At it’s fundamental level, a cryptocurrency is nothing more than a very long line of code with a beginning and an end. When you own cryptocurrency, you essentially own a piece of that code. You can purchase that code from a cryptocurrency exchange such as Binance or HitBTC and then store it on a virtual wallet on your electronic device such as a laptop or a smart phone. The price of your piece of code depends on how much you own and how much someone is willing to pay for it on the open market.
What Makes Cryptocurrency So Valuable?
There is nothing about the code that makes it particularly useful. The value of it is essentially agreed upon by those who buy and sell it. This may seem like an unusual concept but it really isn’t. The bills and coins you use to buy groceries are essentially nothing more than paper and metal. As a society, we have come to the agreement that a piece of paper with the number 20 on it is worth 20 dollars. In some early civilizations, stones and sea shells were used for trade and barter.
The Supply and Demand of Currency
The problem with the currencies from the past as well as the coins and bills we use today is supply. If a person went out on a boat and collected sea shells, they could use those shells to trade with neighboring villages – effectively increasing the number of shells that are available. In modern society, a country can simply print more money and add it to the current money supply. This is why we get inflation. As more currency is introduced into the market, it’s value goes down and makes items more expensive. This is why gold is such a great investment – it is a rare commodity. Unlike shells or paper, there is only so much gold on the earth and it is very troublesome and costly to mine. Therefore, the supply of gold will rarely increase and will maintain it’s value over time.
Value from Scarcity
Cryptocurrency solves the issue of supply. Much like gold, there is a finite or limited amount of code available per cryptocurrency. No two pieces of code are alike and they cannot be duplicated or manipulated. No more code can be added or removed from the entirety of the chain once it has been created. This prevents the gradual corrosion of it’s value due to inflation or deflation and over time stabilizes the price of the goods and services which can be purchased.
The Immutable Ledger
Another property which makes cryptocurrency a perfect device for trading is that every time people exchange the code between each other, it is marked down on a virtual ledger. This ledger cannot be manipulated or hacked as it is being monitored by thousands and sometimes millions of computers around the world – constantly verifying the integrity and validity of the transactions. The technology that makes this possible is called blockchain and is discussed in more detail within the next section.
WHAT IS THE BLOCKCHAIN?
Blockchain is a revolutionary technology which is already having a profound impact on our lives. The important thing to remember when reading this is that blockchain technology can have a wide variety of applications and is not only linked to money or currency.
The best way to understand blockchain technology is to think about a standard business accounting ledger. There was once a time when businesses used to write down all of their revenue and expenses into a book or a “ledger”. Then came along the computer and accounting programs such as Quickbooks and Excel made record keeping much easier.
In Cryptocurrency We Trust
Although methods of maintaining a ledger have became easier, there is always the issue of human error on the part of the data entry clerk or deceptive practices such as a business owner raising the monthly sales figures to make it look better for potential investors. It really comes down to trust. Trust that the ledger has not been manipulated. Blockchain technology eliminates trust from the equation. It does this by putting a copy of the ledger onto the device of every single person who uses it.
Making The Ledger Error Proof
Imagine being in a large office with 100 desks and computers. Every single computer has the exact same Excel spreadsheet open. Now take it a step further, imagine that you added a number on your spreadsheet and in turn, it added the same number on every other spreadsheet in the office. It would make it pretty difficult to make up fake numbers or make a mistake when 99 other people are checking your work. Those workers would then agree among themselves to remove your mistake and replace it with their correct version. Now imagine the entire world checking your work.
Ultimately, blockchain is a technology to secure a ledger to ensure that it cannot be tampered with through a peer to peer infrastructure.