We define cryptocurrencies as: a digital medium of exchange using strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.
A cryptocurrency is a digital medium of exchange using strong cryptography to secure financial transactions, control the creation of additional units and verify the transfer of assets.
Why was Bitcoin such a revolutionary technology? A big part of it is due to its design in preventing a problem called “double-spending.”
In order for you to know that the $1 you just received will not be spent by your sender again in another transaction, we typically need to trust someone to keep tabs of who’s spending and receiving what — usually, a bank, in the case of digital assets, or the dollar note itself physically leaving your wallet and never coming back.
With Bitcoin, the recognition and prevention of this problem meant that we’ll never have to doubt if the dollar just given to us is actually spendable by the sender and without needing a middleman to verify it. It's similar to the cash coming out of your wallet. Once you’ve given it away, you can see for yourself that it’s no longer there.
To see a visual explanation, check out this video:
Why Care About Cryptocurrencies?
The money that you use today — fiat currency, issued as legal tender by the government — is controlled by the governments and banks who manage its supply, issue and distribution. Most of the time, it is good enough for day-to-day transactions… as long as you trust your government and your banks.
We can see examples of governments who have hyper-inflated their currency through the course of history, or banks who hold money hostage from the families of those who own it. Sometimes, it can also just be inefficient; for example, when banks don’t clear an urgent international transfer over the weekends because they aren’t operating then.
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.
This was (probably) meant as a jab at the current banking system. Suffering the aftereffects of the financial crisis, many banks were not able to stay afloat and had to rely on bailouts by governments to survive, using taxpayers’ money. Many of the original supporters of cryptocurrencies felt strongly against the way that governments could just “print money” to prop up the economy. When doing so, they are in effect devaluating the money that people hold and are putting control in the hands of politicians who may not know how to best act in the interest of their constituents.
With the birth of Bitcoin, many started seeing a clear way forward for a world in which people were in control of their assets. This, in addition to the rise of big internet companies who were selling their users’ data for profits, and we have the initial makings of a revolution. Idealists were starting to imagine a world in which we emerge as sovereign individuals, people who had complete say over our money, our privacy, our attention, and more – and thus the idea spread.
The Benefits of Cryptocurrencies
Everyone around the world can participate in the network, and you can send and receive cryptocurrencies quickly within minutes or seconds. This means that even those without access to the current banking system (the underbanked or unbanked) can also participate in the global economy.
You can check every transaction that ever took place on most blockchains, such as on Bitcoin or Ethereum.
Unlike the typical government-issued monetary system, most cryptocurrencies come with a predictable supply schedule. This means that you can work out an inflation rate per year, with that being known, rather than being at the whims of a central government.
You can transact at any time, rather than having to wait for bank opening/operating hours.