A few days ago I read an article titled “Cryptocurrencies Explained in Layman’s Terms”, which is a blog that explains cryptocurrencies with the help of a simple analogy using Animal Farm by George Orwell.
I liked the idea of using a book to explain cryptocurrencies, and so I decided to do something similar. Here’s my own attempt at explaining cryptocurrencies using Lord of the Rings.
The internet is a lot like Middle Earth. It has multiple kingdoms (websites), each ruled by a powerful wizard (company). They have their own laws, customs, and currencies.
For the most part, these kingdoms are happy to stay separate from one another. But sometimes they need to trade goods with one another. Bartering is possible, but it’s a hassle and thus there’s always demand for an easier way to send and receive money.
In real life, we have banks that help us transfer money between kingdoms (called “cross-border transfers”). In Middle Earth however, it’s not that easy. Just like there are no roads connecting all kingdoms, there are no banks either! What people there need is an alternative type of bank that lets them transfer money between kingdoms without having to go through all the hassle of bartering.
The solution they came up
This is a blog that explains cryptocurrencies in layman’s terms using an example from George Orwell’s Animal Farm.
Disclaimer: this blog is purely informational and does not constitute advice to invest or take any other action.
In the novel, animals of Farmville overthrow humans and run the farm themselves. They create seven commandments for the farm, including: “All animals are equal” and “No animal shall drink alcohol.” But then the pigs decide that to run the farm efficiently, they should be in charge. So they revise one commandment to “All animals are equal, but some animals are more equal than others.” Eventually, even this becomes too cumbersome to enforce. So they revise it to: “All animals are equal, but some animals are more equal than others.” In other words: pigs rule.
How can we relate this story to cryptocurrency? Animals of Farmville had their own money – apples and haycorns (sounds like crypto tokens). But there was no way of preventing pigs from having more of these tokens than other animals. There was also no way of determining if any pig had enough tokens to influence other pigs’ decisions (e.g., about which commandments to revise).
Most importantly, because all transactions were done in person and anonymously, there
I’ve been following cryptocurrencies for a few years now, and I’ve written about them quite a bit. But despite all my articles, I still get asked the same question: how exactly does cryptocurrency work?
The answer is simple. I mean, it’s simple if you want to understand the mechanics of how blockchain works. If you want to really understand what it means and how it will change the world, that’s more complicated.
But let’s start with the basics. And what better way to explain it than to use an analogy that everyone knows? That analogy is Animal Farm by George Orwell.
The book shows us what happens when animals run a farm without humans telling them what to do or abusing them. The animals take over the farm and run it themselves, but they soon realize that they need some rules if they want their farm to succeed.
Have you ever wondered why we use the term “crypto” in front of currencies? Or what a blockchain is? Or how cryptocurrencies are created? Or how people “mine” for them?
Let me tell you a story that’ll help visualize these concepts.
Imagine you’re on an island with a bunch of other people. Your island has one currency: the banana. You work, earn bananas, and buy things using bananas. But there’s an issue on this island: everyone uses cash (because it’s easier). So when someone gives you bananas as payment, you might be stuck with counterfeit bananas.
One day, though, someone invents a new way to create money: mining. The only way to mine is to solve complex math problems, which requires advanced computers. If you solve one, you earn some coins.
Now here’s where it gets interesting: say the person who invented mining also invented a database that keeps track of all transactions on the island (it’s called a distributed ledger). What’s cool about this database is that anyone can view it at any time (it’s public), but no one can tamper with it (it’s encrypted). It also automatically updates itself every ten minutes so that everyone has the same information at all times (
The story of Bitcoin began in 2008. Economic uncertainty was at an all-time high and the housing market was collapsing. The Great Recession was in full swing. A paper called “Bitcoin: A Peer-to-Peer Electronic Cash System” was published by Satoshi Nakamoto. In it, he laid out a new form of money that he called a “cryptocurrency” that would be developed using Blockchain technology.
The idea behind Bitcoin and cryptocurrencies is simple: use cryptography to build a decentralized system for moving money around the world – without the need for banks.
The first cryptocurrency ever created was Bitcoin. It was created in 2009 by Satoshi Nakamoto, but the developer’s true identity has never been verified. Because it is easy to create a digital currency that doesn’t have the same regulation as a physical currency — and because of the anonymity associated with many of these transactions — cryptocurrencies have become popular among people who are looking to avoid regulation or who want to remain anonymous while engaging in business.
The next most popular cryptocurrency is Ethereum, which provides its own programming language that allows developers to write smart contracts and build decentralized applications (Dapps) on top of the platform. However, some users are hesitant to use Ethereum since it is more difficult to use than Bitcoin.
The third most popular cryptocurrency is Litecoin, which has also increased in value significantly since its creation. Litecoin has a faster block generation rate than Bitcoin, which means that transactions made using Litecoin will be processed much faster than those made with Bitcoin.
There are many other cryptocurrencies that are also increasing in value, including Ripple (XRP), Cardano (ADA), and Monero (XMR). These currencies have all seen significant gains in recent months, but they are still not as popular as Bitcoin or Ethereum.
Of course, there are hundreds of other cryptocurrencies out
George Orwell’s Animal Farm is a book that illustrates how power corrupts, and how a revolution can go wrong.
In the book, the animals on the farm form an army and overthrow the owner of the farm – Mr. Jones. The animals lead an uprising against Mr. Jones, because he treats them poorly, and feeds them very little food.
Old Major, an old boar on the farm, had given a speech to stir up the animals to rebel against man and take over the farm. Old Major gave a speech before he died in which he laid out his vision for a society where all animals were equal (a Utopian society).
After Old Major dies, two young pigs named Snowball and Napoleon assume leadership of the farm. They decide to model their new society after one of the commandments from Old Major’s speech “All animals are equal”. But this turns out to be far from true.
Napoleon (the pig) seizes power for himself and becomes the dictator of Animal Farm. He enacts changes to benefit himself and punishes those that question him or go against him (similar to what happens in Cuba when Fidel Castro takes over). And just like in real life Stalin changed history books so it appeared that he was always in charge even