What is Cryptocurrency? Let's start with the cavemen. Iterations in money...
Updated: Jun 26, 2019
OK, we're starting right at the beginning here, the caveman / cavewoman era, a very very long ago. To figure out what a cryptocurrency is and why it exists, we'll start with a history lesson in money, as you could describe crypto as being the latest iteration in what's been a 3000+ year process.
(Note that "crypto" is a generic term I'll use to reflect everything cryptocurrency)
Back in that era of cavemen, money didn't yet exist and bartering was the done thing. Cattle, sheep, grains, vegetables were early examples of goods with an inherent value that could be used by people to swap their surpluses for other goods that they lacked. This still goes on today but back then it was the only option and the world was very localized as a result. Keep reading, it gets more interesting, honestly...
Then came currencies. The first metal coins were minted in Turkey around 600bc. They were round for practical purposes and featured a roaring lion on the front, which was the symbol of the king that backed them. The key point here is that the new iteration of standardized coinage allowed trade to flourish across the Mediterranean world. It was a game changer for the businesses of that era.
What came next? Over the next 2000 years, the system grew, International travel became a thing and gold coins became an accepted standard across the world. Paper money then followed, initially backed by gold, much easier to produce than coins and much less cumbersome to carry. These iterations brought scalability and the ability to trade across international borders, essentially paving the way for the globalization of business.
Let's skip forward to today. Technology turned paper money into digital money and we now have digital bank accounts, wire transfers, credit cards, PalPal, Apple Pay, contactless, etc. Life is clearly easier now for the developed world and the monetary journey described above has created a global economic system that we take for granted.
But this monetary system has its issues, and pretty major ones at that. There's a huge number of the population shut out with 1.7 billion adults globally being outside of the financial system. The rich / poor divide is real and the monetary system doesn't help. The sad fact is that people with less money pay more for financial services and pay higher fees, particularly in the developing world. Governance of individual currencies is left to central banks who manipulate their currencies (e.g. by printing more money or changing interest rates) to keep the economic system growing, not always to the long term benefit of the people. There's an argument to made that they are losing control. There'll be a separate blog dedicated to central banks later as its a huge topic.
Enough of the history lesson, lets get back on topic, what is crypto? Some people call cryptocurrencies "digital money", which is true but that's not a new thing. The fact that our bank accounts are essentially 1's and 0's in a computer somewhere is second nature to us, the digital iteration already happened. The truth is that cryptocurrencies just operate on a different network (called the blockchain - we'll talk about that later) with no central bank. The result is an opportunity to take the above mentioned shortcomings of the current system and try and solve them. Just as previous iterations allowed international trade to flourish and eventually digitized the system, cryptocurrencies now bring the potential to help the people and move towards a borderless, less centralized, less manipulable and more accessible system with lower transaction costs.
If we take Bitcoin as the obvious example; there is no central bank to manipulate it, the transaction fees are the same for all, it's borderless and it operates 24 hrs a day, 365 days a year. That totally sounds like a sales pitch... to be honest, it's not all positive, the technology does have its shortcomings and we will come on to that soon. The key thing is to understand here however is the problem with the current system and the direction in which the development of cryptocurrencies can potentially take us. Simply put, as the next iteration.
That's quite a lot to take in... enough for today. We'll start to get a bit more technical in the next blog to follow! Remember to subscribe so you don't miss it :)