What you will learn
- What cryptocurrency is and what you can do with it.
- Why cryptocurrencies have value and the concept of reliable money
- The evolution of money, from gold coins to modern digital currencies.
- How Bitcoin works, explained simply.
What is cryptocurrency?
One form of digital cash that is solely accessible online is cryptocurrency. Cryptocurrencies are not controlled by a government or central bank like traditional currencies like NZD or AUD. Since they use blockchain technology, each transaction is safely recorded on a public ledger that is accessible to all but impossible for anyone to manipulate.
You can use it to save, invest, make payments, and even exchange products and services. Think of it as the internet’s equivalent of cash. The well-known cryptocurrencies Litecoin, Ethereum, and Bitcoin are among them.
What can you do with cryptocurrency?
Cryptocurrency allows you to:
- Send and receive payments anywhere in the world, often faster and cheaper than traditional banking.
- Invest and trade in a new kind of asset, similar to buying stocks.
- Purchase goods or services—many companies now accept cryptocurrency as payment.
How does crypto have value?
Cryptocurrencies get their value through scarcity, trust, and utility. Let’s break that down:
Cryptocurrencies are valuable because they are scarce, trustworthy, and useful. Let’s explore that:
Scarcity: Some cryptocurrencies have a short supply, just like gold. For instance, Bitcoin is limited to 21 million coins, making it rare and maybe valuable in the future.
Trust: People’s trust in cryptocurrencies as a means of exchange gives them worth. They believe blockchain technology, which powers cryptocurrencies, is dependable and safe.
Utility: People use cryptocurrencies for a number of things, like as international money transfers, investments, and the acquisition of products and services. A cryptocurrency’s potential value increases with its usefulness.
Understanding the evolution of money.
To understand cryptocurrency, it’s helpful to look at the evolution of money:
Barter System: Before the invention of money, people exchanged products directly, such as wheat for cows. Due to the need that both parties wanted what the other provided, this arrangement had downsides.
Precious Metals: People started utilising gold and silver as a standard for value in order to address the problems associated with bartering. Due to their rarity, value, and portability, gold coins were widely used.
Paper Money: Governments eventually started issuing gold-backed paper money. This was known as the gold standard, and it meant that there was gold to back up every dollar that was issued.
Fiat Currency: The majority of nations abandoned the gold standard in the 20th century. Now, money has value because people trust it and governments say it does; this is known as fiat currency.
Cryptocurrency: The next growth in money is cryptocurrency. Like gold, but completely digital, it is decentralised (no government controls it) and has a fixed supply.
How does Bitcoin work?
Bitcoin is the first and most well-known cryptocurrency. Here’s a simple way to understand how it works:
Blockchain Technology: The blockchain, which powers Bitcoin, functions as a public notebook where each transaction is documented. It is transparent, safe, and unchangeable once it is in writing.
Decentralisation: No one controls Bitcoin, in contrast to banks. It is run by a global computer network that records and verifies transactions.
Mining: The process by which powerful computers work out complex problems to produce new Bitcoins is known as mining. This adds additional transactions to the blockchain and strengthens network security.
Wallets: A digital wallet is required in order to use Bitcoin. You can store, send, and receive Bitcoins in a wallet, which functions similarly to a bank account. With a special key, you manage your own wallet rather than the banks.
Final take
The concept of cryptocurrency is a major change in how we view money. It is decentralised, digital, and based on safe blockchain technology. Cryptocurrencies allow you to invest, buy, sell, and exchange value globally without the need for a middleman.
You’ll have a strong basis for exploring the world of digital finance if you know the fundamentals of what cryptocurrencies are, how they increase in value, and how Bitcoin operates.