What is a Cryptocurrency? Web3 Series: 5 of 10

In short, a cryptocurrency is a digital money built on blockchain technology.

Bitcoin and Ethereum are two examples we've already discussed, but there are many others.

Why are there so many? (Over 8,000 as of January 2022!)

For the same reason that there are so many coffee shops. Seriously. When someone has an idea for how they could do it better, they create another one.

To create an alternative when the existing solution doesn't meet your needs is not a new idea - it happens all around us on a regular basis.

However, the idea of doing it in the area of the currency we use every day is a very novel idea. For hundreds of years "currency" has been whatever the Monarchy or, more recently, the national government declared it was. There was no alternative. Then, suddenly, there are hundreds.

Whoa. Big change.

To make matters even more unsettling, these new cryptocurrencies offer some significant advantages over existing solutions when sending and receiving funds:

• They operate 24/7 allowing you to send to anyone anywhere
• They don't require middlemen such as banks who extract fees
• They can allow you do so without revealing your personal information
• They allow you to send fractional shares (e.g. .00001 bitcoin)

However, it's not all roses because some require you to:

• Deal with large price fluctuations
• Pay network fees (e.g. Ether gas, which can be better/worse than bank fees)
• Be careful to avoid phishing attempts and scams

Okay, so we've gone through the pros and cons, but what are the real world applications?

One great example is money transfers, specifically international money transfers known as "remittances" where someone sends money from the United States back to family in another country. This is estimated to amount to $127 B in 2022. The majority of this passes through banks such as Wells Fargo and money transfer companies like Western Union. On average, fees take $14 or 7% of a $200 remittance. On the other end, the person often has to travel quite far to get to a bank or Western Union store and make it safely home past thieves who hang out nearby such locations.

Enter cryptocurrencies + mobile phones. Now someone in the U.S. can connect an app on their mobile phone to a bank account and send it to their mother's phone in Venezuela for a few cents. That means practically no fees and no theft.?On top of that, despite the hyperinflation of the local economy (65,374% in 2018), they're able to keep the funds in a mobile wallet in a cryptocurrency that is stable. If you're the person in Venezuela receiving that money, cryptocurrency changed your life.

And this is just one of the thousands of new applications for blockchain technology and cryptocurrencies that have already been built, not to mention the millions more that will be built in the future.

It's a powerful platform for innovation.

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Next up: What is DeFi?

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