Every wonder what the actual real world examples are of how cryptocurrencies are advantageous to the general Jill and Joe? I’ll try to explain this is the most simple terms so you can start building a grasp on the how and why of cryptocurrencies and hopefully come to the logical conclusion, by yourself, of how powerful these tools are in contrast to the more traditional, albeit old, tools of using fiat.
Most people are already aware of how sketchy the mainstream financial systems are with abundant horror stories in circulation of how simply put, it just does work as well as being down right criminal. What is exactly need to use fiat currency? Well that depends on a few things seeing as though you could pick up a coin and instantly use it to purchase it from any business accepting that specific coin. If the coin you picked up was USD nickel and you were in the USA, it’s relatively safe to assume that you’d be able to walk into a shop and purchase some chewing gum. This is fine if you’re only picking up coins at the side of the rode but what about if you’d want to save up those coins or have a place looking after them for you to easily deposit and withdraw at your convenience and when you actually might need them? This is were banks come in and this is the specific field they are concentrated in handling and doing business in. What do banks require from you to open an account with them? Name, surname, age, address, bills made out to your name that you received not longer ago than a few months back. Passport or ID and pages full of documents that you have painstakingly fill out. You are exposing all your most private information to this business entity and that leaves you exposed and vulnerable.
On the other hand cryptocurrencies are very different in that you never have to expose your most private and delicate information to anyone. In order to receive and send crypto you only have to have what’s known as a private key. In bitcoin the private key is a very large number and this number, is like a physical that you would normally use to lock and unlock a door. A main difference however is that this number is so large that it’s safer than any physical key could ever be seeing as though the lock can be broken without a key. The chances of guessing what this very large number is by some criminal is near impossible. This private key is the only information you need in order to make and receive transactions. No name. No address. No ID. Nothing. Just a very very large number.
The lack of privacy is the main reason why security is inherently feeble as well. If the information tying you to the funds that you save isn’t private, then it must be the opposite which is public. Of course this isn’t the case when you start out because at first, only one organization knows this information meaning it is private in the sense that the public doesn’t know your information (yet). As time goes on though, your information is shared between banks in order to make transactions. Your details have to be shared in order to receive funds from other people especially if they are from a different bank. 3rd party auditors have to yearly audit the books and check for all sorts of things exposing your information yet again to another organization. The banks have to share and disclose information with the government as well to comply with their rules and many times your information is sold to 3rd party businesses which use your information what who knows what nefarious reasons. Additionally banks or any of the businesses in the chain of places that had access to your information could be hacked or your information might simply be lost. In time all the initial info you gave thinking it would be private ultimately ends up being public and the people that have the skills to find this information generally don’t have anything good planned with your information.
Seeing as though your private number which represents your key is only known by yourself, the risk of this number finding it’s way into the public eye is very limited. Yes you could write this number on a peace of paper and lose it, and someone could find it and then use your special number to spend all your savings but at least this would be the cause of your own actions and not due to other people. One thing to remember though is that even if this would be the case, the person looking at your number wouldn’t know what your name, age, id number and all your other private and sensitive information is. This is a clear example of the security advantages which makes cryptocurrencies so powerful. Another thing to realize is that when someone knows your identity, they can blackmail, extort or try to coerce you into relinquishing your funds to them. You could be in actual physical danger which isn’t the case with cryptocurrencies because simply put, no one would ever know. If you read about decentralization, then this is what is meant by that word in contrast to centralization of fiat.
The chain of trust that you have to accept when trying to make use of the fiat system is long. As previously mentioned, your trust over time has to extend past the initial places you trusted. As more time goes on you have to trust more and more people and institutions as well as organizations for the continual usage of fiat. The main issue is that many of these places simply can’t be trusted due to them not being trustworthy. We can see this when looking at their track record of business practices and work etiquette which has been shameful at best.
Mathematics is what put our trust in (as well as computer science). Basically we establish exactly how our large numbers will interact with a network of other people with large numbers. We convert the large private number into something that is different from the original by mutating it with mathematics. We can convert our private key to a public for example which means that when we give our public key to someone else and say, okay you can pay us at this public key address, that address is tied to your large private key. Again, we use mathematics to determine when a public key is derived from a private key but that’s beyond the scope of this article. When we interact with other people, they don’t have to know our name, or ID or even our private key as they only need to know a derived public key address. Basically you don’t have to put trust in people, but rather in mathematics! Luckily mathematics doesn’t lie and everything in life is build upon mathematics. This additionally not only makes it trusted, but safe and secure as well.
Even if fiat is in the form of cash, there are many places that won’t accept it and persist on the use of a credit/debit card. This is the case with numerous businesses, buying of cards or houses etc. Even worse is when you have a credit/debit card but the place only accepts cash! This seems crazy and that’s because it truly is. But what about when you try to transfer money from your bank account to your friends bank account?
- very high costs to make the transaction
- takes a long time (days)
- restricted if the person isn’t from the right country or bank
- weekends are generally dead zones where transfers on the monday
What if you want to send money to someone right now? Well then you are straight out of luck and can’t do anything about it.
Making use of crypto akin to making use of the blockchain as this is what cryptocurrencies are built on. The way how the blockchain works in a simplistic way is by keeping track of all the transaction. We keep track of the public keys and how much money are on them as well as all transactions to always know what has happened in the past and if someone actually has enough money to spend what they want to spend. So how long would a transaction take all things considered?
- Near instant to 10 minutes – high fee
- 10 minutes – 60 minutes – low fee
Near instant transactions vs waiting many days, we can clearly see how this is the future of transactions and why so many multitudes are already using it.