Cryptocurrency is nothing more than digital money. It’s possible to transfer your regular money digitally right now but cryptocurrency doesn’t work quite the same as the digital transfer of regular currency.
As cryptocurrency grows and becomes more popular, the hope is that eventually people will be able to pay for things with cryptocurrency the way they currently do with regular currency.
However, the real difference between traditional currencies like the US Dollar or Japanese Yen is the technology behind cryptocurrency. We have put together this cryptocurrency for dummies guide to help you understand the basics and where the technology is headed.
What exactly is money? It used to be that something of value was behind traditional money. For example, in the United States, there was the gold standard.
Money was worth a specific amount of gold and you could actually exchange money for gold. But that form of currency is long gone. Nowadays, currency isn’t pegged to anything of value. You can’t exchange US currency for gold.
The only thing that keeps traditional money going is that people are willing to accept it in exchange for goods or services.
Another issue with traditional currency is its connection to banks. Without being connected to a bank, you can’t transfer money or take it out of an ATM or use a credit card.
Yet there are roughly 3 billion people in the world without sufficient access to banks. This is one of the problems cryptocurrency looks to solve.
Because of the connection to banks and financial services, there are also too many middlemen, which means transaction fees will occur when you use money. Cryptocurrencies are set up to bypass these institutions so you keep more of your money.
Cryptocurrencies are created using something called blockchain technology. Unlike a government that prints money, blockchain technology is completely decentralized. There is no one central location or entity responsible for the creation of cryptocurrencies.
A Brief History of Cryptocurrency
Have you heard of Bitcoin? If you’re interested in cryptocurrencies, of course you have! Bitcoin came into being in 2008. Bitcoin was created by someone who went by the pseudonym Satoshi Nakamoto. Satoshi Nakatomi considered Bitcoin to be the first ever peer to peer form of money.
Bitcoin is created through a process called mining. Not traditional mining, but digital mining that utilizes many powerful super computers.
While Bitcoin lasted as the only cryptocurrency for its first three years of existence, eventually people noticed some problems. They proceeded to create new cryptocurrencies, called altcoins, with the goal of improving upon Bitcoins.
Some of the issues with Bitcoin that these other cryptocurrencies looked to fix include speed of use, but also anonymity, and security.
Amazingly, in such a short time, cryptocurrencies have expanded from Bitcoin a mere decade a go, to over 1,600 cryptocurrencies and growing.
How Cryptocurrency Improves Upon The Centralized Banking System
When something is centralized, there is a good chance corruption will enter the picture at some point. With the decentralization of cryptocurrencies that power is taken away. There is no one central entity that controls the flow of cryptocurrency. This is the whole point of the blockchain technology.
Another positive aspect of cryptocurrency is that it takes away the power of central banks to just print more money when they need it. Printing too much money destroys is value, causing rampant and uncontrolled inflation. Just look at Venezuela for a current example of what this can do to a population.
If you are among the 3 billion or so people that don’t have access to a bank, that’s where cryptocurrency comes into play. All you need to use cryptocurrencies is a mobile phone.
Like anything else, cryptocurrencies do have some risks. Cryptocurrencies can be very volatile, as was shown back in 2017 when Bitcoin skyrocketed in value and then came crashing back down. There is also some risk with the lack of regulation, even though too much regulation would end up causing many problems as well.
Now there are wallets for cryptocurrency that makes it easier to access and use. Crypto wallets are similar to Pay Pal but for cryptocurrencies.
Once you have a wallet you can access cryptocurrency exchanges. An exchange is where you go shopping or exchange regular currency for cryptocurrency.
Cryptocurrencies like Bitcoin have exploded over the past decade. Whether they will grow enough to make using them as convenient or widespread to use as traditional currency is still unknown. But don’t bet against it.
This short cryptocurrency for dummies guide has been written to help you better understand this up and coming technology. It’s up to you to decide if you’d like to invest or begin using this new form of digital money.