Explanation of Cryptocurrency by a Laywoman
A VERY simple explanation of cryptocurrency as an alternative to your cash money and why you may want to consider a shift.
Okay, before we talk about cryptocurrency, let’s talk about your dollar bills.
Now, our general understanding of currency is that, I have $1 USD and the value of this $1 USD is only important as much as it can be exchanged for the things that I want and need to survive in (and enjoy) life.
For the longest time, our dollar was backed up by the value of Gold (a scarce and finite resource). Which meant that if at any time I no longer felt confident in the value of my paper money to be exchanged for things that I need, I could go to some guy with a bunch of gold bars and I could exchange my paper money for that gold.
Understandably, this kind of backup to our money is desireable. At the end of the day, no matter how useless the paper-monopoly-money we pass around may become, our wealth is always secured by the value of the precious metal, gold.
This is what we knew to be the “gold standard”. But hold on, in 1971, under Richard Nixon, this standard was officially forfeited as a backer to your money. Leading us to a new standard, the “fiat standard”.
I am not a financial analyst. I do not have a degree in economics. I am a Spanish teacher, who knows how important awareness and knowledge can be. Which makes me perhaps the perfect, non-expert to explain this new-ish standard.
Instead of your money being backed by a somewhat finite amount of gold in the world, your money is now being backed by your federal government. I will repeat that: the value of your money under the “fiat standard” is determined by the federal governing body. Meaning your earned dollars’ purchasing power for goods and services is determined by the government.
This is an alarming realization in an era where markets are shifting dramatically every day, governments are bailing out companies with explicitly illegal activity, and the confidence in the idea that cash-is-king is called into question when the U.S. Treasury can print money whenever they need to build up those crooked markets.
Enter, cryptocurrency.
You mean Bitcoin, or whatever its called? Wait, Elon Musk is talking about it? The stock market is rigged? Huh?!
The fact that you have heard of this seemingly elusive new thing, further proves that the word is now truly out. As I have invested in bitcoin for years, I can personally tell you that the cat is out of the bag. The value of bitcoin skyrocketed just a few months ago after sinking to an alarming low amidst the economic devastation of Covid-19.
So, what’s the deal with this little digital fake coin and why should you care?
Going back to the currency standards. The shift from a bartering economy to paper money, has left us all vulnerable to the standard that ultimately backs the value of our cash. The “fiat standard” should alarm you and make you think twice. Who is deciding how much my money is actually worth?
Bitcoin was an idea dreamed up by an anonymous genius (or geniuses), Satoshi Nakamoto, who like you, felt that our current system was quite flawed. At any moment, some geopolitical event or economic bubble burst could leave our $1 USD in effect, useless.
Entirely separate from the currency sytem that we have in place, the various digital assets available for purchase, bitcoin being the most valuable and most known at this moment, are backed by none other than themselves.
Unlike paper money, impacted by the printing of additional paper bills by federal governments to finance their own desires rather than the people’s, the amount of bitcoin coins available for purchase is a fixed amount that can never be changed. There is no giant printing machine cha-chinging little bitcoins for us to collect and hoard under our mattresses.
Instead, the value of bitcoin is in fact backed by us the investors, trusting in this particular bank.
If you have read up to this point and still don’t understand why this should matter to you, just know that many very trusting and innovative people have already become mega-rich off of this idea. But, not only that, it is a well-known concern that the younger generations are at risk of working their entire lives only to find themselves now too old to work, with poor retirement savings, likely as a result of heavily corrupt investment options, and no government financial support via the empty, now rundry, social security bucket.
The good news is, though the price of bitcoin has more than quadrupled since last March, you haven’t completely missed the boat. Again, since the amount of coins issued by each of these assets is fixed, there is no limit to its wealth acquisition. Unless you have $35-$45K sitting around, you actually most likely won’t ever even own an entire coin. Your investment is forever only buying a portion of a bitcoin. Since a digital coin has no ceiling to it’s ability to divide, anyone can acquire a piece of this particular pie, no matter how small the slice.
But what is a bitcoin, Emily?!
Where there is still growth to be had, is in the fact that very few companies especially in the United States will accept cryptocurrency in exchange for goods and services. Once you invest into the asset of your choice, in order to use that money for everyday purchases, you must transfer the worth of your coins back into fiat currency. To answer your question, its nothing but a piece of digital code. It isn’t hard, however, to see these coins becoming actual currency accepted in stores and by online retailers in the near future.
Remember, when metal coins and paper money were first introduced as valuable currency, the olde timey people who were only accustomed to bartering bread, milk, and black smithing services most definitely pooed-pooed this seemingly useless form of payment as well.
With that, I understand, this all feels like a weird magic fake concept that does not actually exist in real time. But! If you don’t trust me, don’t overlook the fact that it’s good enough for Elon Musk to Tweet about, it might be good enough for you.
Disclaimer: This article is for educational purposes only and does not constitute financial advice or counseling of any kind. The author owns both Bitcoin and Ethereum.