Elon Xplained x SNL
Did you watch SNL but still don't understand cryptocurrency? Here’s our Elon Xplainer.
Most people who watched Elon Musk’s SNL appearance last week probably have a couple of questions. Whether you like him or not (here's to looking at you, crypto-Twitterverse) there was a lot thrown at mainstream in just a few minutes.
In case you missed it, here's the video if you need a refresher:
This is not a review about his performance or our feelings towards him as a host (or individual or businessman), this is just to clarify what in the moon he was talking about and to touch on a few key points.
For example, how do you pronounce X Æ A-XII? (Apparently, a cat running across a keyboard.) Or, what exactly is a cryptocurrency? Or, perhaps, the most persistent question: what exactly is Dogecoin?
If you had difficulty understanding the Dogefather running human in emulation mode, not to worry.
SNL ELON EXPLAINED:
What are cryptocurrencies anyway?
Most of us, like the hosts of SNL, might have a pretty difficult time understanding cryptocurrencies.
And like the hosts, most people don’t exactly understand Elon’s explanation, that they’re “a type of digital cash, but instead of being controlled by the government, they’re decentralized through blockchain technology”.
So we’re going to explain his answer in two parts.
1. Cryptocurrencies are a type of “digital cash”.
The concept of digital money is pretty simple, and one that you’ve been familiar with for a long time already even if you don't realize it.
Think about the money you have saved in your bank account. Or the credit accessible on your card or the money in an e-wallet like PayPal or Venmo.
You can’t touch it or physically see it, but you know that it’s real.
That’s because (even though it is not tangible) you can use that money to buy goods and services to exchange for other currencies, invest in both intangible products like bonds and stocks, or even real assets like gold or real estate. Gasp; it's kind of digital, now, isn't it?
Cryptocurrency is basically like the digital dollars stored in your bank account. Like any currency, you can buy it through an exchange, and store it in a wallet. It’s just that crypto exchanges are online, and crypto-wallets are purely digital.
Just like your digitally stored dollars, you can use crypto to buy regular goods and services depending on who accepts it, borrow against it as a collateral loan, and you can lend it out to earn interest. You can even use crypto to invest in both tangible and real assets, or to buy other currencies - including both Fiat currencies like euros and dollars, or other cryptocurrencies.
But surely a meme currency like dogecoin is totally different from a dollar? The dollar has some kind of- real value, right?
The short answer is: no. In the words of the Dogefather himself, “cryptocurrency is about as a real as a dollar”
Think about it: A dollar in itself is just a worthless piece of paper or metal if the world at large does not accept it has a certain value. But because it is guaranteed by governments (this is where that term fiat currency comes into play) it is a mutually agreed upon form of payment.
No longer pegged against a tangible asset like gold, the dollar - or any major currency - is a purely theoretical mechanism that has no innate value beyond one arbitrarily ascribed by governments, and widely accepted by the world at large.
I’m starting to understand that crypto is kind of like any other currency. So how is it different from other currencies?
From an end-user point of view, the main difference is that cryptocurrencies are wholly digital, so there’s no physical coin or bill connected to the crypto you own. You can’t withdraw BTC (Bitcoin) from your debit card.
From a user perspective, the other big difference is that cryptocurrencies aren’t (yet) as widely accepted as the dollar.
But that’s fast-changing, as payment companies like Wells Fargo, PayPal, and MasterCard begin to accept crypto payments, or pledge to in the near future, and offer crypto products.
2. Decentralization: the real difference between crypto and other currencies
Here’s where we get into the 2nd part of Elon’s answer - the real difference between crypto and other currencies.
Whilst from an end-user perspective, they are usable as a “type of digital cash”, just like a dollar saved in PayPal, the main difference between crypto and other currencies is that “instead of being controlled by the government, they’re decentralized through the blockchain technology”
Or, to translate it from Elon Musk to ordinary English - cryptocurrencies are not printed, issued, managed (or subject to fees) by governments and banks. Unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of a cryptocurrency.
Instead, these tasks are “decentralized” - mined, maintained, and distributed by and amongst the community of crypto-owners via the internet, and a little technology known as the blockchain.
I’ve heard of blockchain. But what is it?
If you’ve just wrapped your head around digital currencies, we might blow your mind with the next concept: blockchain. It’s the buzzword that most people have heard about, but very few genuinely understand.
Blockchain is quite an exciting technology that’s making an impact in pretty much every industry. But it’s actually pretty much an innovation of a rather boring, accounting concept: a ledger.
Like a typical ledger, the blockchain is essentially a record book, or database, of transactions. However, unlike a traditional ledger, the blockchain isn’t a physical entity stored in a single place.