What in the world is cryptocurrency?
A cryptocurrency (or crypto currency) is a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency. Cryptocurrencies are a subset of alternative currencies, or specifically of digital currencies.
Hrm… That seems a bit complex, how about we start at the beginning?
What is money?
Money is that paper stuff you keep in your wallet, the coins in your pocket, or even those cards you swipe at the checkout stand. But where does it come from? You are thinking that money comes from your boss who writes your checks or from the government who issues the paper which you see everywhere. This is not wrong, but this way of thinking makes it difficult to discuss the philosophy behind money.
Here is a shocking truth which has been kept secret from you. Money can be literally anything people value. People have used: salt, gold, pepper, whale teeth, giant stones, seashells, volcanic glass, tea, and so many more things as currency.
Well what is the official definition then!?
Again, the textbook definition is not much help:
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context, or is easily converted to such a form.
Essentially money is a medium of exchange, unit of accounting, or store of value.
- A medium of exchange is when you want to exchange your dollar bills for eggs and milk at the grocery store. The store doesn’t want the eggs, they want your dollars.
- A unit of accounting is when you deposit your dollars at the bank which allows them to pay your credit cards, apartment rent, or any other purchase.
- A store of value is when you store energy or value into your dollars. If you work hard and save money for 10 years, you want to keep that work from deteriorating. If you grew 50 tons of corn, you want to keep the value of what you created safe from decay long after people have eaten it.
So what does all this have to do with cryptocurrency?
At a very basic level cryptocurrency is an accounting ledger.
Cryptocurrencies just track the currency/bills/coins/units of account from one account to another.
That is it.
Then why all the fuss you ask? All of this sounds older than recorded history!!
Cryptocurrency has done for money what the internet did for letters, newspapers, and video. It simply put them online and improved them.
- Cryptocurrency is a lot more secure than regular money when properly handled.
- It’s globally accepted to anyone who uses cryptocurrency, and is easily convertible into local paper currency in most large countries.
- It is insanely portable, try carrying your life savings in cash form on your person sometime. And you can send it to anyone with a computer or phone connected to the internet.
- It’s basically indestructible when properly handled. Unless you lose your wallet and all of your backups (You have multiple backups… Right!?) it can’t be lost, and it won’t degrade.
- These currencies are extremely divisible. For example: a bitcoin can be divided into 100,000,000 pieces. (This is really cool for another reason I am about to cover.)
- The cryptocurrencies are programmable. This means you can build tools into, and on top of your money.
What do you mean by programmable money?
The experimental field of programmable money has more applications than I can list in this article. This is the real basis of the value of these assets, let’s just make a few examples:
- Emails are plagued by spam, if you included a really tiny fee for each email, you could shut down spam cold. Spammers send emails to millions of people, if it cost them a nickle for each one, they might think twice, and normal emails would be unaffected by such a small fee.
- You can verify that someone purchased your media with absolute certainty. Cryptocurrency allows you to create a permanent record of the transaction which can be verified by any third party connected to the internet.
- If you allowed your computer to monitor your house, you could allow the house access to funds and it could repurchase everyday items as needed without the need of an outside bank account.
- You could reliably bring voting online. The greatest risk to online voting is a centralized database where all of the votes are held. With a cryptocurrency you can distribute that data over the network and make it essentially impervious to attack.
- You can issue and transfer stock for your company without need for a notary. This means companies have the complete ability to take control of their finances instead of having to list them on an exchange which can cost them money.
- You can use cryptocurrency to increase transparency at governmental and corporate levels. Traditional banks are plagued by their opaque accounts when it comes to transparency, with cryptocurrency you can choose to open up all your books in a way that every single penny can be accounted forl
- You could give your car a wallet and have it pay for all your parking fees, never worry about a ticket again!
- You could have your router rent out wifi bandwidth when you aren’t using it. Neighbor doesn’t have internet? Just charge them for what they use, and you don’t even have to talk with them about it.
- You could issue an international ID reliably because all of the data is stored by the cryptocurrency. The main hurdle to this type of project is that governments don’t agree where to store the data, we now have the ability to store it across the globe without fear of third party tampering.
Cryptocurrency is just another form of money. When we stopped trading in volcanic glass or gold, and moved to paper money, the economy boomed. The evolution of currency will help us equally as much this time.