Business Finance

Cryptocurrency: what’s it good for?

Written by Tim Barnes-Clay

If you’re not quite sure exactly what both cryptocurrency and bitcoin are, we’re here to explain it all for you.

Bitcoin has been part of our public conscience since 2009, with most people having an awareness and a smaller but sizeable demographic taking an interest in cryptocurrency and what it could mean for the future. While cryptocurrency may have been in existence for more than a decade, it’s still not too late to get involved.

Cryptocurrency is an umbrella term referring to digital tokens, which uses cryptography to create secure and verifiable transactions that work on decentralised ledgers, some of which are called blockchains.

Cryptocurrencies negate the need for a third-party intermediary and are immutable ways of transferring the means of value from one person to another because of their cryptography and underlying verification systems and ledgers. Bitcoin may be the most popular cryptocurrency, but there are several more digital currencies, including Ethereum, Ripple, Litecoin, Stellar Lumens and Bitcoin Cash.

What is Bitcoin?

Bitcoin (BTC) is arguably the beginner’s cryptocurrency, and certainly the most popular. In 2011, two pizzas were bought for 10,000 bitcoins, but that same sum is worth around £30 million today. By far the easiest way to get involved with cryptocurrency is to look into the means to buy and sell bitcoin. In addition to actually buying bitcoin online, there are trading platforms which provide information and the best practices for those looking to begin their cryptocurrency journey and allow bitcoin to be traded on without the underlying assets actually being owned.

By checking the Bitcoin Price Index, you can monitor the value of Bitcoin, which informs you if it would be better to buy or sell. The pizza example shows just how far the price of this cryptocurrency leader has come in just a few years – namely, 10,000 BTC would once get you pizza for four, while today it could buy you several high-end houses. 

What can cryptocurrency and its technology do?

Several well-known finance companies have vested interest in cryptocurrency and the technology behind it. For example, Santander was considering replacing its Swift payments system with one that used the Ripple blockchain instead. While this isn’t a direct use of cryptocurrency, it builds on the idea of the security and safety of the transaction method. Ripple would be faster and more secure than the current Swift payment system for overseas transactions. It is this technology that the XRP (Ripple) cryptocurrency already uses, so every transaction made through it already enjoys the benefits Santander have identified. 

Games such as CryptoKitties also show a different side of how the systems behind cryptocurrency coins work, as the game stores all data on the blockchain, while many video games offer in-game purchases with cryptocurrency, which offers a solution to the microtransactions issue that had arisen gaming. The concept behind Ethereum (ETH) is not a blockchain, but “smart contracts”, which offer a safe transfer of assets between two parties under a set of conditions.

These can be used in property and other legal applications to ensure the safety and security of a transfer and the immutability of the records. In fact, even Facebook announced its own cryptocurrency, Libra, in 2019, which proves how important the market is, even to one of the biggest tech companies.

Cryptocurrency is essentially as easy to understand as any other form of currency. While fiat (regular state-released) currency has its value tied to the bank, exchange rates, and the assets of the country it belongs to, cryptocurrency’s value is more transient. We are seeing increasing uses of cryptocurrency in modern society and in the future of technology, so it’s clear that while Bitcoin and its kind may have been around for a decade already, they’re not going anywhere yet. Instead, the more the value of the coins and their underlying technology is understood by the mainstream, the more prominent they will become. 

Source images: Pixabay.