Simple answer is, it is digital cash, and it will change our financial system.
Bitcoin! Ripple! Ethereum! Libra! Odds are, at this stage of 2019, you have heard one of these terms and the word: "cryptocurrency." You have probably googled these words and stumbled on plenty of hard to understand explanations, and are left wondering why you should even care about it.
My name is Danielle Dudai and I am a cryptocurrency nerd, ahem, enthusiast. I could talk to you about it for hours, and because I have done that on multiple occasions, including teaching a course on cryptocurrency investigations, I wrote this article, and a series of others, to put it into simple terms of what it is and why you should be paying attention.
First, let's discuss the terminology. You will often hear the words "cryptocurrency" "cryptoasset" "crypto" "virtual currency" "digital currency" and "bitcoin" used interchangeably. I tend to use the words "crypto" and "cryptoasset" when discussing this subject matter; not every crypto is a currency, some are security tokens or other forms of equity. During this article and the series that follows, I will use the term "crypto" to refer to any of the above type of assets. In most cases, you will hear these terms and they are referring to the same thing: a form of digital cash.
Digital Cash. That's exactly why do you should care about it. Crypto makes transferring value truly peer to peer-- no middle man needed. It also makes money/value accessible to everyone, without distinction. How?
Crypto is massively more accessible to the unbanked and underbanked populations around the globe. Did you know there are at least 14 million people in the United States that are unbanked?! There are 1.7 billion people who are unbanked worldwide. This means they have no bank account or credit card, or access to traditional financial products. There is an even larger underbanked or underserved population worldwide. In the United States alone, there are more than 48 million underbanked individuals -- those who have some access to traditional financial products but who are underserved and still have to rely on alternative financial products like check cashing stores or alternative lenders. In this current financial system, having a bank account and access to funds without incurring harsh penalty fees or interest is crucial to any business' survival, and absolutely necessary for individuals to escape poverty.
OK so how does it work? Crypto earns its name from the cryptographic algorithms that regulate the generation of units of the asset; these algorithms also encrypt the asset, for security purposes. Crypto was created by anarchists out of their distrust for government and its need to know about the wealth of its citizens, as well as the inefficiency and alleged corruption of the banking industry. Crypto cuts out the need for a bank or middle man; you are free to use your asset/currency as you please without unnecessary delay, interference, or excessive fees.
Currently, the digital transactions we engage in need to have a bank attached to confirm the funds are available on one end of the transaction, and confirm the ability to accept on the other end. When you use a credit card, or even a bank transfer app, there is a middle man who is checking on your ability to complete that transaction.
Think about it this way. When you buy a coffee with cash, you hand over the cash to the cashier, get your change and your coffee, and thats the whole transaction. No one else knows that this transaction happened except for what is reflected on the receipt. If you paid using a credit card: you swipe the card, the payment processing service contacts your bank to see if there is funding available, it says yes, and then gives permission to charge the coffee to the account, and remits an IOU to the merchant saying, we should be able to settle this transaction within 24-72 hours. The merchant will also incur a fee for this entire endeavor.
Now what if you could do that without the middle man of the bank and the merchant processor? With crypto, you can. With a crypto transaction, the merchant will scan your wallet address, the amount of the transaction will be deducted from your account, and within seconds (maybe minutes), the amount will be in the merchant's account, for a fractional fee. Boom, digital cash.
Cryptography cuts out this need for the middle man who verifies these things on each end, because the blockchain verifies who you are for the transaction. The network has access to what is in your account and how much, so it just distributes automatically by debiting your wallet and crediting another’s, while recording the transaction in a manner that is distributed amongst all the computers on the network so that the transaction is unable to be deleted or edited.They operate independently of a central bank; it relies on the community to generate and verify the transactions. And, this usually only takes seconds, sometimes minutes to complete. I can send thousands of dollars to another account, in mere moments for pennies on the dollar. If I used a bank, I would be paying wire transfer fees and waiting days for it to complete and settle.
Sound good? I am sure some of you may still be skeptical, but just remember... it took more than a decade to get email on your phone, and now we cant imagine life without it. Credit Cards were a strange and skeptical concept, and now, those people without a credit card are the minority.
Now that we have covered a basic overview of crypto and its benefits, let's discuss what the blockchain is and what it can do in my next article. Click Here!