With all this buzz surrounding cryptocurrency, it can be easy to get lost in the hype. Just what is cryptocurrency anyway and why do we need it? By now you’ve probably figured out that cryptocurrency is the mixture of two words, cryptography and currency. Let’s explore those two topics briefly.
Cryptography is the process of turning plain text into jumbled text which can only be read with a special key. A sort of very complex puzzle that only a few people have the solution to. With cryptocurrency, senders and receivers of Bitcoin and other coins typically have a public-private key pair.
This means that every user who has a cryptocurrency wallet can give out their public address so that others can send them crypto. Only they, however, have the private key which allows them to access their wallet, check funds, and most importantly transfer funds using that wallet.
It’s important to note that keeping your private key, well… private is your number one priority for keeping your funds secure. Since crypto is a purely digital technology you are not technically sending anything. You are only updating a ledger or accounting system to show that for example you now have one Bitcoin less and your receiver has one Bitcoin more.
This accounting system is known as the blockchain and is in many ways similar to how we use internet banking today.
It may seem obvious but most people don’t understand what currency or money actually is. For must of us, we’d probably reach into our pocket, pull out a fancily printed piece of paper and say, “that’s easy, this is money”. The truth is that anything can be used as money, Dollars, Euros, Yen, gold, shells, chocolate, you name it, it can be used. As long as we agree that it holds value then it can be used as money.
In fact, money generally has the following three properties:
Store of Value
For money to function it needs to hold its value. If I earn €100 today I need to be able to hold it for days, months, or even years and be able to buy things worth €100 at a later time. Paper money holds its value a lot better than say bread, milk, or eggs which expire quickly.
Unit of Account
Money is a unit of account. In other words, you need to quickly and easily be able to debit and credit people who make transactions using a ledger. +€100 to the receiver here, -€100 to the buyer there, +€20 here, -€20 there and so on. Paper is easy to distribute and use and can be used as a common measuring option in an economy.
Medium of Exchange
Money also needs to act as a medium of exchange. It needs to be widely accepted as a method of payment. You could, for example, use corn or guitars as payment but a seller may not want those things. They may instead be saving up for a TV or a car. Storing a neutral medium of exchange like paper money makes exchanging goods and services a whole lot easier.
Why Do We Need Cryptocurrency Then?
Well, the problem boils down to the current financial system and how they create money. Unfortunately, all governments and central banks around the world are printing record amounts of money. When you print too much money the value of goods and services goes up. Even worse, the money you saved up yesterday will buy you fewer goods and services tomorrow. This is known as inflation and is a sort of secret tax that society has to pay.
Unfortunately, this means that world leaders are actually breaking the first rule of money – store of value. To have effective money there needs to be a limited supply of it. History has proven over and over again that leaders eventually destroy paper money by printing too much of it. Here is one example.
Bitcoin is different. There can only ever be a maximum of 21 million Bitcoins in existence, so it has a limited supply. It’s also decentralized which means that it’s not run by a central authority like a government or bank. Why is that important? Because the point of failure is almost always at a central point due to bad management or corruption. Bitcoin uses a network of independent computers around the world to record and manage transactions on the network.
By now, you should have a basic understanding of what cryptocurrency (particularly Bitcoin) is and why it’s necessary. It’s a new form of digital money that has the properties of money but will not suffer from the kinds of problems that traditional paper money has.
If you’re still not convinced, think back to the days of the 2000 dot com crash or 2008 financial crisis. Both were saved temporarily through money printing that benefited the rich. Bitcoin arrived on the scene in 2009 its price has grown over 200 000 percent against the Dollar, Euro, and other currencies since then. That’s not a mistake. People are looking for a way to preserve their savings. And you’ve come to the right place to do that. At Ethbits you can buy and sell Bitcoin quickly, easily and securely.
If you need help setting up your account and/or getting hold of your first Bitcoin we are always available to help get you started. Good luck and stay safe in CryptoLand!