Cryptocurrencies are the next step in the evolution of money. In this article, we will expand on what cryptocurrencies are, with particular emphasis on the first and arguably most popular cryptocurrency, Bitcoin. We will also talk about what classifies as currency, and how money has evolved over the years.
What Is Currency?
Contrary to popular belief, currency do not necessarily need to be a selected material, style or particularly tangible. If a community of people agrees to use something as a way of exchanging value, that medium becomes currency. It’s that simple.
How is cryptocurrency, currency?
As earlier mentioned, anything can count as currency, if it has the following features:
- Divisibility – divides into smaller units (e.g. a naira divides into kobo)
- Scarcity – should have restricted supply (e.g. the provision of gold is prescribed by the number we will mine)
- Durability – can survive wear and tear from being passed around (e.g. banknotes wrapped in waterproof material)
- Transferability – easy to exchange between folks (e.g. when you give someone a naira note, it becomes theirs)
- Fungibility – individual units have to be worth exactly the same thing (e.g. all N100 naira notes have the same value regardless of how new or old the note is.)
Cryptocurrency fulfils all the key requirements of what currency is, and are compatible with our highly interconnected world. Bitcoin, for example, is:
- Divisible – one Bitcoin divides into millions of units, The smallest possible unit is called a ‘satoshi,’ it is 0.00000001 BTC that is one one-hundred-millionth, of a single bitcoin
- Scarce – only 21 million bitcoins will ever exist.
- Durable – as Bitcoin doesn’t exist in physical type, it can’t wear out like paper or coins
- Transferable – Bitcoin is digital and so you can transfer it to anyone, anyplace in moments
- Fungible – any explicit Bitcoin is equal in worth to the other Bitcoin
Additionally, trust plays a big part in the creation of currency especially for mainstream use, and trust is one thing that cannot be forced or built in a short time. Trust takes years to build, which is why we’re aware that the shift to bitcoin and other cryptocurrencies will be a gradual process.
However, the technology behind most cryptocurrencies has evolved to move money cheaper, quicker and safer. The power cryptocurrency is not just it is built on cool tech, it simply creates a better financial system.
Changes to the way we see currency as a community will be difficult but the prospects are promising. If you study how currency has evolved over the centuries, from barter to cowries to silver down to paper currency, you’ll see that individuals have always tilted towards whichever medium was most practical and accessible at the time. In our digitally powered global ecosystem, digital currencies are the practical option.
This article is in partnership with Quidax. Quidax is a European based digital assets exchange with a focus on Africa. We provide a seamless platform for users to send, receive, buy and sell cryptocurrencies using their local currencies.