Everyone knows that Cryptocurrencies are digital currencies that are used as a medium of exchange for a certain value, but we are going to look into the deeper meaning of the word “Cryptocurrency” so you can have a solid foundation of what it is. Only if your fundamentals are clear and strong enough you can understand this world of blockchain and why it keeps getting popular or why it is so controversial.
WHY SO MANY PEOPLE HAVE A PROBLEM UNDERSTANDING THE WORD CRYPTOCURRENCY?
Because there have been too many complicated books and videos on this topic which try to explain this concept in detail and people get confused.
A very simple explanation of what Cryptocurrency really is is that “it is a piece of technology that solves problems. The bigger the problem it solves the more valuable it gets, also the more users it has the more valuable it gets.”
For example, everyone knows that the most expensive crypto today is Bitcoin, why? Because when it first came out in 2009 it solved the problem of digitally paying someone for their product and or service. Slowly it took many people to realise that you can instantly pay someone over large distances in return for their product or services, this solved the huge problem of doing bank transfers for a fee and waiting a few days to receive money. No surprise the popularity it gained since 2009 that today 1 Bitcoin is worth $22k around the time of writing this post.
Now, there are 100s if not 1000s of cryptocurrencies and altcoins out there who are trying to solve different problems and trying to gain more users as a result of this. So the more popular a crypto coin gets the more expensive it becomes. Why is Toyota or Honda generally more expensive than other cars, is because these brands are synonymous with the word reliability which solves a big problem for car owners as everyone wants a proper reliable car that gives them the least amount of trouble over a long period of time.
So, the most popular altcoins like Ethereum, Litecoin, Ripple, Cardano, etc are all solving different problems for banking & finance and other sectors of the economy such as the speed of transactions, scalability of the technology, no involvement of middleman, transparency & reliability, etc and consequently they are becoming more valuable in relation to solving bigger and complex problems resulting in an increase in their popularity which in turn drives more demand which is resulting in more users adopting these coins making them more expensive, so it’s simple economics of, increase in performance = more demand = more pricey.
So how will you know what problem is being solved by Ethereum, Litecoin, Ripple or Cardano, and many other altcoins? well there are whitepapers that are public information on the internet and anyone can access these to understand how these coins are solving different problems and issues for different sectors of the economy, there are 100s of websites and videos showing how these coins work in solving problems that make them valuable.
Without getting into the geeky stuff of blockchain and cryptocurrencies if one can grasp this simple understanding that “cryptocurrencies are pieces of technologies that exist in the form of different altcoins which solve problems to make things faster, more efficient, scalable, decentralised, etc, etc“.
Just like a laptop or desktop computer solves a whole series of problems for doctors, engineers, students, office workers, accountants, researchers, police, town planners, etc as all of them use computers and laptops to increase the efficiency and productivity of their work, and a car or a truck or bus or a train or an airplane or a ship solves the problems of transportation, a mobile solves the problems of communication, hydro, thermal, solar or wind farms solve the problem of electricity, a house solves the problem of shelter, farming solves the problems of hunger, diet, and nutrition, similarly, Cryptocurrencies solves the problems of making present technology better, usable and transparent and a whole lot more by improving the speed and efficiency of technologies used in different sectors of the economy.
It’s interesting to note that many people spend way more time trying to understand how the blockchain was engineered and what complex algorithms are used to make a cryptocurrency coin, and obviously one needs to have a computer science degree or a very technical mind of an engineer to understand the complex mathematical algorithms and structures to understand how these crypto coins are designed. Now not all of us have a computer science or computer engineering degree so when people don’t understand the complex science behind it they say crypto doesn’t make any sense to me and obviously it won’t if you want to understand the engineering part of it.
Imagine if you don’t understand how each and every component inside of your laptop or mobile works, would you stop using a laptop or a mobile? or if a chef or the owner of Mcdonald’s or KFC food chain doesn’t understand the complexity of farming & agriculture science, would they stop being a chef? of if you want to buy a house for personal or commercial purposes but you are not a builder or an architect would you stop buying a house? similarly, if you do not understand the engineering aspect of a cryptocurrency would the cryptocurrency become useless? The answer is no to all the above, you will still use a laptop, a chef will still be a chef despite he knows nothing about farming, you will still buy a house if you are not a builder or an architect and no the cryptocurrency will not become useless if you don’t understand its complex mathematical algorithms. A crypto coin becomes useless if it doesn’t perform well and doesn’t create value for the economy, the same way a car or a mobile phone or laptop is breaking down always and is not working will lose its value resulting in people moving towards more reliable brands. In saying that I am not discouraging anyone from not understanding and researching blockchain technology, in fact I would highly encourage everyone to find out as much as possible about the science behind blockchain after all cryptocurrencies come with a lot of risks and one should do their own research and due diligence before getting into it.
Hope everything explained above makes sense.
WHY DID CRYPTOCURRENCY ORIGINATE IN THE FIRST PLACE?
Why did money originate? Cause the barter system was hard, and having a currency was a convenience. Why did civilisations were built alongside a river bank, because of the close convenience of easy access to water.
Why was electricity, heater, and air conditioning invented, because of the convenience they provide.
Why are there snow shoes, trekking shoes, basketball shoes, soccer shoes, etc, because they make certain sports easier.
Why is anything invented, because it simplifies things and provides convenience, ease, and comfort to human beings.
The same goes for Cryptocurrencies, they were invented mainly because of the convenience of exchange of value, just like what traditional money (fiat currency) does but crypto coins provided a lot more value than just being a medium of exchange, for example:-
- Cryptocurrencies are decentralised meaning no particular organisation or individual is in control of it,
- To conduct transparent, reliable, and more secure transactions.
- To reduce the cost of transfer of money.
- To enable a much faster Speed of transaction.
- To solve problems with present-day e-commerce technologies like scalability, adaptability, interoperability, etc.
The above is just a snapshot of what blockchain technology can do and as blockchain technology evolves with time the more problems it will solve the more convenience it will create for human beings.
CRYPTOCURRENCY – THE BEGINNING:-
Exactly 4 decades ago in 1983 a computer scientist named David Chaum invented an algorithm where digital transactions could be made without revealing private information, this algorithm was cryptographically designed and was called “Blinding”. Another algorithm was designed in 1990 which was called e-gold and was the first digital currency.
After everyone knows what happened in 2009 – this is when the world was introduced to Bitcoin and the internet is full of tonnes of information about this topic if you want to read more. After Bitcoin the rest is history.
WHAT MADE CRYPTOCURRENCIES SO POPULAR?
Other than being a digital currency and a medium of exchange, cryptocurrencies also have this unique benefits that people love:-
- Security:- Because of encryption technology cryptocurrencies are way more secure than traditional fiat currency. In a nutshell, encryption allows the data to be converted into a code that can only be deciphered by someone who has the key to decipher it. And there are different levels and types of encryption techniques which you can read about online.
- Decentralisation:- The copy of the blockchain cryptocurrencies is held within a large network of computers ( aka nodes ) spread across the globe. These computers (nodes) are independently owned and operated all over the world. When someone makes a transaction on this blockchain then all the independent computers or nodes across the world verify that transaction. Once verified transaction is added to the blockchain. That transaction could be sending someone money, or buying goods online etc. The whole point is these transactions happen in a decentralised manner as explained above, which means it is independent of one central authority. Many people love this and that’s one of the main reasons why cryptos are so popular.
- Anonymity:- Cryptocurrency transactions can be traced however, at the same time they are anonymous. And due to this reason of anonymity, people love using crypto as they can safely and securely do their crypto transactions. How this works is because a user is identified via his wallet address, and the wallet address is used to send and receive the crypto. The wallet address can also be changed, the owner of a wallet address can change it any number of times, and, usually, a wallet address is a string of numbers and alphabets over 30 or 40 characters. Due to this reason, there comes anonymity with cryptocurrency transactions which safeguards users from hacking and other security issues, however, a user must implement additional security measures to keep their wallet safe.
- Transparency:- We know that coins like Bitcoin, Ethereum, Ripple, Litecoin, Dogecoin, and so on are used for conducting transactions. When any transaction occurs on any blockchain, that transaction is recorded in a public ledger of that blockchain in a secure and tamper-proof manner which can be seen by anyone on that blockchain network which makes it transparent. Because those transactions are individually verified from all over the world using a complex algorithm and then securely recorded on a public ledger, therefore, these transactions cannot be manipulated, or altered. This level of transparency and security gives this blockchain great usability in the sense that these blockchains can also be used in areas like management of supply chain, sourcing, voting, or governance just because of the fact that it creates a high level of trust, security, and transparency. This is another reason why blockchain technology is becoming so popular and being adopted in different sectors of the economy.
- Growth & Scalability:- Imagine if there was such a currency that doesn’t need to be converted. For example, if USD could be used in UK or Australia, or Malaysia without needing to convert it then how convenient it could be? Similarly, if Malaysian currency can be used in the USA, Australia, or the UK without any conversion and so on and so forth, then imagine the level of convenience there would be, because of no conversion fees, no middleman involved nothing just go into another country and still use your own currency. Well, cryptocurrency is not exactly the same but it solves this problem. For example, you can use Bitcoin, Ethereum, Litecoin, etc to transact in any country without worrying about conversion, however, some crypto coins are way cheaper to send than others so the owner gets to choose which crypto coin to use for what purpose but as they remain the same, as Bitcoin will still be Bitcoin no matter which country and Ethereum will be Ethereum in any country as well. Another thing is you can do a large number of transactions with crypto coins in a matter of seconds which is not possible with present-day fiat currency as larger amounts involve more paperwork and sending money across the globe doesn’t happen in a matter of seconds. You can also invest your crypto coins to support the technologies and projects that are built on blockchain which means blockchain can help solve more problems for different sectors of the economy and as a holder of these blockchains you will be rewarded with more of those crypto assets, therefore one can generate a good amount of passive income just by holding and investing in certain cryptocurrencies in certain applications and projects, so from an investment point of view cryptocurrencies are gaining a lot of popularity as well.
In the end, I would like to mention that cryptocurrencies are a fantastic invention, and can become an excellent source of passive income, however, they come with their own sets of risks and rewards so before buying and investing in cryptocurrencies always make sure that you do your own research.