Cryptocurrency is a direct response to a failed monetary system. The humans of this world got tired and did what they usually do when they tire of a seemingly unprofitable situation. They became creative and fashioned out a way to be more in control of their finances and take part more in the financial systems.
This gave birth to the era of cryptocurrencies- digital currencies (or simply virtual money/ digital payment system) based on a decentralized (inclusive participation) system.
In simple terms, a crypto is “digital money”. This already means that you cannot have it in a tangible form like how you have the Kenyan shilling, Nigerian naira, Canadian dollars and all other legal tenders in several parts of the world. Actually, everything you do with it is currently online, perhaps until the status quo changes- who knows? Cryptography secures it, though.
In simple terms, cryptography is a system of “protecting information and communications through the use of codes, so that only those for whom the information is intended can read and process it”. Essentially, cryptography ensures that no human or vacuum can counterfeit or double spend the same crypto unit. Also, cryptocurrencies ensure transparency and built on immutable records.
Governments are increasingly interested in creating their own crypto coins. They want to explore a more centralized version (Central Bank Digital Currencies). However, many cryptocurrencies are largely decentralized, based on distributed (all-inclusive) systems known as blockchain technology.
What this means is that, oops, central authorities like the government have no direct control or power to interfere in the crypto system- at least theoretically. Cryptocurrencies is a partial bygone to traditional banks and middlemen. You can say crypto births a democratic monetary system if you wish.
What is the Buzz about Crypto?
Aside from being a simple way out of the inflationary effects of government’s cheap quantitative easing (impulsive and continuous printing of money by governments whenever their backs are against a wall), cryptocurrencies pose a revolution to their monetary policies. All the features of cryptocurrencies as explained below are paradigm shifting forces on the traditional financial systems.
No government can up and bar humans from using crypto, although many governments have tried. You cannot stop a person from accepting BTC as a payment. No sole or central agency can maneuver the supply of crypto coins. The creators of crypto limit the supply, and this has a positive bearing on the value of the crypto.
Satoshi Nakamoto
There is no way I will go all the way to the cradle of crypto and not mention Satoshi Nakamoto. Nakamoto is the inventor of the first and most popular cryptocurrency at the moment- bitcoin. To be honest, we do not yet know who exactly Satoshi is. (But if you’re reading this and you’re the guy, show thyself. I can keep a secret.)
Although the genius announced that he did not intend to invent the payment system that bitcoin now is. What he really intended to invent was “a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority.” – Satoshi Nakamoto, on SourceForge on January 9, 2009.
In an email to Dustin Tramell, the widely celebrated inventor explained how he successfully achieved the dreams of his forerunners by creating a non-trust-based money system. He noted “… after more than a decade of failed Trusted Third Party based systems (Digicash, etc.), they see it as a lost cause. I hope they can make the distinction, that this is the first time I know of that we’re trying a non-trust-based system.”
Examples of Cryptocurrencies
Currently, the crypto space boasts of over 4000 cryptocurrencies all over the world. Some common examples are Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Monero (XMR). The second set of cryptocurrencies run centrally. We know this set as Central Bank Digital Currencies.
The latter results from governments the world over dabbling into the crypto space and creating their own cryptocurrencies. Examples are the Chinese digital Yuan, Sweden’s e-krona, and the Marshall Islands’ sovereign (sov).
Features of Crypto
The following attributes differentiate cryptocurrencies from extant means of exchange:
- Secure and Encrypted: Digital wallets store your crypto - more like a public address cryptography system. Digital Wallets are accessible via private keys held by the owner. It is almost impossible for others to break into a digital wallet unless of course fraudulent individuals are privy to the private key.
- Irreversible: One cannot recall or withdraw a crypto on-chain action. This means that once you send crypto units, you cannot reverse them. Oops. This, of course, has advantages, but you can already imagine the disadvantages.
While all records will be easily traceable because of their permanence, on the flip side it becomes highly unfortunate for an unknowing person to send crypto funds to a scammer. He cannot resort to a central system to freeze the scammer’s account and have the sums reversed.
- Anonymous Transactions: The use of crypto allow for anonymous and pseudonymous monetary transactions. This is the purport of privacy coins.
- Global: BTC is fast becoming a cross jurisdiction and global payment system as it continues to go mainstream. It runs on networks that are indifferent to the user’s physical address.
Free entry and Exit: No central doorkeepers restrict the entry and exit of crypto users. All you must do is download a crypto enabling App. Get familiar with it and show off.
As ever, thanks to CryptoCurrency Academy for this illuminating article.
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