Cryptocurrency 101— For Beginners by a Beginner — Part 1
Let’s talk about Cryptocurrency or Crypto, as they are popularly called. In recent years, cryptocurrencies have become more popular as more people are adopting them.
Today, we will be exploring what they are and why you should pay more attention to them.
Cryptocurrency: What are they?
Think of the currency that you use in your country. Is it the Dollar, Naira or Cedis? Whatever currency you use, you know that it is physical (usually called “fiat” in the crypto space). You can see it, touch it and trade with it. To put it broadly, cryptocurrencies are digital or virtual currencies. They are built on a system that does not require banks or a third party to regulate or validate the transactions of cryptocurrencies.
You see, to understand Cryptocurrencies better, first, we need to understand the history of the evolution of money.
The concept of money as a medium of exchange as we know it today has evolved through several phases. Care to take a dive with me? Let’s go;
Phase 1: The Barter System
Long before the advent of bank money or the physical cash that we use today, our ancestors simply exchanged their goods for other goods. A farmer could exchange a basket of fruits for a sheep, or peppers for salt.
For a while, this system thrived, but you can imagine how difficult and ineffective it must have been for them. With the barter system, you needed to find someone who had the product you needed and was willing to accept the product that you have at the same time. You can also imagine how difficult it must have been to determine the true worth of goods. For example, how many baskets of tomatoes would equal a horse?
With these challenges, and the discovery of precious metals like Gold, Silver and Bronze, we humans moved to the next phase of the financial system.
Phase 2: The Coin System
As the world discovered and allotted values to precious metals like Gold, Silver and Bronze, they became a store of value and a medium of exchange. It was easier to standardize this system of payment, and everyone accepted that a basket of apples could be sold for 10 pieces of silver. Some of the problems with this system were the fact that in large quantities, it was difficult to carry these metals around and of course the ensuing security concerns.
Phase 3: The Paper Currency System
As the banking systems developed and people began to have more trust in the government, paper money was created. People could now deposit their Gold and Silver in the Bank, in exchange for banknotes or paper currency which served as a proof of deposit, and as a medium of exchange for other goods and services.
We are currently in this phase as it has been adopted globally. Each country has its own unique currency such as the Dollar, Naira, Cedi, Lira, Pounds Sterling, Euros, e.t.c
It should be added that the paper currency phase gave way to the mobile payment system. This is simply a more convenient way of making transactions through digital devices like mobile phones, ATMs and POS. These digital systems were developed to support the centralized banking systems that we have today.
Given our understanding of how the money that we see and use today came about, we can agree that the concept of money keeps evolving to suit the needs of each particular time, and as we are gradually becoming a more digital society, it is only natural that the medium of exchange also evolves. Therefore, it is safe to say that the next phase of the evolution of money is Cryptocurrencies.
