(or should they be called something else?)
As per our philosophy, we like to keep things simple and easy to understand hence why we will explain this in a simpler (still correct) fashion as opposed to throwing technical jargon at you and scaring you away.
Also here’s what Einstein said about simplicity;
“If you can’t explain it simply, you don’t understand it well enough”
So on top of simplicity being a better route, it’s also a challenge which we accept.
So what are they?
Firstly, let’s start with the word Cryptocurrency…Crypto and Currency
Crypto comes from the word Cryptography, which is the use of complex coding to protect information and communication so that only the recipient is able to receive and decode it
Currency is a medium of exchange which is most commonly known as money, not too long ago, this used to cattle, grains, wool, gold/silver.
Combine the two and you essentially have an encrypted medium of exchange or Encrypted Money, however is this what it actually is? Do people use Crypto as a means of paying for things, as money, short answer is NO.
Another term to refer to Cryptocurrencies are Digital Assets which we believe it should really be called however Crypto does sound cool-er and we don’t really want to change our name to ‘Magna DIGITAL ASSETS’ (that sounds rubbish).
Digital Assets vs Physical Assets
If you look at examples of physical assets such as; Property, Gold, Silver, High Value art and Vintage cars. All these things are; stores of value, cannot be replicated (unique) and are looked at as things to hold due to expected appreciations in value. For those reasons, they are not used to buy everyday things, whereas Fiat currencies like; US Dollar, Pound Sterling or Euro are used to purchase goods and services. Reason for this is because with Fiat currencies, there are little to no barriers to using it. All you have to do is swipe a bank card for the most part at almost any store, any place. Whereas physical assets like a property take months to sell. Although Digital Assets/Cryptocurrencies are technically easy to sell as it’s completely digital, to the general public there are still many barriers to using it in a fluid manner like Fiat Currencies because most shops don’t accept Crypto (yet) and it still takes a fair amount of effort for the average person to set up a Crypto account and become familiar with how to send and receive Cryptos and learn the basics of keeping it safe etc.
So for the most part, Crypto currencies fall in the field of an asset, a DIGITAL asset.
What do they do?
Following on from this change in perspective on Crypto currencies, not only are they more like assets, these digital assets are designed for specific use cases (Utility) in the same way a property is used for living and high value art for aesthetics. For example, there is a Crypto called XRP which belongs to the company Ripple, they created XRP to be used as a bridge assets between different fiat currencies. For example, if someone wants to send a US Dollar from America and convert it to into Mexican Pesos in Mexico, XRP could be used to do that conversion in a matter of minutes for a huge amount cheaper than current methods.
Another example is BITCOIN, it’s creators go by the pseudo name Satoshi Nakamoto, although the real identity is unknown (that’s not relevant to the point though). Bitcoin was created as an alternative to the current monetary system, essentially to replace fiat currencies. It has yet to achieve this and it’s used more for a store of value, that is beside the point though, it’s intended use case was a new monetary system.
To conclude, even though they are called Cryptocurrencies, this isn’t the right thing to call them and can be quite confusing as it’s not used as a currency (yet). If we use the term Digital Asset, it makes a lot more sense as to what they are. Some are intended to replace monetary systems and become actual currencies, others could be used like a tool for converting different Fiat currencies in a more efficient manner. These are only 2 of MANY ways Digital Assets are being designed to be used for.
In future posts we will go into detail on some different use cases Cryptocurrencies have been created for.
As always, drop us a DM or leave a comment if you have any questions and if you require some guidance on how to get started, do let us know.