When learning about cryptocurrency, it is easy to assume that it must be like the standard forms of currency we are used to, such as the dollar or euro. However, there are several differences between cryptocurrencies and traditional forms of money. When I started learning about cryptocurrencies, I found myself on a path of needing to learn about what currency is and the theories behind it.
Answer: On a basic level, many similarities exist between currency and cryptocurrency. However, there are some stark differences that you should know. For example, cryptocurrencies are all digital currencies meaning there is currently no form of a physical medium of exchange for these currencies. Most cryptocurrencies have low or no fungibility. Common currency solves some trust problems with the physical medium of exchange, and cryptocurrencies attempt to solve these problems through design and decentralization. But the nuances are much deeper than that.
I attempted to fit a complex problem into a single paragraph, and I may find myself coming back at a later date to improve on what I said above. Still, if you allow me to, I’ll expand on the details below just in case you’re interested in learning more, so please keep reading.
What is the Most Significant Difference Between Cryptocurrency and Government Issued Currency?
Most people agree that decentralization is essential regarding the differences between cryptocurrency and government-issued currency. However, several differences are also significant to consider. For example, most government-issued currencies are what is known as fiat currency, meaning they have no goods to back their stated value.
Another difference I see as the most significant is the lack of physical mediums of exchange available for digital cryptocurrencies. When a government issues a currency, they do so through the use of physical dollars and coins. This physical property allows people to treat the currency as if it is not centralized. The ironic thing is people are very excited about cryptocurrencies’ lack of centralized; however, due to how it functions, it has some of the limitations of a heavily centralized currency.
For instance, most cryptocurrency transactions store the information about these transactions in the clear where people can see and potentially figure out who made the transaction. This is a feature and bug of the system. It is a feature because it turns out this is very helpful and makes cryptocurrency a potentially bad currency to do business with if you are a criminal. However, this is also a bug because it deviates from the intent; it is more that people do not follow the recommended guidelines for protecting their privacy when transacting in crypto.
Another problem with not having a physical medium of exchange and storage is that once you lose an internet connection, you lose your ability to transact. For most of us, this is not a problem, but for any of us, it becomes a problem when the power goes out.
I can’t help but think this is a very American view on my part to value the physical medium over the decentralization. I know from history, even recent history, if not exceedingly so, that once a government decides they want to pay off their debt or fund more projects by printing more money, there is nothing you can do as an individual. All those stashed $20 bills under your mattress become worth less over time.
A favorite resource to learn more about this particular kind of threat that centralized currencies possess is this Wikipedia article about the Weimar Republic and the hyperinflation they experienced.
If you found that interesting, you might find the following few sections covering traditional currency, the advantages of cryptocurrency, and how you can learn more, so please keep reading and feel free to leave a comment below.
What is Traditional Currency?
Most of us have grown up with [this thing called] money, and it is so ingrained in our culture and lives that we never really stop considering how it works and what impact it has on us and society in general.
Currency is the medium of exchange that society agrees to use to represent the work value one person or entity has provided to others, either society as a whole or individual to individual. Getting into the profound nuances of currency is possible, but I want to keep this relatively straightforward.
For that reason, we only need to know what was said already. Currency is what society or a group of people decides it is; historically, this could have been sea shells. Today it is US Dollars if you are in the USA and most of the world. At other times it has been gold.
Please keep reading, and I will cover the advantages of cryptocurrency.
Does Cryptocurrency Have Any Advantages?
I will likely write another article about this on its own. Still, cryptocurrency has some unique advantages that can set up scenarios we do not often see with hard currency, aka dollars, for instance, the ability to transfer large sums of money digitally without mediaries instantly.
Earlier, we talked about how cryptocurrency lacks a physical medium, and this is both an advantage and disadvantage. Gone are the dramatic scenes in movies of criminals meeting to exchange cash, although now they might pull out a briefcase of a computer instead of money.
When I write on this subject in greater detail, I will link to the new article here. Keep reading to find out about some potential disadvantages of using cryptocurrency.
Does Cryptocurrency Have Any Disadvantages?
Cryptocurrency runs on digital infrastructure. Meaning if for some reason, anything threatened our current electrical grid or digital infrastructure in some way, it could all come crumbling down. Have you heard of the Carrington Event?
In 1859 a massive solar event crashed into the Earth, causing significant damage to telegraph systems and anything else using any form of electricity at the time, which was minuscule by today’s standards. An event like that again would be devastating. It would be especially devastating to crypto.
There are a few caveats to that and side notes.
- The sun goes through 11-year cycles; the following cycle will be around 2025
- In 2012 a mass event missed the Earth by 9 days
- Crypto may not be dead, just delayed while infrastructure gets rebuilt, but this would be the perfect time to 51% attack the network
I will have to do a complete series of articles on many of these topics, so please keep an eye out as I get those going!
Keep reading, and I’ll let you know how you can learn more and get started with crypto.
How Can I Learn More?
If you are interested in learning more, please check out the other articles I have already published about:
More coming all the time! I have a lot to add, and it will take me time to work through the list of things I need to cover. Please leave me a comment if you have something specific you would like to learn more about.
You might also be interested in checking out Coinbase. If you want to go deeper, I recommend starting to read whitepapers and getting involved with communities of enthusiasts. If you’re going to check out Coinbase, I have a special offer on my Author page that gives both of us a little bonus for your joining. Spencer’s Author Page
How Can I Get Cryptocurrencies?
I am doing a few things to get my crypto. I have mined a small amount, and I prefer this method for anonymity and the technical challenge. However, I also purchase crypto using Coinbase, Cash APP, and WeBull (which is soon adding withdrawals). I’ve also tried sites that let you trade work for crypto, although I don’t know how much to trust them.
As I said above, if you are interested in trying Coinbase, check out my author’s page. I also have a link there for WeBull, which will give you free stocks and me some as well, and now that I’m mentioning it, I’ll get CashApp added as well, and I think they send you $5 or so after you send $5-$10 to someone else. My Author Page
I hope that was helpful!