Let’s start with a little history lesson. The first known coin—the Lydian lion—was minted in the ancient kingdom of Lydia, modern-day Turkey, around 600 BC. It was made from a naturally occurring alloy of gold and silver known as Electrum. While coins made trading more convenient than bartering, early Lydian merchants often had to weigh each coin to verify its value.
The concept of standardized currency eventually emerged to make transactions even more efficient. In 11th-century China, jiaozi—the first paper money—allowed merchants to carry value more easily.
However, during the American Revolutionary War, the British deliberately counterfeited Continental currency to destabilize the colonial economy. The fake bills were so convincing that George Washington once commented, "A wagon load of money will scarcely purchase a wagon load of provisions." This led to rampant inflation, and the Continental currency eventually became worthless, giving rise to the phrase "not worth a Continental." This flaw affected paper money from its early days to the Superdollar.
The first attempt at creating digital currency was in 1989 with DigiCash, founded by cryptographer David Chaum. Unlike modern cryptocurrencies like Bitcoin, DigiCash relied on a centralized system. What made it revolutionary was its focus on privacy. DigiCash transactions were anonymous and untraceable. However, the company struggled to gain traction with banks and consumers, eventually filing for bankruptcy in the late 1990s. Though it failed, DigiCash laid the groundwork for later developments in digital currencies and blockchain technology.
Cryptocurrencies are becoming increasingly popular and widely adopted. Why is this a good thing for you? Why should we use cryptocurrencies?
Why were cryptocurrencies created?
In 2008, Satoshi Nakamoto created the first cryptocurrency, Bitcoin. This digital cash system allowed direct peer-to-peer interactions, eliminating the need for a trusted third party. It emerged after the Emergency Economic Stabilization Act bailed out the big banks and "rescued" the U.S. financial system from collapse.
Bitcoin opened up new possibilities, enabling direct transactions between distant parties without relying on intermediaries. The Bitcoin blockchain made cryptocurrency transactions secure and cost-effective through innovative cryptography.
Cryptocurrencies use cryptography to ensure security, making digital currencies immune to human error or manipulation. One of the main purposes of cryptocurrencies is to challenge existing power structures by granting people greater control and autonomy over their finances.
7 reasons why we need cryptocurrencies
Decentralization
Cryptocurrencies operate on decentralized networks, meaning they are not controlled by governments or central banks. This reduces the risk of interference or manipulation by financial institutions. With cryptocurrency, no central authority manages your funds—transactions occur directly between users. This means that you have complete control over your money. You can send or receive funds anytime, anywhere, without needing a middleman. There’s no fear of government seizure or freezing of assets* in countries with unstable financial systems.Low transaction costs
Traditional banking systems often charge hefty fees for international transfers. With cryptocurrency, transaction costs are typically lower when performing cross-border payments. This can be a game changer for sending money overseas to family or friends without high remittance fees. You can do online shopping with businesses that accept crypto as a form of payment, conduct business transactions with international clients, and save on transfer fees and delays.Enhanced security:
Cryptocurrencies are secured by blockchain technology, which uses advanced encryption methods to ensure the security and integrity of transactions. This contrasts traditional banking systems, which can be prone to data breaches or fraud. Using a crypto wallet, like Tangem Wallet, further boosts security. It allows you to store and manage your cryptocurrencies offline, away from potential online threats.Portfolio diversification
Cryptocurrencies are a unique asset class. Their relatively low correlation with traditional markets makes them an attractive option for investors looking to balance risk across different types of assets. This can help mitigate the impact of a downturn in other parts of a portfolio. For instance, the cryptocurrency market operates 24/7, offering constant liquidity, unlike traditional markets with fixed trading hours.Transparency
Blockchain's transparency allows anyone to verify and audit transactions, making tampering with or falsifying data difficult. Its immutability ensures that data cannot be altered or deleted once it is entered. This high level of transparency fosters trust between parties, as there is no need to rely on third-party intermediaries, which is often a source of mistrust in traditional financial systems.Access to global markets
One of the most appealing aspects of cryptocurrencies is their borderless nature; they can be sent and received anywhere in the world. This makes them particularly useful for international transactions, reducing the need for currency exchanges and lowering transaction costs. Additionally, cryptocurrencies provide financial services to people in regions with limited banking infrastructure access, helping bridge the gap between the banked and unbanked populations.Inflation protection
Many cryptocurrencies have a fixed supply cap. For example, Bitcoin has a maximum supply of 21 million coins, meaning no more can ever be produced. This built-in scarcity contrasts with fiat currencies, which governments and central banks can print in unlimited quantities. The limited supply of cryptocurrencies creates a deflationary effect, which can help preserve value in the long term, protecting against the erosion of purchasing power.
These reasons show why cryptocurrencies are becoming important for modern finance.
Is cryptocurrency reliable?
Cryptocurrencies have made peer-to-peer transactions more accessible and convenient globally, but their high volatility challenges their widespread adoption. Moreover, as any government does not back digital currency, reimbursement is not guaranteed if funds are stolen during a cryptocurrency-related incident.
However, they help with fast and secure money transfers and improve capital management. Introducing cryptocurrency into your finances can give you an advantage in the changing market. By turning established investments into tokens and exploring new types of assets, cryptocurrency can provide new sources of funding that weren't available with traditional currency.
Will cryptocurrency replace fiat money?
Fiat has been around for a very long time and may not be replaced in the foreseeable future. Fiat currency relies on trust in central banks, and cryptocurrencies gain trust through blockchain technology and validated consensus. Moving to a crypto-dominated financial landscape may take time, and it is important to maintain a balance between centralized and decentralized currency systems to ensure a smooth transition for users. The constant adoption of blockchain technology suggests that widespread acceptance of cryptocurrencies may not be too far in the future, possibly within the next decade.
Is cryptocurrency a wise investment?
Due to crypto's volatility and lack of government backing, evaluating your risk tolerance and investment strategy is vital. Avoid caving to herd behavior and diversify your investments to mitigate risks. Furthermore, conducting thorough research into the history and prospects of a digital currency and staying informed about the latest developments in the market are essential for prudent investment decisions.
Cryptocurrencies are facing increasing scrutiny and regulation, and their future as a widely used form of money is still developing. Stay informed about the changing regulations and be aware of the potential risks of cryptocurrencies as they become more accepted.