What is “Cryptocurrency”? Let me be straightforward about this – I write code and I know cryptocurrency technology. But all the articles and posts I’ve read try to explain cryptocurrency using technical terms like “database” and “consensus” and “core nodes” and many more, which are not useful to understanding cryptocurrency at all! To most people, including me, those descriptions are useless, at best. It’s like trying to understand your mobile phone by reading the manual – ok, I haven’t read one either, but I imagine that’s what it’s like. I don’t read the manual, I just pick it up and use it…
I think most “What is Cryptocurrency” articles read like a description of the internet as “a network of computers, routers, firewalls that operate at high speed using HTML and other protocols along with encryption to provide services that… blah, blah, blah.” Describing the internet by describing the technology is pointless and confusing to anyone that doesn’t run those machines. Similarly, describing cryptocurrency by describing the technology behind it is also pointless for most people. So here is a different approach:
To understand cryptocurrency, let’s start with talking about the concept of currency. Currency comes in many forms that many of us take for granted. They are not what we think of as “money” but we already know and use them. Currency can take the form of Chuck-E-Cheese tickets, Casino Tokens and or even stock “certificates.” You buy these things or earn them, and then later you trade them for things you want. Or you can “save” them up to use later.
(By the way, if you actually hold your own stock certificates, pause your reading here. To help better understand the rest of this article, please visit a Fat Daddy’s followed by a casino, and then talk to someone under 50. Spend at least a few hundred dollars along the way, and then continue reading.)
If you have ever been to a place like a Chuck-E-Cheese or Fat Daddy’s, you already know what it means for a company to create a currency! These companies give you (and maybe your little ones) tokens or credits, which you “earn” by playing games. Then tickets can buy awesome rewards, like toys and treats! I’m sure you know about this but if not you should go sometime! It really is fun, as long as you are not actually trying to make a living by doing it.
There are many entertainment venues and establishments that understand the value of issuing their own “money.” They realize that most people have trouble seeing tokens or tickets as holding value or being a currency like coins or paper money. Casino tokens are just like this. They give you tokens to start with and when you are done gambling, you can exchange those tokens for “real money” – but why? You started the night on a budget, and you still have tokens, so why stop?! We all know they do this, but we accept it and it works. Yeah, this is like a non-digital cryptocurrency. But wait, there’s more!!
There are also a lot of people that see cryptocurrency a lot like corporate stocks (or bonds, if you like those things). Most people buy stocks because they “believe in a company” or something like that. Of course, a long time ago, you bought a corporate stock to have them pay you dividends. It was seen more like a loan to the company. Recently, stocks are valued more on the expectation that someone else will buy it for more later. Dividends are in many cases a thing of the past. (And of course, some cryptocurrencies are offering dividends – but I suggest dividends should be reserved for stocks.)
Cryptocurrency is a big pile of technology that is doing all of these things. It is issued by different people and companies for many reasons. It can include dividends or be like tickets you earn. Subway tokens could be a cryptocurrency, just like bus tokens, postage stamps or anything else like that. Of course, with digital “currency” it’s important that you can’t “copy/paste” or easily make duplicates of your digital money, otherwise they wouldn’t work like a currency. So, that is an important part of a legitimate cryptocurrency – strong rules about how it is created and exchanged.
I could explain the technology behind of this, or you can read a lot of articles about it. But fundamentally, I think many read like a manual for creating cryptocurrency, instead of an explanation of what it really is. The short version is that cryptocurrencies can be legit, real currency that can’t be easily copied or manipulated. There is so much more to cryptocurrency, but I think this is the best to explain “what it is.” Let me know what you think!