Photo Source: Unsplash by Shubhan Dhage
Cryptocurrencies are digital, instant, decentralised, private and cheap. Unlike the prevailing currencies we typically transact with, cryptocurrencies never sleep!
Key Properties
With up to 20,000 different cryptocurrencies in the market it is important to recognise that they cannot all be put into the same basket and painted with the same brush as it comes to their key features.
That said, we outline below some of the key characteristics that define cryptocurrencies and make them significantly different from from “traditional currencies” (eg. USD, GBP, CHF, EUR otherwise known as FIAT currencies)
Decentralised
Cryptocurrencies are not issued by central banks or other centralised authorities and are not controlled and accounted for through banks and payment institutions. This makes them theoretically immune to government control, interference or manipulation as was originally intended for Bitcoin, the first cryptocurrency launched in 2009. Also, their decentralised nature make them immune to single points of failure (eg. bankruptcy, confiscation, fraud, etc.) as they are recorded and transacted on open and public ledgers (blockchains) transparent to anyone.
Private
Cryptocurrencies have originally been designed to protect user privacy and hence be stored or transmitter on a pseudonymous basis, i.e. through alphanumeric IDs that are not linked to an identifiable person.
As cryptocurrencies are growing in adoption, this feature is becoming more contested and challenged as crypto intermediaries and exchanges are increasingly expected to identify customers and adhere to local and international anti money laundering, terrorist financing and sanctions screening requirements.
Available 24 / 7
Cryptocurrencies never sleep and can be bought, sold or transferred anytime, anywhere in the world just as easily as we have been used to with text messages or sharing pictures and videos with one another across the world. Cryptocurrencies benefit of being truly digital and instant availability.
Dematerialised
Whereas traditional currency can be available in both physical (notes and coins) and digital form (online banking, digital payments, which are still representations of the underpinning money type), cryptocurrencies are digitally native and as such do not exist in any physical form. They only exist on the blockchain.
Digitally stored
Following from the above, cryptocurrencies are not stored in physical form or bank accounts but through digital wallets. Rather, they are stored in digital wallets, e.g. software applications that allow users to store, send, and receive digital currencies.
Each cryptocurrency has its own unique address, which is a long string of alphanumeric characters that serve as an identifier for that specific cryptocurrency. When you want to send or receive cryptocurrency, you use these addresses to direct the transaction to the correct wallet. There are lots of different types of digital wallets available, including desktop wallets, mobile wallets, and hardware wallets. Desktop and mobile wallets are software applications that can be downloaded onto your computer or smartphone. Hardware wallets, on the other hand, are physical devices that store your cryptocurrency offline, providing an extra layer of security. If you’re keen to learn a little more about crypto wallets check out this article!
Cheaper and Faster
Transactions are cheaper and faster than traditional money transfers as they eliminate much of the redundancy of traditional intermediaries of financial institutions. No buildings, no staff, no overheads. Only the amount of decentralised technology necessary to run the cryptocurrency blockchains and keep them secure. This is a huge difference and departure from traditional finance, which often makes established Banks and Financial services frown on crypto… they see cryptocurrencies as an agent that can compete at scale and potentially deplete entire businesses and make lots of people’s work redundant.
In the remittance business where immigrant workers regularly send money back to their families in their originating countries, cryptocurrencies allow instant transmission of money to their recipients without leaving 7%-10% fees with their money merchants such as MoneyGram, Wester Union and other players in this space.
Portable & Unconfiscatable
You can cryptocurrencies wherever you like simply by carrying your private keys whether that is on your computer, on your phone, on an external hardware wallet or even… in your own mind (its’ only a 12 to 24 words!). Think about it, theoretically you can carry infinite amount of cryptocurrency’s worth in your pocket with nobody noticing and no need to worry about losing it (so long as you have your private key back up somewhere!)
Similarly you can hypothetically transfer unimaginably large amounts for next to nothing with maximum security. This is a huge feature if you think of the remittance
Think of the millions of migrants fleeing countries at war, in distressed and dictatorial regimes and desperately in search of a new life. As they travel borders and seas they are often robbed of anything in their possession to allow their transit. With a password in their head, they will no longer have any apparent confiscatable assets and can travel safely with their Bitcoin, Ethereum or whichever coins they like in their minds!
Irreversible
It is important to remember that cryptocurrency transactions are irreversible. This may sound like a threat but is actually a feature. With no centralised parties, support services, agents and call centers, once a transaction is triggered it is gone and cannot be reversed back. It is hardcoded on the blockchain forever.
Therefore, it is crucial to keep your digital wallet secure and protect your private keys, which are used to access your cryptocurrency holdings.
Secure
Due to their decentralised nature, most cryptocurrencies are immune from attacks and manipulation of various kind. Provided you have your security setup in check and are comfortable with your preferred wallet and custody approach, it is pretty safe to assume your cryptocurrencies will be as safe (if not safer than) in a Bank. To be clear, we are referring to the security of your asset here, not the actual value of it which can change significantly at any given time due to its volatile nature. We will delve more into the various security features starting with the different consensus models used to verify and secure transactions and blockchains in a separate article but for now let’s keep things simple.
Conclusion
As you can see, while still a native money form just entering its teenage years, cryptocurrencies come with a stack of innovative features that will prove to challenge the status quo of FIAT money in the coming years. While crypto adoption is still at its infancy stage, the properties described above are very promising elements which are expected to grow and develop further.
In an era of constant innovation and digitalisation, exacerbated by the growth of the digital native generation that is increasingly skeptical of centralised institutional and power, you would expect cryptocurrency and decentralised finance to keep gaining traction and rattle a few feathers as it eats chunks of the traditional financial system one bite at a time.
