Over the past decade, we've steadily seen cryptocurrencies like Bitcoin, Ethereum and others go from being interesting, yet a passing concept, to rapidly become a sprinting behemoth in the world of public and now institutional investment.
For the most part, because of this meteoric rise in value, thanks to this new scale of investment, it hasn't paired well with the average literacy rate that people have regarding cryptocurrencies in general. But that's not exactly surprising, considering the fact that the most coverage they see involves its use in investment or government responses to its application.
But with the introduction of JP Morgan [JPM Coin] and especially Facebook [Libra] to the blockchain and crypto world, it's become more important than ever for the public to understand what cryptocurrencies are. Especially as these companies strive to put them in the hands of these same people.
If we were to really navigate all of the speculative fog that surrounds the phrase, at its core, cryptocurrencies, in general, were developed to be a wholly digital medium of exchange but have since gained a reputation as a digital store of value too.
Where does it differ from other mediums of value, like fiat currency? In reality, there's a good degree of similarity between cryptocurrencies and fiat. Both of them in digital and physical forms serve as an entry into some kind of database. fiat in a bank account is effectively coded into a database, same with fiat in a physical database with its serial numbers.
The only difference with cryptocurrencies is that they leverage blockchain in order to provide greater autonomy to their pool of users. Bitcoin, for example, allowed users to make donations to Wikileaks when major banking and credit card solutions Visa and MasterCard turned their backs on the site.
So how can crypto allow users to have this autonomy? One way is that they operate in a wholly peer to peer format. Meaning those holders of any of these digital assets are able to pay other users through their digital wallets without the need of being validated or processed by a third party.
Usually, this financial organization would be responsible for moving money from one account to another. with cryptocurrencies, they're replaced by computers on the blockchain's network known as 'Nodes.' These same nodes validate the transaction in a trustless way, allowing for the transaction to be completed.
While this is directly related to cryptocurrencies, this same process can be conducted with smart contracts, information, and other digital items.
Miners are directly involved in this transaction process too. whenever a block of these transactions is formed, miners are tasked with solving equations in order to effectively validate each transaction as being legitimate. Creating a trustless, peer to peer transaction system that incentivises users to participate.
Once these miners have done so, this block of transactions is then added to the wide range of nodes within that blockchain's ecosystem.
In summary, Cryptocurrencies have a heritage of allowing users to leverage them for trustless, internationalised transactions that would otherwise be impossible through conventional fiat.