Cryptocurrency 101
ELI5: What cryptocurrencies are (and what they are not)
The simple explanation you needed about the technology revolutionizing finance
Cryptocurrency has grown exponentially over the last few years. However, many people still don’t quite understand what they are and what their purpose is.
What exactly are cryptocurrencies?
Cryptocurrencies are digital, virtual currencies secured by cryptographic functions — hence their name. These security methods make them almost impossible to hack, preventing counterfeiting and “double spending” problems.
These digital assets run on another technology called blockchain. A blockchain is a public, open data ledger where all information is stored in small data containers — called blocks — linked to each other.
By keeping blocks linked to their predecessors, blockchain technology enforces traceability, transparency, and public access to information.
What is the purpose of cryptocurrencies?
To create a private, decentralized, censorship-resistant monetary network and currency accessible to anyone and everyone.
Decentralization is one of the most important concepts of cryptocurrency. It means that nobody holds control nor sets the rules — as it happens in traditional finance with governments on central banks. Instead, the community makes the rules democratically.
Centralized systems are naturally flawed. They grant excessive power to those in control and are thus prone to corruption. In cryptocurrency, the rules are programmed in the blockchain and nobody can change them without the necessary votes.
Cryptocurrencies are also a great resource for financial purposes. Because the rules are publicly accessible and immutable, people have complete control over their funds, along with the financial security and peace of mind that certainty provides.
In traditional finance, central banks can change the money supply overnight, devaluing your savings, or freeze your bank account when they please. In crypto, you’re in complete control.
Amazing, right? Cryptocurrencies are designed to take the power away from politicians and give it back to the people. But then… Why do some people resist it so much?
That’s because they have misunderstood what crypto is. Having no central institution controlling it, cryptocurrency value is determined by the market laws of supply and demand, which makes them volatile in the short-term.
What cryptocurrencies are not?
The volatility many cryptocurrencies experience has led many people to believe they are a scheme to get rich quick. Indeed, many investors have, but that’s not the point.
Cryptocurrencies aren’t a gamble or a scam. They are a new technology with a clear, solid purpose, but we are still figuring out the best way to apply it. Until that happens, we might make mistakes.
Of course, there are rent-seekers and scammers that try to use this technology for their advantage, but these are not inherent to crypto. The technology in itself is neutral, and it’s what people use it for that determines its true value.
The best thing about crypto, however, is that nobody will force you to use them. Unlike fiat money, which is imposed upon the people, everyone who’s in crypto chose to be here. That’s what it’s all about: the freedom of choice.
Summing up, cryptocurrencies are probably the most revolutionary financial technology of the modern era. They provide the technical resources needed to democratize the global economy and ensure a fair, free market for everyone.
Are you hooked by the world of crypto? Do you want to learn more? At Innovatio, we’re building a community focused on teaching freelancers, entrepreneurs, and everyone who sees their true potential about cryptocurrencies and how to use them.
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