Guide to Crypto-Currencies Part 1 – Introduction


In just the space of a few years, crypto-currencies such as Bitcoin have evolved from being a virtual store of value for online gamers to one of the hottest topics in the world of finance, challenging the very concept of currency, what it means, and how it is administered.

As we mentioned, crypto-currencies were first used by online gamers, and there are still a few reminders of this fact around. Take Mt. Gox, which before its cyber attack-induced collapse earlier this year (more on that later) was the biggest Bitcoin exchange in the world – its name is in fact an acronym of ‘Magic: the Gathering Online Exchange’, in reference to the online fantasy role-playing game it was affiliated with.

Early adopters

While the technology was initially adopted by specialist online communities, such as players of online games, its potential was soon spotted by people engaged with other pursuits. As an untraceable, anonymous, and seemingly secure form of value transfer, it was ideally suited to black and grey-market transactions, where a trail of conventional money would be potentially incriminating. This led to its adoption by the notorious Silk Road website, an ‘Amazon for contraband’ located on the deep web, requiring special browser software to ensure the anonymity of all involved.

Soon, the newspapers were full of stories about people buying and selling illegal drugs and weapons over the internet, using Bitcoin for the transactions to prevent authorities from being able to ‘follow the money’. With crypto-currencies now having a proven, real-world utility, even if it wasn’t a particularly desirable one, the game had been changed forever.

2013: The year of the Bitcoin

Soon, Bitcoin and other crypto-currencies began to rise in value, and the press – particularly the financial media – started taking an intense interest. Then, in 2013 things started to get really crazy. With every story about people finding a use for Bitcoins, such as the rush towards Bitcoin usage among Cypriots during the bank bail-in, the price rocketed higher and higher.Migrant workers were using it to transfer cash back home without having to pay exorbitant money transfer fees. And Chinese people were using it for everything they could think of.

In fact, it was this intense interest from China, the world’s biggest economy, that was largely responsible for Bitcoin’s dramatic rise in value during 2013, although Cyprus had been the catalyst. At the beginning of the year, a single Bitcoin could have been purchased for $12 – which itself was a massive appreciation on its value a year previously. By the end of November, they were trading on Mt.Gox for $1,242 – an appreciation of over 10,000%. To put this valuation in context, on the same day an ounce of gold could be purchased for $1,240 on the commodities market.

The bellow video “Bitcoin Explained” by @duncanelms on Vimeo done in 2012 explains the genesis of Bitcoin and the basis of digital crypto-currencies

Bitcoin Explained from Duncan Elms on Vimeo.

Other articles in this series

Guide to Crypto-Currencies Part 2 – The Bitcoin Bubble
Guide to Crypto-Currencies Part 3 – How Bitcoins Work
Guide to Crypto-Currencies Part 4 – Bitcoin Mining
Guide to Crypto-Currencies Part 5 – Transactions
Guide to Crypto-Currencies Part 6 – The Problem(s) With Bitcoin
Guide to Crypto-Currencies Part 7 – Solutions to Volatility
Guide to Crypto-Currencies Part 8 – Security Issues
Guide to Crypto-Currencies Part 9 – Bitcoin Alternatives
Guide to Crypto-Currencies Part 10 – The Future of Money?