What is Cryptocurrency?

If you’ve been paying attention on social media at all, you might’ve already come across the terms, “cryptocurrency” and “Bitcoin”.

So many people are talking about this, and yet, for most, crypto seems to be a super complicated thing to understand.

Well, I’ve made it my mission to simplify it all for you today.

We’re gonna talk about what cryptocurrency is, what bitcoin is, how it all works, and most of all, how this could potentially affect your paper money, and the way you buy stuff online.

So onto it. What exactly is cryptocurrency?

To put it in simple terms, cryptocurrency is digital currency, used to buy goods and services. And this type of currency is created with cryptography, which makes it difficult to counterfeit.

The leading cryptocurrency, Bitcoin, was created by a mysterious Satoshi Nakamoto. Nobody knows who this person is really, or whether it’s a person or a group of people. Which is probably one of the coolest things in crypto.

Satoshi Nakamoto created Bitcoin with the promise of lower transaction fees than traditional online payment mechanisms and, unlike government-issued currencies, it is operated by a decentralized authority.

Now you might ask, if cryptocurrency is digital currency, isn’t that the same as my dollar, which I can also access and transfer online?

Well not exactly, and here’s why.

Cryptocurrencies work using blockchain technology — which is basically a public ledger of transactions, grouped together in blocks of data, and distributed within a network of computers.

So if you can imagine a piece of digital ledger that has all your transaction records on it. Once that ledger is filled with the maximum amount of transactions, it becomes a block. This block then is added behind a previous block of data, linked together like a chain.

So okay, that all sounds good, but why do we need it? Isn’t our nation’s currency good enough? What problem does it really solve?

Well, let’s explore the crucial differences between bitcoin and the fiat currency, which is our dollar, euro, peso, or your nation’s currency.

First crucial difference is their supply.

Ever since the pandemic hit, it’s been all over the news. The US government has been printing more dollars to pay for its debts and to pay for stimulus checks. Of course, this diminishes the value of the dollar itself and causes inflation, which we all feel as the same stuff we buy become more expensive. The government can always issue more paper money if it decides that it’s necessary. And that makes the dollar worth less year over year.

Meanwhile, Bitcoin has a limited supply. The blockchain ensures that there will only be 21,000,000 bitcoins that will ever be in circulation forever. And as we grow closer to hitting that maximum limit of bitcoins in circulation, the more bitcoin will be worth. This limited supply is the reason why bitcoin is worth so much, blowing past $60,000 per coin in March 2021. Basic theory of supply and demand.

As of writing this article, there are 18,671,006.25 bitcoins in circulation.

Another crucial difference between bitcoin and fiat lies in the blockchain technology.

Satoshi Nakamoto created bitcoin on top 3 pillars: decentralization, transparency, and immutability.

Let’s talk about decentralization — possibly the biggest, most important element in cryptocurrency.

Decentralization is 2-fold. First, this means that instead of your data being recorded on one computer, in one office or in one bank, your data is stored on multiple computers all over the world.

So each time a Bitcoin transaction happens, it goes through a consensus process and is broadcasted throughout a network of computers with bitcoin software in them.

Second, decentralization means that there is not one person, government, entity, or authority that has control over the data recording, storage, and transfer of Bitcoin.

Let’s look at banks for example. The central bank, controlled by the government, plays the central authority that issues your paper money and decides how you can access it. They also keep a record of all your transactions and decide what server to use and the location in which that’s stored. And if you got money stored in the bank, they then give you a set of rules that tell you how to store, access, and transfer your money. Rules such as maintaining a minimum account balance you can never touch to keep your account open. Or a transaction fee every time you withdraw money from the ATM, or a fee to view your account balance.

Imagine that? Other people telling you how to access and spend YOUR money, under the guise of security, because “your money is safe in the banks” which we know is not entirely true.

This is why decentralization is such a game-changer. It gives the people power and control over their finances. If you want to send and receive cryptocurrency, you can do so without having the middleman.

2nd pillar is transparency. Remember that digital ledger I was talking about? Well, unlike the bank ledgers, everyone can actually see every single transaction that happens on the blockchain.

This is proving to be so important as less and less people are trusting the government and the stock market. You pay your dues, without actually knowing where your money goes. Do they loan them out? Do they really pay for highways, infrastructure, education? Who knows?

Cryptocurrency eliminates the trust issue by listing all transactions publicly.

But if you’re concerned about your privacy, don’t worry. Instead of your name being reflected on the transaction, the public ledger lists your transaction as a string of letters and numbers, sort of a reference number, along with the amount of cryptocurrency being transferred.

Like “Reference number ABCD1234 transfers 1 Bitcoin”. So everyone can see how much bitcoin is being moved around and where, without violating the privacy of the individuals moving this bitcoin around.

3rd pillar is immutability. This basically means that whatever cryptocurrency you hold is uniquely built with code, and therefore cannot be faked. Unlike your paper money, which, as Leonardo di Caprio has already showed us in Catch Me If You Can, could be very easy to do.

Hopefully by now, you’re starting to understand how cryptocurrency could change finance forever. Which leads me to the question, how does this improve things for you and me?

How do we, the average people, leverage cryptocurrency as a better way to store our money, spend our money, and potentially make our money work so we can earn more money?

The uses for crypto come in 2 forms: as a medium of exchange, meaning we use it to buy stuff. Or as an instrument for investment.

Last week, Paypal launched a new feature that enables its users to pay merchants with crypto. On the same week, Visa announces that they will now be enabling crypto payments for 70 million merchants. I envision that eventually e-commerce stores will have an embeddable “Pay with Crypto” button so that your customers can pay you with their crypto too!

Crypto also changes the way brands interact with their loyal fans. Your followers can contribute crypto to support your content, they can bid crypto on your collectibles, and perhaps even earn crypto just by a watching a video like this one! With just a bit of Googling, you’ll already see so many projects being created on the blockchain that will “crypto-fy” your entire world.

However, because of the rising value of Bitcoin, people who are holding it have a hard time letting go, just in case it jumps to $100k which it is predicted to be at by the end of 2021.

Bitcoin is also seen as a great hedge against dollar inflation. And with decentralized finance platforms like Celsius that give you huge incentives to hold your crypto, it’s become a no-brainer.

Imagine this, when you save your money in the bank, you’re lucky if you get to even 1% interest on those savings. On average, you get about 0.05% interest. Which is nothing! Now what if someone told you that for the same amount of savings, you could get paid 5%, 10% or even 16% interest?

Impossible?! No! Here’s what blew my mind. The truth is, your bank could’ve been paying you 15% interest on your savings. But instead, they loan your money out, they earn on the interest, and they give you .05% out of the 15%. Your money, their earnings.

Your blood boiling yet? Mine did.

And this is why bitcoin is seen more as an investment, something to hold on to so you can earn more, like digital gold. And just like digital gold, you can also buy portions of a bitcoin.

Bitcoin is currently trading at $60,000 per coin, but that doesn’t mean you need to have $60,000 to invest. Bitcoin is divisible into smaller denominations too, so yes, you can buy a portion of a coin, and you can invest only as much disposable cash as you can.

So, do I think that cryptocurrency is here to stay? Absolutely. Will it change the financial landscape for all of us? Without a doubt.

So how do you keep up?

Well first, get educated. Subscribe to my Medium blog, The Crypto Shopper, for more crypto content. While you’re at it, also follow me on my socials:

@thecryptoshopper on Facebook and Youtube. And @crypto_shopper on Twitter.

Second, get involved. The best way to fully understand how crypto works is to immerse yourself in the process. You can start by opening an account on a crypto exchange platform such as Binance or OKEx.

To get $10 in free BTC, click on my OKEx sign up through this link.

This article is written by Sixteen Ramos.

Disclaimer: Sixteen is not a financial advisor. This article is for educational purposes only. Please do your own research outside of reading this article.