Why Use Cryptocurrency?
I am writing this from my own perspective and opinion from information I’ve gathered thus far. I do not warrant that I know a substantial amount regarding this topic and I encourage you to do your own research as well.
The starter
In my circle of friends, I am the one who has, relatively, fully embraced cryptocurrency. As a result I’m continually asked to share the information I gather. In this particular post, I’ll try to answer two questions simultaneously with each point, namely:
- What is the principle behind Bitcoin?
- Within those principles, is there a reflection of our everyday life?
Let’s dig in…
The meat
When cryptocurrency was behind created, particularly Bitcoin, there were a number of issues that were being addressed. For you to fully understand how this is being achieved, I implore you to read about blockchain technology. For that, I could not encourage you to start with any other post but this one, a well written article published .by Jason Kowalski on Hackernoon. Below is an excerpt of the post summary.
The rise of Blockchain technology (‘blockchain’) is a paradigm-shifting event similar to the rise of the Internet. This paper provides a summary of the advantages and opportunities of blockchain technology. We argue that blockchain technology will one day facilitate the majority of the world’s exchanges of information (‘transactions’). Blockchain should not be considered synonymous with Bitcoin. Bitcoin represents but one blockchain-based solution for one of many information-exchange problems. While Bitcoin is the first Blockchain-based coin achieving widespread media attention, the impact of the blockchain extends beyond Bitcoin.
Transparency
The biggest reason, in my opinion, for the development of cryptocurrency was to have transactions that cannot be controlled by any one entity but would be easily accessible by concerned parties. This means the parties involved in the transaction can easily track the state of their transaction.
A simple but shallow analogy I can give for how this transaction works would be likening the transaction to playing Chinese whispers with the exception of whispering the same message into the ears of multiple, say five, people. These initial five people represent their own ‘whisper chain’, allowing for them to be intertwined at any location but still arriving at the same destination. Because of the distributed delivery of the message, the receiver will have a better chance of knowing the right message. Not the best analogy but I hope you get the gist.
With such a transaction model in place, it makes transparency much easier.
Private transactions
Have you ever wanted to buy someone a gift but had to have someone else do the purchasing for you? In that case, to give that person the funds without the knowledge of any third-party, your best option would be an in-person meeting. Bank transfers don’t count because they have a record of your transaction. With cryptocurrency, especially the more private cryptocoins, you can have a private transaction despite not being in the same geographical location concurrently.
International transactions
Imagine having an aunt living abroad and it’s the festive season, though some of you may not have to try too hard… 😏 So anyway, she decides to send you some money to use on whatever extravagant item you want, sending it through PayPal. So the transaction occurs in the following steps:
- Aunt Geneva initiates transaction. Bank in which her account is held verifies and facilitates the transaction. Gets a cut.
- PayPal verifies aunt Geneva’s account and sends funds to your PayPal account.Probably after hours or days. Oh, and PayPal gets a cut.
- Depending on what type of bank account you have, withdrawing from your PayPal account to your bank account may incur a processing fee. Guess what? Bank gets a cut.
With all those cuts, it’s a miracle your transaction has no bandages. Anyway, cryptocurrency transactions would go something like this:
- Aunt Geneva initiates transaction, including a minimal transaction fee, to your cryptocurrency wallet.
- The first node in the cryptocurrency blockchain confirms the transaction, followed by the next node and so forth.
- Funds arrive in your wallet in possibly seconds.
That’s a simplified layout of how international transactions occur in the cryptocurrency space. Think of it as sending emails of varying amounts of text from one email address to another. This becomes very important when you want to send and receive relatively small amounts of money across borders. Why pay transaction fees almost equal to the amount of money you want to send? More on that below…👇🏾
Micro transactions
Check this: You recorded a song and released on iTunes, Deezer and the likes yeah? Now time to get paid for your streams. Below is an image that shows money paid by streaming platforms, particularly for independent artists.
As you can see, such payments would have to accumulate before they are released to the artist. Some platforms set a minimum payout at $10 or so, with the frequency depending on how many streams you garner as an artist. However, with cryptocurrency, a lower and more frequent payout schedule is possible. I personally believe this is due to lower transaction fees. Since the transaction fees are lower, platforms would be able to send lower minimum payouts and lower costs if they used cryptocurrency.
Another example you could relate to would be the one from this post:
Blockchain technology is also useful to individuals performing micro-transactions. If an individual wants to send $1.00 to another individual, fees in the pre-blockchain world can easily amount to 30–40% ($.30 — $.40) of the total transaction. As a result, companies have been forced to roll transactions into monthly invoices, and these high fees also deter founders from starting businesses relying on small monetary amounts in the first place. Suppose an entrepreneur wants to start a business where individuals in France can send $1 payments directly to farmers in Kenya to help them build farming infrastructure. After the entrepreneur and his potential donors realize almost half of these payments go to central entities, the entrepreneur is likely to give up, the donors likely to walk away. On the flip side, if an entrepreneur in a developing country wants to shift his wealth (e.g., $2-$5 a day) from local unstable currencies to more stable international ones, he will be hit with the double-trouble of high fees for international transactions and high fees for small transaction sizes. Blockchain-based currencies offer a solution to these problems.
The dessert
Hopefully, with the little knowledge I have, I’ve been able to answer the two questions at the beginning of this article. If I haven’t feel free to ask a question in the comment section below. If I can answer you, I will, if I can’t I’ll definitely try to redirect you to a post that can.
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Disclaimer: We are not your financial advisers. We are simply sharing our opinions concerning cryptocurrencies. Please do your own research and speak to a qualified financial adviser before investing in cryptocurrency, and anything really, and do not invest what you cannot afford to lose.
