What makes cryptocurrencies so special? Well, this is a little bit of a complex topic. So we’re probably go into a few videos about this, but today we are just going to talk about surface level basic cryptocurrency versus regular current monetary system and talk about the differences and what is all the rage of cryptocurrencies.
So first, the obvious question is: What’s wrong with our current monetary system? We currently have what’s called a “Fiat money system” or “Fiat currency system.” An example of a fiat currency will be a US dollar or the Euro. What does fiat currency mean? A fiat currency essentially just means no real value. It’s not like the piece of paper has any value itself. It’s a trust basic system relying on whoever is backing it to ensure the value whether it be a government or an institution. So if a government were to one day no longer ensured the value of its currency, well then Venezuela happens.
So the main problems with fiat currencies are this one, no one knows how much money is in circulation in any fiat currency. No one knows how many US dollars there are out there. No one. There’s estimates, people guess but not even the United States government knows exactly how much money is out there.
With a crypto currency like Bitcoin for example you know exactly how much but by the year 2040 there will be exactly 21 million bitcoins to the T. We know this. It’s not a question. It’s not an estimate, so I guess it’s a fact. With real currencies or I should say fiat currencies you don’t know. And inflation is a huge deal. Inflation causes people to essentially lose two to three percent of their money if they just let it sit. So if you just stuff cash in your mattress, it is losing three percent of its value every year due to inflation. That’s a lot and that adds up over time.
And another major problem is that governments can do what they want with the currencies based on their own political agendas. We’ve seen a huge example of this in China. And worst of all, as I said before with Venezuela, if the government realizes that it can no longer afford to back its currency, then the money becomes worth less than the paper it’s printed on. We saw that in pre-World War II Germany too.
So what’s different about the cryptos. Well for one, they’re decentralized. Meaning, no central power or government can control or manipulate them. And another huge thing is that there’s no inflation, zero. This is because, unlike a fiat currency, you can’t print more money. There is a certain amount that will be mined over time. And for example Bitcoin by 2040, when it hits 21 million total coins, there will never be another coin distributed. Never another coin made or printed if it were fiat currency.
But that’s not the case in regular currencies which causes inflation, which means people are losing two to three percent of their money a year which doesn’t happen in cryptos. And on top of that, there is no fraud, corruption and counterfeiting. You can’t create more coins because everything has to agree with each other. That’s how the blockchain works. It’s all based on the blockchain and I’ll discuss in a minute.
And there are also no fees so, unlike Visa or MasterCard or American Express where you have to swipe your card and they charge three percent fees on every transaction. That doesn’t exist on Bitcoin. And that might sound small but that is billions upon billions of dollars. That’s why credit card companies are so huge.
And another thing that gets overlooked is the store of value. In other countries that are not… you know, developed or fortune-world like the US, Europe, China, Japan, wherever you happened to live that has a developed stable currency. We are pretty sure that my dollar today is still going to be worth roughly a dollar tomorrow.
Well, if you live in some dictatorship or government manipulated country, you don’t have that security. That’s exactly what happened to Venezuela. That’s exactly what happened in Germany pre-World War II. The paper was less the money it was printed on. So once a lot of people start adopting cryptos and become stabilized, anyone, anywhere in the world can know that their money’s safe because the currency isn’t going to fluctuate day by day.
And so cryptocurrencies are able to do this on a thing that’s called a blockchain which I’ll kind of explain a little bit now. I’m not going to go super in-depth because that’ll be for another video and you can search that too. There are tons of places online where you can search it but essentially, the very basics are it’s a notebook that you write down transactions in. Except, instead of only you having notebook, everyone on the blockchain, everyone in the world has that notebook.
And so if everyone has that notebook, you’re able to verify and match the notebooks with each other to make sure that every transaction, every line item is the same. And so if one isn’t the same and one person has this line item but the other million notebooks don’t have that line item then it’s not verified. And it’s considered false or fraud. And so that’s a very oversimplified explanation of the blockchain but hopefully that gives you a little bit of understanding. And well, that might sound really simple, it’s actually huge and it’s gonna completely change the way the internet works.
A really simple analogy that I like to use a lot is roads. So we had roads for thousands of years but now instead of having a mule or a horse carrying raggedy old wagon with cannibals on it, we have a Ferrari going 250 miles an hour. The Ferrari is the blockchain.
And here’s our bold prediction. People have been wondering what this shift from web 2.0 to web 3.0 will be. Web 2.0 was the shift from the original Internet to the social networking age. We think that the shift to web 3.0 will be that everything the entire internet will in the future run on the blockchain and so back to cryptocurrencies.
So the question is, will cryptocurrencies ever be as big or bigger than the US dollar, the Euro, Chinese Yuan, whatever major currency? Will it be bigger than that? Will it beat them? The question really isn’t if, it’s when. It’s almost inevitable unless there is major corruption at government levels which I’m not saying is impossible. It’s almost inevitable that crypto currencies surpass them because the technology just so much better than the current systems we have now. And eventually, one of the major currencies will fall. And when one of them falls, they all will. It will be a domino effect. So if you look at very good investment and you got a little extra cash hanging around, it might not be such a bad idea to throw it into a Bitcoin or aetherium or whatever cryptocurrency fancies you. Because if we’re right and you’re right for picking the right currency, and all of this really does end up happening, then in the famous words of the Beatles, maybe you are rich man.
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