Here is where a deeper dive into fintech begins. While fintech is making life for everyday consumers just a little bit easier, it also allows for some pretty radical change — so much so that digital currency is now a thing. Here’s where we’ll explore the finer points of fintech, including how it’s affecting other industries.
Currency is something we all know and understand. Every country has one and generally, we can all agree on the value of it, because it’s just money. It’s what we all, as citizens of one nation or another, exchange for goods and services. Simple as that. Moving forward, keep those three concepts around money in your head:
- Most people must have access to it
- Sellers must agree to accept it for their efforts
- Everyone agrees upon its value and trusts that it will last
Cryptocurrency takes all of those ideas and shakes them up — but just a bit. Cryptocurrency is digital currency that doesn’t pass through banks or governments, meaning that it is referred to as being “decentralized.” It’s not associated with any single entity that exists in a physical form, hence the “digital” terminology, and each unit is made via encryption — the act of converting data into code — and external validation.
Cryptocurrency is available across any border, accessible with simply an internet connection, and is entirely free to use — which changes the game for quite literally billions of people. About half of the entire human population (around 2 billion people) do not have easy access to a bank or other financial services. With cryptocurrency, these people are allowed to be a part of the financial market. Financial inequality around the globe continues to grow, stemming from greedy governments preventing the free flow of money in and out of the country, and from bankers levying significant fees for exchanges or wire transfers, making transactions slow and expensive. Cryptocurrency can solve all of these problems.
Bitcoin is one form of cryptocurrency. You may have also heard of Ether, Dash, Ripple, of Litecoin. It, like all cryptocurrency, runs on math (checked by a network of computers) to be secured, as opposed to a bank or a person. Which means it’s valuation is always accurate.
Think of a Bitcoin as a wallet. From that wallet, you take out money to pay people and you store money that’s been given to you. Every time you exchange money, a time-stamped record is made and added to an on-going data set of all other transactions made. This public and open ledger is known as the block-chain. An exchange is a digital room where you can buy or sell cryptocurrencies.
As Investopedia puts it: “The value of bitcoin is heavily dependent on (a) the faith of investors, (b) the integration of cryptocurrency into current financial institutions, and (c) the public’s willingness to learn and use a new form of currency.”
How is this digital currency put into circulation, you may ask, if there is no bank or central figure to “mint” money? Bitcoins are only generated after a transaction has been verified to be accurate and then added to the blockchain as a reward. Transactions are only verified after a computer has completed a complex mathematical (or cryptographic) problem, known as a “hash.”
“Since the difficulty of this puzzle increases the amount of computer power the whole miner’s invest,” says Ameer Rosic of BlockGeeks, “there is only a specific amount of cryptocurrency tokens that can be created in a given amount of time. This is part of the consensus no peer in the network can break.”