What is cryptocurrency?
Good to know:
This guide is designed to get you right into crypto, using the easiest options that fit the needs of most people. Naturally, there are so many other ways to buy, spend and get crypto.
What you'll learn
- A simple definition of crypto & what you can do with it
- How crypto can have value & the concept of sound money
- The evolution of money & the gold standard
- A simple explanation of how Bitcoin works
Cryptocurrency is a new kind of money
You can use it to buy things online, and you can send it instantly to other users anywhere in the world, at very low cost, needing nothing more than a smartphone and an internet connection.
How does cryptocurrency have value?
To answer that question we need to take a short trip back in time and trace the evolution of money.
By understanding why we started using money we can strip it back to its fundamental characteristics and discover a concept called sound money.
The characteristics of sound money give us a template against which to measure the money we use right now, and the improvements cryptocurrency promises to deliver.
Into The Time Tunnel
When our ancestors stopped being nomadic, and developed specialist skills, they were able to exchange their surpluses. On a small scale, a village for example, they could keep a mental note of who owed what - a credit or trust based system - and what a fair exchange rate was - how much wheat in exchange for a cow.
The characteristics of sound money
A key property of gold is that it is almost impossible to destroy (durable) but can be melted down into smaller units (divisible), which are relatively easy to transport (portable) and when divided, each unit has identical properties (fungible).
It is also very recognisable, which isn't surprising as it has intrinsic value due to its colour and shine.
Gold cannot be manufactured, you can only get more of it by digging it out of the ground, but because of the difficulties in mining it, the stock of gold tends to change at a very predictable rate - this gives it the important property of scarcity. So sound money, effective as a medium of exchange or store of value, has these properties:
- Durable
- Divisibile
- Fungibile
- Portabile
- Recognisable
- Scarce
The gold standard
Of course we now know that this breaks one of our golden rules of sound money - scarcity. The new system instead requires us to simply trust our governments to decide how much money should be created and for what purpose. This is known as Fiat Money, which literally means - this is money because the government says its money.
Bitcoin — Ultimate Sound Money
Before we jump down the Bitcoin rabbit hole, let’s make a distinction: Bitcoin (with capital B) refers to its money system - whereas bitcoin (lowercase b) refers to its units - the money itself.
You can't stop things like Bitcoin. It will be everywhere and the world will have to readjust. World governments will have to readjust.
Bitcoin was the first cryptocurrency to find a successful solution that ticks all the boxes of sound money with none of the risks of a single controlling authority. Let’s explore how it achieves those two things.
7 basic questions about crypto
Short, simple and straight forward answers to basic questions about how crypto works and why it has value.