The greatest problem with cryptocurrency is that many people are aware of its existence, but do not understand what it is.
Most people think of cryptocurrency; or altcoins as money, which is partially true. An altcoin is a currency, but it can be far more because cryptocurrency is also a technology.
What is Cryptocurrency Anyway?
A cryptocurrency is actually a payment solution or technology, built with another technology called the blockchain. A cryptocurrency is both money and a payment technology, which makes it similar to earlier technologies like credit and debit cards.
A good way to think of cryptocurrency is as a piece of software that runs on an operating system called the blockchain. A cryptocurrency; like Bitcoin. runs on the blockchain in the same way Word or Excel runs on Windows. This means the term digital currency, which means currency built from software is also correct.
To make things more confusing, some cryptocurrencies; such as Ethereum, WAVES, and NEO, come with their own operating systems built on theblockchain. Ethereum is actually a blockchain-based operating system;or ecosystem for financial services, payment, data storage, document creation, artificial intelligence, and other purposes.
Most cryptocurrencies; such as Ethereum, are designed as open-sourced solutions which means anybody can use or build solutions for them. A good way to think of Ethereum is as the “Linux of finance” – an attempt to build an open-sourced financial services ecosystem everybody can use.
Why Do People like Cryptocurrencies?
The hope of many cryptocurrency geeks is that altcoins will one day replace government-issued paper or fiat currencies as the most popular medium of exchange.
The thinking here is that cryptocurrencies will not be under the control of central banks such as the U.S. Federal Reserve or politicians as government paper money is. Many people distrust fiat currencies because they can be subject to hyperinflation – because politicians might print money to pay the bills.
Others like cryptocurrencies because they are decentralized and not under the control of Wall Street or major banks. Another popular appeal is privacy; some users believe cryptocurrencies are harder for tax collectors and criminals to track.
Bitcoin is Just One Cryptocurrency
A very important distinction to remember is that Bitcoin is simply one kind of altcoin and not a reference to cryptocurrency in general. Unfortunately, many people believe Bitcoin is the only cryptocurrency; because it is the only altcoin that many media outlets cover.
There are actually many different cryptocurrencies out there and new ones are being created every day. Bitcoin is simply the oldest and best-known cryptocurrency around. Many people use Bitcoin because it was the first on the market, just like they use Windows on their computers.
Cryptocurrencies as an Investment
It is possible to trade altcoins just like some people trade and speculate in dollars and Euros. That makes cryptocurrencies an investment that a lot of people use in an effort to make money.
A lot of these people also use altcoins as a hedge against inflation. Most of us know that fiat currencies lose value to inflation over time. A popular means of protecting funds from inflation is to buy investments; like cryptocurrencies, that grow faster than inflation.This is why cryptocurrencies; like Bitcoin, are most popular in nations like China and Venezuela; where inflation is destroying the national currency.
A related use of altcoins is initial cryptocurrency offerings or ICOs. An ICO is a new altcoin issued by a company to raise money for a business venture. ICOs have become a popular investment in recent months.
Where to use Cryptocurrencies
Another reason why cryptocurrencies are popular is that unlike precious metals; such as gold, you can spend them right away. There many online merchants that accept Bitcoin and websites that accept cryptocurrency payments for gift cards good at retailers like Amazon and Walmart.
There are also some Bitcoin ATMs and brokers that exchange cryptocurrencies for fiat currencies. Many companies are also working on plans to issue Visa and MasterCard debit cards designed to exchange altcoins for fiat currency. The technology for such exchanges exists, but many of the cards are on hold because MasterCard and Visa are reluctant to go along.
The best way to think of cryptocurrencies is as a next-generation payment solution. Understanding altcoins and how they work will help you learn about the future of finance.