Cryptocurrencies are digital currencies. This means they don’t physically exist. You cannot physically hold cryptocurrencies, nor can you take them out of your wallet. Instead, they exist electronically and are held in a digital wallet which you can keep track on your computer or mobile device. Similar to that of fiat money, you can purchase anything with cryptocurrencies; a sandwich, a t-shirt, or even a car.
There are many different types of cryptocurrencies. The most well-known example is Bitcoin. It was created by Satoshi Nakamoto in 2009 and was the first cryptocurrency you could send through the internet on a peer-to-peer basis. Bitcoins gained their popularity for being a globalized currency. In other words, there isn’t a specific cryptocurrency for the United States and another for Japan, rather, they are all the same which creates simple trade across borders. The Bitcoin world is also decentralized. This means that there are no banks, governments, or data centers where transactions data is stored. Instead, it uses a digital ledger on a shared database called blockchain. The data in blockchain is stored all over the world which has many advantages. First, no one person or company has total control of the currency. Also, having data in different places protects transactions and users from cyberhackers and criminals. Lastly, the blockchain system is more efficient and cost effective the traditional system because there is no middle party.
When starting a cryptocurrency company, there are some guidelines and regulations but they vary from state to state. For example, the state of New York requires that a cryptocurrency company obtain a BitLicense. This is a specialized license for companies who use these digitally traded assets. Under the license, you are also obligated to hire cybersecurity, disaster recovery, and meet other capital requirements. California is trying to pass Bill 1326 which would create something similar to New York’s BitLicense but with fewer requirements. The onerous requirements in New York State make it very expensive to start a crypto company there.
There is a lot of talk about the wild fluctuations of the price of BitCoin as well as Alternative Coins. Many argue the crypto landscape is only a haven for criminals and money launderers. While there may be element of nefarious activity in cryptospace, some of this fear stems from banks and other behemoth institutions that would lose billions in fees yearly if crypto become more of the norm. With proper regulation and security oversight, cryptocurrencies could be a very effective tool for world citizens. Let’s not let fear of the unknown blind us to potential technological advancement.