What Is Cryptocurrency?
When first stumbling upon the word ‘cryptocurrency’, nearly all of us have wondered what it really is. So what is cryptocurrency? Indeed, the word is very novel to the layman’s eye. However, once you break it down into ‘crypto’ and ‘currency’, it starts to make more sense all of a sudden!
Cryptocurrency is a compound word, that is, it consists of two words. The first word ‘crypto’ refers to cryptography. Cryptography is a technique by which, generally speaking, information get encrypted. This information can only be unencrypted by the designed audience, typically the person who holds the ‘key’ to the encryption. ‘Currency’, on the other hand, is easier to understand – it has the common meaning of being a system of money.
So when the two words are combined together, it literally means a system of money that uses cryptography.
So why would someone invent cryptocurrency? What is its relationship with digital currency? What does the future hold for cryptocurrency? We will explain everything to you in this guide.
A system of money using cryptography – why would anyone be crazy enough to invent something like that? After all, our current financial system works just fine, right?
Not exactly. Our current financial system is notoriously fragile, especially in the developing parts of the world. It may be a shock to some, but there are still 1.7 billion people in the world that are without a bank account. In certain countries, the local currency is so shaky that people prefer to use the currency of another country, such as the US dollar.
Industry pioneers have labelled cryptocurrency as the way of the future, or Internet 3.0 that will revolutionise the way value will be exchanged. The immediate use of cryptocurrency is obvious. Regardless of your age, nationality or income level, cryptocurrency is a borderless currency that brings financial freedom to the masses. All you need is a computer or mobile device and you are the owner of your own wealth. Now this is very powerful, for example, to someone who is unbanked in Venezuela.
CRYPTOCURRENCY VS DIGITAL CURRENCY
So what is the difference between cryptocurrency and digital currency? In summary, cryptocurrencies are digital, but not all digital currencies are cryptocurrencies. For example, some central banks, including the Reserve Bank of Australia, are exploring central bank digital currencies (CBDC). However, whether these digital currencies employ cryptography as part of its technology is uncertain. In fact, there are digital currencies, such as Hong Kong’s Octopus card system, that do not fall within the definition of cryptocurrency, but rather serve as an alternative store of value.
THE FUTURE OF CRYPTOCURRENCY
Cryptocurrency is getting more and more mainstream adoption. In 2020, Bitcoin broke the US$20,000 barrier for the first time. Compared to the 2017 bull run, the 2020 bull run is fuelled by an entirely different cohort of people. This time, it is the institutional investors such as Grayscale and high-profile billionaire investors such as Alan Howard are pushing Bitcoin to new highs.
Aside from its rapid price increases, cryptocurrencies are showing promises in a lot of use cases. Ethereum smart contracts are gaining popularity, Ripple is increasing its network with major financial institutions and Bitcoin is acting as a better store of value than ever before.
In short, the future of cryptocurrency is very bright. There is no denial that blockchain technology is a game-changer to this increasingly digital world we live in. Financial freedom and financial inclusion are only the beginning of cryptocurrency. As the infrastructures and regulation around cryptocurrencies start to mature, so will its adoption and application.