Humans don’t really need anything, except for food, shelter, clothing and clean water. Theoretically, if everyone had the perfect amount of each of those things, we would have no need for money and everyone would live happily ever after.
In the real world, some people have more water than others but perhaps less access to food or clothing and trading or bartering for a better balance has always been necessary. But picture this: the local mall, with every shopper carrying around like bulks of cloth or construction grade lumber, to each shopkeeper one by one. Trying to find the one who both has what they need, and needs the thing that they happen to be carrying, kind of ridiculous. That is why we need currency.
Compared to cattle, for instance, is easier to use, more durable, and more compact. Not to mention it smells better. Medals, notably gold and silver, were used as currency for thousands of years. Then widespread adoption of government regulated centralised banking in the 19th – 20th centuries, brought about money.
This currency exists in the form of promises, stored electronically and printed on paper. Handy, sure, but unlike metals whose value we all agree on, with money we rely on someone else to tell us what its worth. Which leads us to why there are people who want a new alternative to centralised banks. Regulated currencies are ultimately controlled by people, and are therefore more easily manipulated for gain by those in a position of power, with a deep understanding of the system.
With Bitcoin, it’s possible to game the system for personal gain, but they are not centrally controlled. Supply and demand are the main drivers of their worth, and the built-in limit to how much can exist just like precious metals, should in the long term, prevent mass devaluation, and the inflation that’s caused by central banks printing money that they don’t have.
If we want to be more like metals, why not just go back to gold. There are other advantages too. Unlike gold which is inconvenient to move around, Bitcoins are stored and transferred digitally in a virtual wallet. And unlike cash, each Bitcoin has a public transaction history that makes it, theoretically, impossible to counterfeit.
Alright so how do I get them? Method number one is to use a computer, to solve cryptographic problems. Method number two, like any other type of money, is to exchange goods or services for it or even other currency using an exchange.
So it sounds great, right? The obvious question at this point is what can go wrong, and the answer is lots. At the moment, not too many merchants accept Bitcoins, so it’s kind of hard to spend. Without regulation or predictable demand, valuation can swing up and down wildly. Some governments notably Russia and China, are resisting to cryptocurrencies and have gone as far as to ban the use of Bitcoin because it was used as ransomware payment method. And, like anything new, the security of this system is still largely unproven. Can I truly buy something anonymously? Can it be easily stolen from me digitally? Can anyone promise me that this will still exist in 1, 10, or 100 years?
Currency relies on trust, and only time will tell which cryptocurrency, if any, we can trust, for our retirement funds.