We’ve always looked for easier ways to exchange goods and services between people. In 9000 BC, our system of exchange was barter between goods - I gave my neighbour grain, and they gave me livestock.
Then came the system of money in 600 BC as King Alyattes of Lydia introduced coins engraved with roaring lions. It wasn’t until 1661 AD that the humble piece of paper took centre stage away from precious metals. From 1860 onwards it was possible to send imaginary pieces of paper over telegram. In 1950 a small cardboard rectangle gave diners access to credit. From 1989 we quickly moved from handwritten signatures to digital ones as the internet entered our lives. Plastic rectangles no longer needed to contact payment of service [POS] machines and our phones could double as wallets. Each of these technologies has changed the way we exchange, produce and fundamentally think about money. It is important to view cryptocurrencies in respect to this history of money in order to understand that this recent development is just a natural consequence of technological improvements and our propensity for trade.
We prefer the term cryptographic assets but for simplicity in language we’ll stick with the familiar cryptocurrency and crypto terms closely affiliated with Bitcoin.
Cryptocurrencies are digital assets, designed to be a medium of exchange with a control on unit creation, and paired to a secure database that facilitates peer to peer transactions.
Let’s break that down.
A digital asset can be thought of as money, while a medium of exchange is an agreed upon tool with which we can trade for goods and services. The in-built software of most cryptocurrencies places rules and limits on the printing of digital assets. In other words, the code controls unit creation (printing of money). So unlike a reserve bank you cannot print off more money whenever you wish.
A secure database refers to ‘the Blockchain’. This is the technology that has produced a publicly verifiable and ridiculously secure log of transactions. It helps to think of this as a ledger of absolute truth that nobody owns but anyone can access to determine what is true and what is not. Something the world of fake news could use…!
And finally, peer to peer means the removal of unnecessary third parties that have previously been essential to performing many of our transactions. As an example you can imagine exchanging digital money without banks or being able to vote directly on policy issues. In the world of cryptocurrencies the bank or the local member of government is no longer required to achieve the intended outcome. It is instead analogous to handing your friend cash in the real world, there is no one in-between overseeing the transaction and taking a cut.
So why all the fuss?
Cryptocurrency has the potential to create a global currency, that cannot be censored by any government or single entity. This can transform and connect everyone to the global economy, similar to what the internet has done for communication. It can remove unnecessary third parties (i.e. banks), return privacy to the people and is more secure. It aims to re-establish trust within financial networks and make it incredibly difficult for people to act maliciously.
It has captured the attention of some of the worlds best and brightest and yet we still are just at the beginning of realising this technology’s potential. Twenty years ago it was impossible to predict the exact nature of the internet today, but those who broadly realised its potential reaped rewards. In the same vein, we think it’s worth investing in tomorrow’s internet of money.