Historically, we’ve been introduced to two kinds of money: cash (paper money) and digital ones (these numbers banks transfer from one account to another). That happened after the Web revolution during the 1990s and the implementation of computers to almost all areas of life. They are immutable in finance, for sure. We started using more and more cards, bank wires, transactions, debit and credit cards, and online payments. These are all ways of using our money without touching it physically – we know it is there, but we do not need its atomic representation to prove it. It is faster, allegedly safer, and takes fewer operations to execute. Then, another innovation came up, and that was cryptocurrency. Fiat money can exist only online as a number in a bank account, but it is backed by some kind of asset that gives it value. For instance, countries back their currencies with bank reserves, gold, oil, treasury bills, etc. Cryptocurrencies, on the other hand, do not rely on such equivalent assets for backing, and that isn’t necessarily a bad thing. They just work in another way. They rely on the economic rules of supply and demand, which is not a new concept for the world of finance. Hence, they make sense.
Cryptocurrencies’ main idea is a deliberation of the financial institutions. Why is this so important? Well, banks and payment systems are slow, expensive, and can be complicated to use. Apart from that, you find yourself in a trap where they don’t satisfy you with their service, but you have to pay more and more. Cryptocurrencies solved the vital double-spending problem – confirmation that an asset is not already exploited, usually, requires a central authority. Cryptocurrencies, though, are programmed in such a way that they do not allow replicas. Each code is unique. And there you go, a new way to make things better, removing the human factor.
But don’t confuse cryptocurrency with blockchain, since not every crypto coin is based on blockchain technology. Some centralized tokens have a private source software, a database, and a central ledger. Blockchain is the infrastructure that supports certain coins or tokens. Cryptocurrency, on the other hand, is a class of digital assets. Most cryptocurrencies are indeed built on blockchain technology, but still, not all tokens.
*Video content posted on Crispybull is under the Creative Commons License. Credit goes to Blockgeeks.
