What you need to know about Cryptocurrency: Part 1
This is a primer on Cryptocurrency. It is a five-part series written by Bob Petersen that will continue weekly. It is our goal to start your education in Cryptocurrencies so that you have a basic understanding of this relatively recent, alternative currency.
Introduction and Overview
The world of fiat currency is being, at least to some extent, upended by various newcomers. These newcomers fall under the large umbrella of digital currency. What is digital currency? What is virtual currency? What is cryptocurrency? This primer, in five parts, attempts to bring you up to speed so that you have a basic understanding of these new currencies. This Primer will prepare you to enter into research and discussion.
Without venturing too far into the topic, here are three starter definitions to aid in your understanding of this new currency world. All are taken from Wikipedia. You might ask why U.S. Department of the Treasury or FinCEN definitions are not used? They are written from a regulatory stance and are not educational. Should you wish to review those documents, you might start with by searching at:
I tried and found the headwinds to be virtually insurmountable. Consider yourself warned. So here goes.
Digital Currency – Digital currency or digital money or electronic money is distinct from physical (such as banknotes and coins). It exhibits properties similar to physical currencies, but allows for instantaneous transactions and borderless transfer-of-ownership. Examples include virtual currencies and cryptocurrencies. Like traditional money, these currencies may be used to buy physical goods and services, but may also be restricted to certain communities such as for use inside an on-line game or social network.
Digital currency is a money balance recorded electronically on a stored-value card or other device. Another form of electronic money is network money, allowing the transfer of value on computer networks, particularly the Internet. Electronic money is also a claim on a private bank or other financial institution such as bank deposits.
Digital money can either be centralized, where there is a central point of control over the money supply, or decentralized, where the control over the money supply can come from various sources.
Virtual Currency – Virtual currency, also known as virtual money, is a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community. The Financial Crimes Enforcement Network (FinCEN), a bureau of the US Treasury, defined virtual currency in its guidance published in 2013. In 2014, the European Banking Authority defined virtual currency as “a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically”.
Cryptocurrency – A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency. Cryptocurrencies are a subset of alternative currencies, or specifically of digital currencies.
Bitcoin became the first decentralized cryptocurrency in 2009. Since then, numerous cryptocurrencies have been created. These are frequently called altcoins, as a blend of bitcoin alternative. Bitcoin and its derivatives use decentralized control as opposed to centralized electronic money/centralized banking systems. The decentralized control is related to the use of bitcoin’s blockchain transaction database in the role of a distributed ledger.