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, online payments. These are all ways of using our money without touching them 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 novation came up and that was the cryptocurrency. Fiat money can exist only online as a number in a bank account, but it is backed with some kind of an asset that gives it value, for instance, a country bank reserve, gold, oil, etc. Cryptos, on the other hand, are not backed up which is not completely a bad thing. They just work in another way. They rely on the economic rules of supply and demand, not new for the financial world. 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, complicated to use and basically, put you in a trap where you are not satisfied by their service, but you have to pay more and more. The cryptos solved the vital double spending problem – to confirm that an asset is not already exploited, usually, a central authority is required. The crypto though is programmed in such a way that do not let replicas, each code is unique. And there you go, a new way to make things better removing the human factor.
Cryptocurrency should not be confused with blockchain since not every crypto coin is based on the blockchain technology. Actually, there centralized tokens with a private source software, a database, and a central ledger. The blockchain is the infrastructure which supports certain coins, whereas the cryptocurrency is a class of digital assets. It is true that most of the cryptos use the blockchain but still, do mess them up.
However, CryptoFrog found these two super cute boys to explain you everything in details:
*Video content posted on CryptoFrog is under the Creative Commons License. Credit goes to Iman Gadzhi.