Many people believe cryptocurrencies like Bitcoin, Ethereum and Rhino Coin to mention a few, to be very complicated, when in fact it’s a lot simpler thank you think.
The easiest way to explain is: How did the human population conduct business or transactions many, many years ago? There was no currency used. We simply exchanged different items with each other creating equal value for each of the items exchanged or numerous items for a single item we deemed to have more value, as we still do with cash today. However, when money was digitalised someone needed to keep track of all the records, and the way the banks and credit card systems dealt with this was to create a ‘ledger system’ – basically records of account showing how much each person has in their bank account. E.g. When Paul wants to transfer money held in his bank account digitally to Adam, the bank moves the money from Paul to Adam keeping a ledger of the transaction. We trust the bank to send the money and make sure it only gets sent to one person. The banks in theory can still cheat and send to more than one person, but we as society trust them that they don’t cheat.
If Paul and Adam use the same bank, it’s easy to transfer, but if they use different banks it is more complex as each bank has different processes and different ledger systems that need to be reconciled, including at what time the transaction and ledger is reconciled. In order to transfer the funds, each bank charges a fee. When these banks are in foreign countries, it gets even more complicated.
Cryptocurrencies change all of that. It is simply one massive global ledger system that synchronises across the entire internet, so that everyone can access the same ledger account in real time no matter who or where they are. What does this mean? Currency can easily be transferred between parties without all the red-tape, time delays and exorbitant fees.
There are other differences between cryptocurrencies as well:
A cryptocurrency is a digital representation of value that can be digitally traded and functions as a:
A cryptocurrency does not have legal tender status (i.e. when tendered to a creditor, the creditor has to accept payment, for example ZAR or USD whereas a creditor may if they wish accept the cryptocurrency as payment.
There are various virtual currencies, which includes cryptocurrencies which are either centralised or decentralised, and convertible or non-convertible. Convertible currencies, which is defined as a currency that can be readily bought or sold without government restrictions in order to purchase another currency, have an equivalent value in real currency such as ZAR or USD and can be exchanged back-and-forth for a real currency. Non-convertible can be seen as game tokens.
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