What is Cryptocurrency in Simple Terms?
The easiest way to think of cryptocurrency is to think of the serial number on a dollar bill. Why store or move the money when you can just store or move the serial number through a computer.
A Crypto “dollar” is just a long string of numbers and letters (like 25T%G5G756#$8%33445 but much longer) like a serial number that a bunch of people have agreed is with worth something.
Cryptocurrencies are bought, sold and stored in computers and have no need to be tangible like a real US Dollar or British Pound or Swiss Franc.
Whats The Difference Between Bitcoin and Cryptocurrency?
Cryptocurrency is a category while Bitcoin is a product. Bitcoin, Ether and Tether “coins” are all examples of cryptocurrency.
Whats Wrong With Cryptocurrency in Simple Terms?
The largest problem with cryptocurrencies is they are only seen to have value by a few million people around the world. In contrast “Fiat currencies” (those issued by governments) like the Canadian Dollar and British Pound have been around for hundreds of years and are accepted by nearly all 7 Billion inhabitants of planet Earth.
If everyone believed that a Cryptocurrency like Bitcoin or Etherium have value, the fundamental problem with cryptocurrency, what its worth, would be eliminated. The price of Cryptocurrencies would change by a tiny fraction of a percent every day just like real Fiat currencies. But that day is not today, so cryptocurrency valuations fluctuate wildly every day.
What Can Cryptocurrencies Do That Fiat Currencies Cannot?
In addition to just being a store of wealth or a means of transaction, Cryptocurrencies can have contracts written right into their code. Contracts can become “self executing”. This allows for trustless and automated transactions, eliminating the need for intermediaries such as lawyers or banks, and reducing costs.
Cryptocurrencies are also completely decentralized so so no one is controlling them and that means no one is stopping them. If someone wants to transfer$1,000 worth of Bitcoin to you so they can buy your house they can do it. If a Columbian drug lord wants pay a mule, the guy that ships the illegal drugs, he can do it without any oversight.
Who Can Start a Cryptocurrency?
Anyone, including you, can start a cryptocurrency. But then, of course, you need to become a promoter and try to get others to believe your currency is worth something. Good luck with that.
This is so often why cryptocurrencies pay massive amounts of real dollars to celebrities to influence the general public, governments and regulators.
FTX for instance, paid everyone from football legend Tom Brady, to Shark Tank know-it-all Kevin O’Leary (reportedly USD $18 million!), to Seinfeld creator Larry David, to aggrandize its magical mystery coin cleverly named “FT”.
Are Cryptocurrencies Regulated Like Banks?
No… not today. Cryptocurrencies, more accurately Crypto exchanges, could be regulated like banks and there are loud calls from knowledgeable, powerful politicians and business titans to bring serious regulation to the crypto industry.
In a lot of Western countries like the United States, Britain, and Canada, there are many regulations that apply to the Crypto industry but they are not near as comprehensive as banking regulations are. Still, even that small amount of regulation is often too much for crypto companies and so they frequently set up in completely unregulated jurisdictions like the Bahamas.
Should I Buy Cryptocurrencies?
No. For most ‘regular’ people and even for most investors, cryptocurrencies are a little more than gambling.
If you are reading this article you are not sophisticated enough to buy a cryptocurrency. Even the most stable cryptocurrencies like Bitcoin and Ether have their valuations fluctuate wildly. Take a look at this chart and note that these are just the Cryptocurrencies that failed in the last year:
Why Are Cryptocurrencies More Popular in Third World Countries?
In the Western world the use case for cryptocurrencies is quite limited because we have reliable banking systems that allow us to store and transfer money easily, quickly and without extremely high fees.
If however, you live in a country without much of a fully developed, competitive banking system or in a country that has serious corruption you may not trust the banking system and for good reason. You may want to transfer “money” and and out of your country without your government knowing about it and crypto can be an easy solution.
Will Cryptocurrencies Survive?
Cryptocurrency has the potential to revolutionize the way we conduct financial transactions, particularly in terms of cross-border payments.
There is little doubt that some cryptocurrencies will be around and in common use years from now but many of the smaller and shiftier cryptocurrencies are doomed.