What is Crypto Currency? Let’s say you create your own online currency, let’s call it a “Burt.” Just like fiat money (dollars, pounds, euros, etc), you set a limited number of Burts, and each is represented by online data. Let’s say that instead of a dollar bill, you have a small parcel of information. You can give your online parcel to somebody else, you can keep it, store it, and so forth.

Your “Burts” would be a genuine online currency. If you wanted, you could print off paper Burts, but you wouldn’t need to. Yet, the problem with your online currency is that it needs somebody to control it. You need somebody to decide how many Burts exist, and you need somebody to control how Burts are moved from one person to another. There is also the problem of people losing Burts, and people copying Burts or even forging Burts. These problems alone are why a genuine online currency has never been developed. Cryptocurrency is close to a genuinely online/digital/virtual currency because it solves most of the problems listed here.

Bitcoin History

Nobody knows who created bitcoin. Despite many claims from fraudsters and mathematicians, nobody knows for sure who invented the idea of bitcoin, all we know is a fake name Satoshi.

A Basic Explanation of Cryptocurrency

Let’s take the example of bitcoin, which is the first and most popular cryptocurrency on earth. It operates using blockchain. In short, blockchain is an online ledger. The ledger shows every transaction that the bitcoin has ever experienced. It is the same as having a dollar note in your hand, and then having a long receipt showing where it was created and everywhere it has been ever since. This ledger system makes it very difficult for people to clone or forge bitcoin because it is possible to see exactly where it was created and where it has been.

Blockchain, aka the ledger system, also removes the need for somebody to control the currency. Banks and governments control regular currency. They see where it started, where it is now, and make sure it is not duplicated or forged. For example, a bank controls where your money is and where it is stored. With the ledger system, there is no need for a bank or government to control where your money is stored, or where it is transacted. There is no need for a central figure to keep records because the currency itself keeps its own records. Again, if every dollar came with a long receipt showing where it has been all its life, then we wouldn’t need a bank or government to keep records.

Bitcoin is passed from one person to another using a peer-2-peer network. In short, Bob gives money to Bill. Bob signs the transaction, and the transaction enters the network. The network also signs the transaction. Bill receives the bitcoin, and Bill signs the transaction. Three signatures showing the giving, the sending, and the receiving. Every entity on the network is informed of this transaction so that anybody can check the transaction if they think something fishy is going on.

This is a de-centralised network, which means no single entity, like a bank or government, is controlling it. This poses a problem because Bob signs when he sends, and Bill signs when he receives, but who signs on behalf of the network? In that case, it is miners. Miners allow their computers to process the transaction, and when they process the transaction, they sign it and let everybody else on the network know about the transaction. In return for mining, the miners are given a bit of bitcoin. That is how further bitcoins are created. This gives the miners an incentive to keep mining and gives an incentive to users to keep using and spending bitcoin.

Can Cryptocurrency Be Used to Evade Taxes?

In short, yes. You need a very good forensic scientist to both track every transaction, prove it is yours, and prove it is not taxed.

Will Tax Evaders be Caught in the Future?

Perhaps if very powerful computers and some sort of AI are used, but we are at least 50 years away from that being possible.

Is Bitcoin or Ethereum a Good Investment?

Despite its volatile nature and despite people saying Bitcoin is going to die, it has been around for a long time and shows no sign of going away. It may one day become a genuinely recognised currency.

Does the Online Ledger Show My Address?

No, in fact, if you bought cryptocurrency without giving away your identity, then there is almost no way to identify you unless you, and even then, there is no way to prove you were not given the bitcoin by a friendly passing monk, your Nan, or whomever.