Bitcoin and Cryptocurrencies for the Tech Challenged
Cryptocurrencies, crypto-assets, crypto-trading, the cryptocurrency market… It’s practically a whole other language, and questions abound. How does it work? What is it backed by? Is it a government trap in disguise? Does it make it easier for someone to steal my money? Is paper money dying? Every time I’ve gone to a party or gathering recently, these questions have hovered over the conversation like a heavy cloud. So in an attempt to help you sound like the smartest person in the room, I’m gonna try to break it down for you in human-speak. Steal at will.
What the hell is cryptocurrency?
You might’ve heard that cryptocurrency is the “currency of the internet” or “email for money.” Some even call it electronic cash or digital gold, which is fine. It’s also regarded as a medium of exchange, a basis for trade, and merely a digital ledger. In essence — it’s just math. But to better understand what it is, let’s discuss the problem it solves, in theory.
Let’s say you’re running an online business selling digital products, such as MP3 files or e-books for download. Sure, you could go through a vendor like Stripe or PayPal to accept credit card payments, but that also involves a bit of risk for both you and your customer. For example, you’ll be gathering a ton of personal information about your buyer that you don’t necessarily need, such as their name, address and credit card details. As the seller, you are expected to keep that information secure, which can be harder than it sounds.
Plus, it puts you at the mercy of various third-party entities. You’ve got to be able to trust that PayPal or whoever will uphold the transaction, that the banks will process it quickly and, more importantly, that your buyer (a) has the appropriate funds in their account and (b) can’t cancel the transfer of funds after downloading your product. Add to the mix that credit cards (and even PayPal) charge processing fees that can reach around 3-5%. That’s a hefty chunk of change for small-sum transactions, which tend to be many — if not the majority — of online sales. Moreover, it can take three to five business days for credit cards to process the transaction and get that money into your account. It can be faster in the case of vendors like PayPal, but they’re not always ideal.
Bitcoin and other cryptocurrencies strive to solve these issues. By cutting out the middleman, you can do business directly with your customer. Funds are transferred directly from their digital wallet to yours. Your customer can even maintain anonymity, if they choose, and all transactions are secure thanks to the blockchain, which we’ll get into later. You can also access your funds quickly without having to worry about double-spending, chargebacks, fraud, lack of privacy, or being at the mercy of a centralized third party.