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What is a cryptocurrency?

September 16, 2019

History of money

Before we understand what is a cryptocurrency, it is interesting to reframe it in the money history, reminding how we went from barter to digital currencies.

By definition, a currency is a tool one uses to trade goods and services. Over time, it has become a store of value that one accumulates and spends.

First monetary coins appeared in Ancient history (about 650 BC) to ease trades. Back then, the monetary coin had value based on the precious metal in which they were minted.

First tracks of paper-based money, like today’s banknotes, arrived way later (about 1’000 years after), in China.

In the years 1800’s, gold was the standard. For example, the American Dollar was a gold certificate, guaranteeing to its owner that he has a certain amount of gold. People did not yet trust paper notes as such. They trusted the state which held matching gold reserves for them.

Shortly after, the sole fact of owning a bank note gave value to its owner. Current banknotes are not backed by gold, it is what we call fiat money.

The trust you have into the value of fiat money is the trust you have into people’s trust in this money.

Then, in the middle of the 20th century, credit cards appeared and money got digital. There is no more need to own anything material to hold value. One simple line in a bank account is sufficient to own a certain amount of money.

Money became more and more digital and banks became more and more central.

Why are cryptocurrencies different?

This is the question we will try to answer to understand why they were created while many consider current currencies “good enough”.

From digital money to the first cryptocurrency, the bitcoin

In 2008, an anonymous person publishes the results of his research and finds a solution to the centralization problem of the money. This solution is Bitcoin.

This person is known as Satoshi Nakamoto and describes in its research a means to create a global ledger, in a decentralized manner.

With the Bitcoin, each transaction is registered in a kind of big accounting book, which is public and shared with everyone. But not only: this ledger can be maintained by anyone willing to do so.

Thousands of people have a copy of the book, across the world 🌍, and nothing prevents you from getting your own copy, now.

With the Bitcoin, instead of accounts, users have addresses. Users of the network can send bitcoins (abbreviated BTC) to each other using their addresses. Everybody can know how much money is on its address and what are the transactions sent and received by this same address.

Cryptocurrencies keep here their role of exchange medium, and they only use intrinsic properties to guarantee their value. These properties are the ones defined earlier: decentralization, immutability, security, and transparency.

Ethereum case

Ethereum is an open-source, public, blockchain-based distributed computing platform featuring smart contract (scripting) functionality.

To make it easy, Ethereum allows developers to create easily decentralized applications on the blockchain.

We often talk about the Ethereum Virtual Machine because the network of participants can execute computer code as any physical machine could.

Ethereum can be used to code, secure or exchange everything you can imagine: votes, financial services, domain names, contracts and agreements, intellectual property, etc.

Ethereum blockchain also relies on a cryptocurrency, called Ether or ETH, which can be transferred from one address to the next one, and is used to incentivize network participants.

Ether is also required to execute smart contracts/computations on the network.

Because it can simplify blockchain implementation for a lot of projects, Ethereum has known a very big success as per its birth in 2014.

At first, Request naturally decided to use Ethereum as a foundation to improve the financial world, through accounting and invoicing for example but also others. We’ll now see what can be done thanks to the Request technology.

What's next?

  1. 👉 Blockchain & Finance : Use cases to improve financial services

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