What Is Cryptocurrency?
|— Cryptocurrency is a digital measure of value that can be tracked and transferred without using an intermediary |
— Crypto exists on a network called blockchain: an infinite, immutable ledger capable of recording every transaction ever made on a network
— Because blockchain is accurate and immutable, it allows value to be transferred without a middleman, enabling peer-to-peer transactions
— Since blockchain allows crypto to exist beyond the control of banks and central authorities, owning crypto means being fully responsible for the safe storage of your assets
To properly start with cryptocurrency, let’s first begin with a general introduction to crypto. In this first step of our beginners’ guide, you will learn what cryptocurrency is, its philosophical background and general features.
Get the crypto spirit
Let’s start with the obvious: our world is digitizing. In 2020, close to 60% of the world’s total population uses the Internet and that number is still growing. The democratization of the Internet at the beginning of the 21st century came with new habits and practices: blogs, chatting, playing… Which is great! Because that’s why the Internet has been created: allowing peer-to-peer information sharing, without middlemen or central authority. In other words: the decentralization of information.
However, as designed, the Internet does not allow value to be shared in a decentralized manner. If you want to share a file or a song with a friend, via WeTransfer or email for example, you actually send a copy of the file, and keep the original on your device. But if you send one dollar to a friend while keeping that same dollar, the dollar loses its value.
The only way to exchange money was through intermediaries, whether they be digital or physical (there you are banks). So the million-dollar question was: how to extend decentralization to the sharing of value? In other words, how to create a digital currency that would allow peer-to-peer transactions?
The answer came up in 2008 with the birth of Bitcoin, the first cryptocurrency. When its creator Satoshi Nakamoto published the white paper called Bitcoin: A Peer-to-Peer Electronic Cash System. With this pretty descriptive title, it explains what Bitcoin is and how it works. By doing so, it had carved the path for the cryptocurrency ecosystem and market as well as a new way to share peer-to-peer value.
Understand the possibilities
It’s difficult not to talk about blockchain when talking about crypto. If not impossible. Put simply, while cryptocurrency is like digital money, blockchain is the network on which the money transactions operate.
Knowing that, most cryptocurrencies have their own blockchains with their own rules. Think about Carbonara Pasta. Although there is an original reference recipe and mandatory ingredients, everyone has their own way of cooking it. As a result, there are countless variations of Carbonara Pasta, all gravitating around the same original idea. That’s why you have on one hand “the blockchain technology”: the generic technical concept – like “the Internet” and on the other hand several “blockchains” which support the different cryptocurrencies, such as the “Bitcoin blockchain network” or “Ethereum Blockchain”.
While blockchain is the supporting technology, cryptocurrency is so far the most common use of this technology. But being into crypto means more than just making money. It is about becoming part of a dynamic technological revolution.
Start with the basics
A good way to better understand the potential of cryptocurrencies is to go through the differences and similarities between them and fiat currencies – like the dollar, euro or pound.
First, they are both currencies. Which means they share some attributes. Both are mediums of exchange that can be used to store and transfer value, as well as to purchase goods and services. Both are legal. Both can be used for trading or investment. Both rely on widespread consumer trust to function as means of exchange. Both have their value governed by economic factors such as supply, demand, work and scarcity… However, there are 5 major critical differences. This is where the revolutionary power of crypto lies in.
By cutting out the middlemen and disrupting the traditional financial system, crypto advocates decentralization and individual empowerment.
Crypto is the fuel for an entire new system in which you, as a free individual, have more power. In which you can “be your own bank”, being the only one in control of your digital assets and the only one in charge of keeping them secure. No central authority involved, no third-party to be forced to trust.
It means more freedom and independence to make your own moves. More equality, transparency and privacy regarding all your actions. While cryptocurrencies still have a long way to go and challenges to overcome, this is what crypto is about: putting people back in the center and giving them control over their lives.
Knowledge is power – so keep on learning! If you enjoy getting to grips with crypto and blockchain, check out our School of Block video What is Money, Really?