchain network, to burn electricity effectively to generate digital raffle tickets. Every 10 minutes, one of these raffle tickets wins the prize: a cryptocurrency reward and the right to check the next block in the blockchain. The system means that it is very expensive to frontally attack a cryptocurrency: you have to spend more electricity than any other miner together.
What is a miner?
A miner is the person who manages a cryptocurrency node. They use specialized computers, called mining equipment, to perform a specific mathematical function called “hashing.” The network treats the results of these hashes as lottery tickets and every 10 minutes a miner is declared the winner. For bitcoin miners, this prize is currently $ 125,000, which encourages the bitcoin network as a whole to the consumer around 130 TWh per year, around the use of electricity in Argentina .
What is ethereum?
The most important successor to bitcoin, ethereum is described by its sponsors as a “global computer”: in addition to simple transactions, users can create “smart contracts”, small programs that operate on the network. These smart contracts can be chained together to create entire “decentralized applications,” which work without any individual computer taking care of them, and can also be used to create new cryptocurrencies and digital assets that live in the blockchain. ‘ethereum, instead of needing them. more miners and a new network.
What is a stable currency?
A stable currency, such as tether, USDC, or UST, is a particular type of cryptocurrency destined to have a fixed value. They play an important role in the crypto economy, as they allow people to “hold back” risky bets without going through the hassle of returning conventional cash. But maintaining stable value is difficult: it requires a large centralized organization to operate as a bank, keeping many reserves on hand and spending them to stabilize the currency. Stable “algorithmic” currencies have been attempted, such as UST, also known as land, but they have an unfortunate tendency to enter a “death spiral” where a shocked value causes more tokens to be created, pushing the value higher. low.
What is an NFT?
An NFT, or non-fungible token, is a type of digital asset that can be traded as a cryptocurrency, but is not “fungible” like money: one NFT is different from another. The first NFTs resembled collectibles, such as digital football stickers, or were used to market works of art, but the lack of any functional utility caused a boom and fall in the sector on 2021. The latest generation of NFTs try to focus on “utility”, offering membership advantages or technological advantages for holders.
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Popovich says his losses were “devastating,” though donations from sympathetic viewers on social media have helped offset part of the deficit. He says, “I stopped sleeping normally, I lost 4kg, I often have a headache and anxiety.”
Popovich is one of many living the deep cold of today’s crypto winter, more than four years after the market cornerstone, bitcoin, marked the first digital freeze to fall from its high point.
Graph of values of cryptocurrencies
After that, it suffered a long tear, but it has stopped abruptly, and bitcoin fell below $ 20,000 at some point this month, well below its nearly $ 69,000 high, which went reach last November.
The fall has been strong and spectacular – a global market that was estimated to be worth just over $ 3 billion just six months ago is now worth less than $ 1 billion.
Crypto boom: a new digital economy
The beginnings of the last cryptographic boom had all the hallmarks of being another instance of the “Robinhood economy,” which bears the name of the popular American stock trading application.
Bored white-collar workers, trapped at home due to pandemic confinements but flooded with disposable income, resorted to daily trading as a way to pass the time. Subscribers to the r / WallStreetBets forum of the popular online discussion site Reddit doubled throughout 2020 and then quadrupled in the first month of 2021, when a small army of retail investors flooded assets as varied as the company Car Hire Bankruptcy Hertz , the troubled video game retailer GameStop and electric car maker Tesla, bringing the latter from $ 85 at the start of the pandemic to a high of $ 1,243 by the end of 2021.
Cryptocurrencies also benefited from the increase in daily trade. Bitcoin went from a low of $ 5,000 in March 2020 to more than $ 60,000 a year later. The currency has had this kind of precipitous increase before: in 2017, it had multiplied by 20, to its then high of $ 19,000. But in the latest boom, ethereum, the number two cryptocurrency, had an even more impressive rise, from just $ 120 to a high of nearly $ 5,000 in 2021.
Bitcoin trading has exploded in the last decade. Photography: Sascha Steinbach / EPA
Cryptocurrency is the name of any digital asset that functions as bitcoin, the original cryptocurrency, which was invented in 2009. There is a “decentralized book” that records who owns what, integrated into a blockchain “, which secures the entire network by ensuring that transactions are irreversible once completed. In later years, a dizzying amount of variation has emerged, but the core, the blockchain concept, is remarkably stable, in part because of the social implications of truly decentralized networks that are immune to government oversight or regulation.
Where, 10 years ago, people were just talking about trading bitcoins, space has skyrocketed. In addition to the cryptocurrencies themselves, the sector has developed into a complex ecosystem.
It includes Web3, a wider selection of applications and services built from cryptocurrencies, DeFi, an attempt to rip an entire financial sector out of code instead of contracts, and non-expendable tokens (NFTs), which use the same technology than cryptocurrencies. trade in objects instead of money.
The avalanche of money pouring into the world of cryptography did more than simply inflate the wealth of paper of pre-existing shareholders. Instead, it led to an increase in interest and funding for the wide variety of projects that sought to capitalize on the underlying cryptocurrency technology.
Blockchain entrepreneur Vignesh Sundaresan, also known as MetaKovan, shows off the Nep Beeple he bought for $ 69 million. Photography: Roslan Rahman / AFP / Getty Images
For a generation of new investors, the opportunities for “decentralized financing” in the sector were attractive. Built on the “programmable money” of the ethereum cryptocurrency, the “DeFi” [decentralised finance] The sector is an attempt to broaden bitcoin’s anti-establishment ethos to cover the entire economy.
Take the relatively small sector of the cryptographic market known as NFT.
NFT chart
A product dating back to 2014, NFTs take the technology used to create cryptocurrencies, but allow creators to link unique assets to the blockchain, rather than money-like currencies.
This means that NFTs that represent works of art, virtual collectibles, or even function as tickets for events or club members can be marketed. And like cryptocurrencies, they can be bought or sold on open exchanges, kept under a pseudonym, and packaged or securitized in complex financial instruments.
NFTs from the Bored Ape Yacht Club collection have been regularly sold for $ 1-3 million each. Photo: Property of Nexo / Reuters
A boom within a boom, individual NFTs were sold for silly amounts of money in mid-2021.
A listing, which represents years of work by digital artist Beeple, sold for $ 69 million; another, linked to the first tweet sent by Twitter founder Jack Dorsey, was bought for $ 2.9 million. The individual NFTs in the Bored Ape Yacht Club collection, NFT’s most coveted examples of “profile photo,” designed to be used as a pre-packaged online identity, regularly sell for $ 1 million to $ 3 million each.
But by early 2022, it looked like the NFT bubble had already burst. The “floor” prices of NFT’s large collections had plummeted, and while many large NFT acquisitions have remained in private collection, those that have been put back on the market have gone bad: Dorsey’s tweet was …