Digital money primer: What makes cryptocurrencies such a big thing
Bitcoin, Ethereum, Dogecoin, and all kinds of other cryptocurrencies. You hear billionaires and investors squawking about them in the news all the time.
Maybe you’ve even noticed family members, coworkers, and neighbors enthusing over the high value of their bitcoin. Or lamenting that stash of ether someone lost online the other day. Or how the price of dogecoin is shooting up again. But what is this “cryptocurrency” and why should you care?
In the simplest terms, cryptocurrencies are popular forms of digital smart-money that solve inflation, privacy, and payment efficiency problems and allow you to invest, buy, save, trade, and spend exchangeable coins and tokens straight from your smartphone, computer, or credit card. You can even pay and accept coins anonymously via encrypted and decentralized payment infrastructures.
Crypto vs. fiat
The thing to remember is that cryptos are different types of purely digital money. However, unlike US Dollars, the Federal Reserve doesn’t own them. Yet, somewhat like USDs, virtually any activated crypto can function as a store of value, a means of payment, or a unit of account.
The difference in their value, when compared to fiat currency, is that most cryptocurrencies are shielded from inflation because they’re programmed to cease minting once a certain number of coins is reached, or because they are burned (destroyed) along the way by the decentralized autonomous organizations (DAOs) that govern them once too many are out there being saved and traded.
However, owing to their compelling nature as a new and exciting class of currency that is built and controlled by “we, the people,” cryptos are subject to wild speculation and price fluctuation.
Today there are thousands of different crypto coin brands made for different uses. And, whether you invest in them or not, we should all care because cryptos are fundamentally changing the way the world trades value and purchases goods and services.
Furthermore, the underlying blockchain technology that gives cryptocurrency its worth is already used in a host of business applications other than payments, from auctioning art to facilitating financial accounting and from storing medical records to processing cargo. This stuff is no chump change. In fact, cryptocurrency smart contracts that are built on the Ethereum blockchain can even be preprogrammed to buy a house in digital escrow!
Ease of use
Whether you realize it or not, one of cryptocurrency’s increasingly popular uses around the world is for everyday buying, spending, and sharing. These days it can be stored in your credit account and spent freely at retail counters with the scan of a QR code on your smartphone or the swipe of a card. And the store clerk won’t even know you’re spending it because all they see on the receipt is that you’ve settled in dollars!
Anyone can buy and trade this digital money electronically. And the crypto industry makes it easy. After downloading a digital wallet to your cell phone, connecting it to your bank account and loading up on cryptos, you’re in business! Suddenly you can buy, hold, trade, invest, and spend a variety of different cryptocurrencies instantaneously.
And, just like coin collecting, the price of entry is cheap. Per-coin prices can range from tens of thousandths of a cent to tens of thousands of dollars! But, for fungibility’s sake, even the most expensive cryptocurrencies can be broken down into smaller units of pocket change.
Laying golden eggs
Cryptos are not issued by governments or central banks. Instead, they are minted by private teams, DAOs, computer programs, and by token holders who analyze financial technology markets and vote on the best ways to improve the performance of any given cryptocurrency.
Due to the mania surrounding crypto markets, these digital coins and tokens attract speculators, so cryptocurrencies’ perceived values and pricing are extremely volatile. Thankfully, all this hysteria has energized effective counterbalancing forces. For example, special cryptocurrencies called stablecoins tend to dampen the inevitable trade losses incurred when two tokens with fluid pricing are exchanged.
Then there are the conundrum-clearing cryptos known as utility tokens whose pricing appreciates as markets discover new ways to remove expense and friction from payments by applying the refining characteristics and disentangling attributes of these utility mintages.
If you didn’t know a thing about cryptocurrencies before reading this column, now you have a head start on your path to enlightenment. But remember, none of this is investment advice. It’s written purely for your entertainment. I encourage you to do your own research before making investment decisions.
Jeffrey Tomas Marchesseault is a broadcaster and real estate broker who now works in tourism and economic development for the government of Guam. He loves to read, write, and riff about evolving technology. Send feedback to firstname.lastname@example.org