What is Cryptocurrency?
Discover what cryptocurrency is in laymen's terms and what it means for the future of global finance.
Cryptocurrency is a term you’ve probably started hearing a lot more often in the last two years, but what exactly is it? How is it different from something like Venmo? Why are there so many different cryptocurrencies?
To provide some helpful background: The concept of “digital money” was conceived in the early days of the internet in the 1990’s. In 2022, we use digital money everyday. Most people get their paycheck via direct deposit, spend money with cards or Apple Pay, and pay each other with Venmo or through the Cash App.
Blockchain enters the scene
The thought may arise, “If we already use digital money, why do we need this new, confusing thing called cryptocurrency?” This question is answered by understanding one thing: Blockchain. Blockchain technology is an incredibly powerful technology that is likely to be the foundation of Web3, or, the next evolution of the internet.
To explain blockchain in an analogy: Imagine 10 friends have a weekly bowling competition. At the end of each competition, all 10 participants make a record of who came in first, second, third place and so forth.
A year later, one friend claims he won the Christmas week bowling competition, but another disagrees and says he won that game. All 10 friends simply check their records and verify this claim. Turns out they were both wrong. Thankfully this information was verifiable by all 9 friends.
Imagine instead of all 10 friends independently verifying the outcome of each weekly competition, only one friend keeps track. What happens if his phone is broken or stolen? Or the computer where he keeps the information crashes? Now the group has no way to verify the outcomes. If they all keep track, there’s nine other sources of verification if one person loses the data.
It’s obvious that the first method of tracking information is superior. What isn’t obvious is that most of our institutions use the second method. You want to send money to your friend? You must trust Venmo to safely transfer the money. If all your pictures are stored in the cloud, you must trust that Dropbox doesn’t get hacked. If you aren’t aware, companies get hacked A LOT.
Blockchain revolves around multiple computers verifying data.
Take the first method, but instead of 10 friends, tens of millions of computers across the world. These computers work together to continuously verify every single transaction that occurs on a blockchain network and store a record of that transaction. While you often hear of hacks in the crypto world, these hacks are usually a result of human error.
The bitcoin blockchain has been running nonstop for almost 14 years. The network has gone offline for 0 seconds, and every transaction ever made on the bitcoin network is publicly accessible to view. The owners of these computers are rewarded for their services in bitcoin, this is what bitcoin “mining” is.
Now that you have a better understanding of blockchain, we can dive into what exactly cryptocurrency is (and can be). Blockchains need “fuel” to function, like everything else in life. People need food, cars need gas, blockchains need coins and transactions. Every cryptocurrency is unique and offers a different application of blockchain technology.
Bitcoin and Litecoin are good examples of cryptocurrencies dedicated to payments, Filecoin is a blockchain-powered cloud storage service, Ethereum is a platform (“Layer 1”) token that provides an “operating system” for other cryptocurrencies to build on and create an interconnected ecosystem. There are new applications for blockchain and cryptocurrency every day.
The power of cryptocurrency in action
To appreciate just how powerful blockchain and cryptocurrency is, it’s helpful to point to real world examples of how they are used. If you want to send a large sum of money from the United States to Tokyo, it will be expensive and likely take somewhere between 3-5 business days to arrive via the banking system.
If you want to withdraw your Venmo balance into your checking account, it’s around 1-3 business days. In a world where you can have food delivered to your doorstep at the click of a button, call someone on a different continent, or stream virtually any medium of content instantly, why does it still take days to send money? Our current system is simply archaic and relies on obsolete technology used by the centralized banking system.
If you want to send money to Tokyo, you can instead send it by using bitcoin. The transaction will take 5-10 minutes and run you a few dollars at most. Simply put: The internet and our interconnected world has evolved, and cryptocurrency is the necessary evolution of money that was missing.
One of the biggest and earliest use cases for cryptocurrency was remittances. Traditionally, immigrants with family back in their home country would rely on Western Union or MoneyGram to send money to their families. This would take 3-5 days, and for a $100 transfer cost about $10. Ten dollars is very significant in many parts of the world. With cryptocurrency, if your family has a wireless connection, you can send them crypto instantly for a fraction of the cost.
These are just a few examples (of many) to show the value of cryptocurrency. Did you know that over 2 billion people in the world don’t have a bank account? Without a bank account, they are unable to invest their money, safely store it, or exchange it for a safer currency if their native currency experiences hyperinflation.
Cryptocurrency provides an opportunity to bring those 2 billion people into the modern financial system because you don’t need a bank account, just an internet connection.
Who is Cindicator?
Cindicator is a world-wide team of individuals with expertise in math, data science, quant trading, and finances, working together with one collective mind. Founded in 2015, Cindicator builds predictive analytics by merging collective intelligence and machine learning models. Stoic AI is the company’s flagship product that offers automated trading strategies for cryptocurrency investors. Join us on Telegram or Twitter to stay in touch.
Information in the article does not, nor does it purport to, constitute any form of professional investment advice, recommendation, or independent analysis.