Cryptocurrencies - that weird “digital money” you've been hearing about for a little while. What are they? Why do some people love them so much? And will they replace your dollars, pounds, and yen (fiat currency)? We'll try and answer all that and more in this short article.
What are cryptocurrencies?
They are “a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.” Sounds very smart, right?
They are built on blockchain technology (more info on that here) and they don't exist as physical money like your pounds and pennies do, but if you think about it, the world is moving to a cashless future anyway.
With the advent of Apple and Android pay, and people relying on plastic credit and debit cards to complete transactions more than ever, are cryptocurrencies really such a crazy concept?
In the same way we moved from gold and silver to dollars and cents, we could now be seeing the move from fiat to crypto. You could argue that this is simply the next step in the evolution of money.
Bitcoin is the most famous cryptocurrency, but there are now thousands of them. And, similar to the differences in world currencies, some have more value than others.
Some cryptocurrencies were created to be used as a currency (Bitcoin, Litecoin etc.), and some cryptocurrencies were created to allow people to use or access a service (Ethereum, UTRUST, Ethos etc.). And that's where the confusion comes in. Not every cryptocurrency was created to be a 'currency' - just be aware of that.
Why do so many people want cryptocurrencies to succeed?
In general, they're faster and cheaper to transact with than fiat currencies, and highly resistant to fraud and human error.
The vast majority of cryptocurrencies are also decentralised, and therefore not owned or run by a bank or central power, putting full custodianship of wealth back into the hands of the people.
Cryptocurrencies are also borderless. It does not matter if you live in Canada and your friend lives in Ghana. You can send cryptocurrencies back and forth all day long (if you wanted to), without paying the exorbitant fees that banks charge, or waiting days for the transaction to go through.
So you can see, there are many benefits to adopting and using cryptocurrencies.
So, why aren't we using cryptocurrencies right now?
Because the world is yet to fully accept cryptocurrencies. There's still a lot of misinformation around, as well as a lack of trust in cryptocurrencies from Governments and major financial institutions.
The cryptocurrency market is extremely volatile, which is off-putting to major investors, and there's so much negative press being published by those whose power is being directly challenged by cryptocurrencies, making it difficult for people to get their hands on the correct information.
It's also an extremely difficult thing to get involved in at the minute anyway. There's a steep learning curve for anyone who's entering the cryptocurrency space (something we hope to address here), and there are very few “real world” examples of cryptocurrencies being used or adopted.
Some people (or even major publishers – for shame) might point to scams and criminal behaviour as reasons as well, but for as long as there's been some form of money or currency, there have been scams and criminal behaviour to go with them.
What's needed for cryptocurrencies to become mainstream?
Real world applications that lead to worldwide acceptance and adoption. So no easy feat, then.
Whether that means Bitcoin or Litecoin become an actual currency, accepted by Governments and people all over the world, or companies like UTRUST and Ethos release their products to the world allowing us to pay for things with cryptocurrencies and manage our crypto finances and investments easily, we need something to become widely adopted to see more and more cryptocurrencies succeed.
It'd be nice to see better content as well. There's so much false information being spread, and too much speculation and sensationalism. Most of the good content isn't always 'newbie' friendly either.
Will cryptocurrencies eventually replace dollars and pounds?
Who knows? Fiat currencies replaced gold and silver, but we still buy and sell gold and silver, and they still have value.
Who's to say that adoption of cryptocurrencies would lead to the death of fiat? Maybe they'll co-exist. Maybe they won't. We're not speculators here so that's as much as we'll say. Either way, it'll be interesting to see what happens, if anything!
Well, we hope you enjoyed this very basic article on cryptocurrencies (sorry, techies!), and that you now have a better idea of what cryptocurrencies are. We have also written articles on Bitcoin, Ethereum, and the blockchain if you want to educate yourself further.