Did you watch the infamous SNL skit 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.
Instead, this ledger is entirely digital and fully decentralized.
What the heck is a digital, decentralized ledger?
The fact that it’s digital is fairly straightforward.
Decentralization is a slightly more complex concept, but essentially means that this store of records isn’t housed in a single place (which would make it prone to attacks). Instead, this digital ledger is distributed across the network of computers all around the world.
It’s a little bit like each holder of that cryptocurrency having their own copy of this book, each piece making up the whole picture.
Is a decentralized, digital currency safe? Who guards it? Couldn’t anyone just hack it?
The security built into the blockchain is one of its most advantageous features.
It’s basically impossible to tamper with the blockchain.
Before any transaction is added to the blockchain, it must first be verified and approved by the majority of ledger holders, through a consensus mechanism distributed across that cryptocurrency’s community.
Once the transaction is approved, it is recorded in a “block” of coded data, which links to the previous “chain” of blocks. Every copy of the blockchain (owned by each crypto owner) is updated simultaneously with the new info, keeping all records identical, accurate, and impossible to tamper with, unless, you know, you have a quantum supercomputer handy or forge a 51% attack.
Hackers cannot alter the blockchain ledger unless they successfully got at least 51% of the ledgers to match their fraudulent version. Trust us, that's a lot of computers.
Furthermore, all transactions on the blockchain are auto-executed through a technology called smart contracts, which negate the possibility of individual human error or intervention across the process of mining, maintaining, and distributing cryptocurrency.
Ok, I think I’m getting it now. But what exactly is Dogecoin?
In the words of Elon musk, Dogecoin is “a cryptocurrency that was started as a joke in 2013”. In this one instance, we don’t really need to explain Elon.
That’s exactly what it is: it started as a joke currency poking fun at crypto. But people liked it and it soared into a viral crypto meme. It's going up and down on the words of the Dogefather, surging as he announced Tesla is working on accepting Doge payments, and falling when he called it a hustle.
And it’s most likely about to hit the big time - even bigger than its last bull run. Coinbase plans to list the altcoin (altcoins are any crypto other than Bitcoin) in 6-8 weeks. It’s worth noting that most coins see a huge jump in demand (and thus prices) on their initial Coinbase listings.
Just one more question… So, is crypto a hustle?
You’ve probably seen headlines that Doge dipped in value after Elon called it a hustle, just a few days before he broke BTC (Bitcoin) by backtracking on Tesla payments.
We personally think it’s just the Dogefather making and breaking markets daily as usual (more SEC visits incoming?) and creating more opportunity for BTC believers a chance to buy the dip.
You’ll notice that he isn’t liquidating Tesla’s Bitcoin holdings. For those who were able to keep up and are still with us, we applaud you.
In crypto, as in any market, there will always be ups and downs. But we’re going to HODL. Because crypto, quite literally, will be going to the moon.
What did you think about Elon's SNL skit? Drop us a note on social media to weigh in.