What Is A Cryptocurrency?

A cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its high-level of security

There are currently more than 13,000 different cryptocurrencies that are traded publicly, according to Coin Market Cap. In October 2021, the total value of all cryptocurrencies globally was more than $2.5 trillion, of which Bitcoin and Ethereum are valued at $1.1 trillion and $500 billion respectively.

Cryptocurrencies appeal to their supporters for a variety of reasons. Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now expecting them to increase in value in the future.

Some supporters like the fact that cryptocurrency removes central banks from managing the money supply, since over time these banks tend to reduce the value of money by via inflation

Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralised processing and recording system and can be more secure than traditional payment systems

Many speculators like cryptocurrencies because they like the price volatility and lack of market regulation and the potential profits to be made by betting on its value going both up and down. 

For those who see cryptocurrencies such as bitcoin as the currency of the future, it’s important to remember that a currency needs stability so that merchants and consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, while bitcoin traded at close to $20,000 in December 2017, its value then dropped to as low as about $3,200 a year later. Its currently valued at just over $60,000.

El Salvador was the first country in the world to adopt a cryptocurrency, Bitcoin, as legal tender in September 2021, with Panama expected to be next.

The use of cryptocurrencies to purchase goods and service will continue to be limited whilst the extreme volatility exists in their value. However, in time countries will begin to issue their own cryptocurrencies that could well become common payment in everyday life.

Additional Resources

These external articles contain useful points to consider:

  1. Cryptocurrency in Procurement
  2. How to Buy Bitcoin
  3. Blockchain – CIPS

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