Why Cryptocurrencies Matter? Why Should You Care?
Debunking Bitcoin Misconceptions
First things first, forget what you’ve heard about Bitcoin. It is not a scam, ponzi scheme, or fad. Yes, people have used it to do some shady things (looking at you Silk Road), and many were concerned about Bitcoin being used for illegal activities. Those same arguments were made during the dawning of the internet, and I think most would agree that the good has far outweighed the bad as we look around our connected world. Bitcoin is not illegal. It is a legit currency (currently with a market cap of around $10BN), and has prompted one of the great futurists of our time Marc Andreesen to exclaim:
Ok. Now I hope you’re interested… But what is Bitcoin? And why is it important for you?
What are Blockchain & Digital Currencies?
Before we get to Bitcoin it’s critical to understand what makes Bitcoin possible...blockchains.
A blockchain is a decentralized ledger: a list of transactions uniquely located with everyone involved in the network instead of being centrally located and owned by only one entity. The best way to understand this is by asking a simple question:
How do you figure out how much money you have?
Today, it's as simple as a few taps on your preferred banking or personal finance app, and voila, your total net worth number magically appears. But just 15 years ago, online banking wasn’t trusted. Instead, you had to physically go to the bank where they would print out a statement for you. Then, every time you spent or received money you were required to keep track in your checkbook. This process, commonly referred to as balancing your checkbook, created a list of all your transactions.
Let’s simplify this a bit further and break down a simple transaction. Let’s imagine you and I are sitting on a bench, and I want to buy your apple for $5, it’s simple. I hand you a five dollar bill, you hand me the apple and that’s it. But how can we do that same transaction digitally? How can I send you $5 for your “digital apple” as easy as sending an email?
When we send an email, we are actually sending a copy of something. So if I try to send a ‘digital apple,’ I’m actually only sending you a copy of it. This creates the problem of double spending, because I could potentially send a copy of my ‘digital apple’ over and over indefinitely. To avoid double spending, we need a system where we can validate the owner has enough value for the transaction and that the value is only transferred to the one designated party.
This is where the checkbook comes in. Anyone that wants to digitally transact connects their computer to the system and downloads a unique version of a checkbook that lists all transactions made between everyone in the group. Every time a transaction occurs, each checkbook is updated. Since everyone owns a unique copy of the checkbook, the checkbook can never be manipulated, hacked, or open to fraud without someone gaining access to a majority of the checkbooks.
This concept of a checkbook is commonly referred to as a blockchain and the ‘digital apple’ is synonymous with bitcoin.
Bitcoin was the first cryptocurrency that ensured the validation of digitally transferring value between two parties without the risk of double spending. It was created by Satoshi Nakamoto which is a pseudonym. No one actually knows who this person is. Nowadays there are hundreds of other cryptocurrencies like Ethereum, Ripple, and Steem to name just a few. Each one has it’s own specific purpose, solving a unique problem, but they are all variations of bitcoin.
What this means for the future and for you?
People speak about the future of blockchain as being the solution to all our problems and/or being the ‘next’ internet. Both are pretty extreme and if we only meet half the expectation, blockchain will be very disruptive.
One use case that seems very realistic is solving problems around remittances. Currently, people who send money back to families in their native countries pay companies like Western Union 10-20% in transaction fees and can take weeks. 10% of the $610 billion remittances market is being taken away from the people that worked for it and it transferred to a ‘trusted’ third party. When cryptocurrencies become easier to use, international money transfer can occur in a matter of seconds and at a negligible cost.
This is just one of the countless possibilities, many of which we will discuss in other blog posts. Blockchain has a real possibility to completely disrupt accounting, banking, law, insurance, identity, real estate, and much much more. These changes will change the way we live and transact with the world just like the internet has done. Will you be prepared?
Let us know what you think the future holds.
-Spencer & Matt