The Easiest Way to Understand Cryptocurrency

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Fiat currencies such as the U.S. dollar or the euro have physical borders, while cryptocurrencies don’t have any sort of border because they’re digital and they’re built for the digital world. In this Motley Fool Live segment from “The Crypto Show,” recorded on April 20, Fool.com contributor Travis Hoium explains this and other basics for understanding cryptocurrency. 

Travis Hoium: The way that I think about cryptocurrency is it’s a digital currency that doesn’t have borders, and that’s really the difference between the way that fiat currencies currently operate today — is that if you’re in the United States you can use dollars, but there’s not a lot of pesos accepted. If you’re in you know Europe, you can maybe use dollars, because it’s kind of the world’s reserve currency, but you know you’re going to be primarily transacting in euros. 

As you get into the crypto space and the NFT space, you know, where I’m involved, what’s always amazing to me is that you’re talking or transacting with people who are all over the world. And so there’s no real border to that. And so there’s no, if I’m having a conversation with two other people and one is in India and another one’s in Ukraine — which, by the way, are both kind of major crypto and NFT hubs — there’s no reason that, if we’re going to make a transaction and I’m going to buy something digitally from them, that I would do that in dollars. 

It makes sense for that transaction — and not to mention, when you make a transaction like that in dollars, there’s all kinds of intermediaries that kind of sit in between, taking a piece of the pie. And so cryptocurrencies make sense in that in that sense. If you just kind of take yourself out of, “I use this currency to do the things that I want to do in a day-to-day basis.” If you think of it just as a digital currency, so if I want to go do something in the digital world, it makes sense to do that with cryptocurrencies. You add in things like smart contracts, and now when we start building, let’s say, the metaverse is an example. If you have a digital space, we’re going to go. Maybe there’s a digital good you want to buy. You can have a contract sort of built into that. And it can be sitting in my digital wallet, not in my Wells Fargo wallet. And it is going to be easier to make that transaction. So it’s kind of, I think of it as regular currencies have a physical border, and cryptocurrencies don’t have any sort of border, because they’re digital and they’re built for the digital world. 

It’s always hard to wrap your mind around. But if you think abou t– just go back to, we buy “gems” to play games on smartphones, right? That’s a form of currency, it’s just that that currency is now traded on a on a massive scale. But we’ve been kind of dancing toward this digital currency concept for quite a while now. So that’s the reason that it exists. And what the use cases are can go a million different directions, and that’s one of the things we like to cover on this show. You know, why in the world are we going to be using Ethereum? Or not using Ethereum? Or Solana? Or Avalanche? Or what have you. That’s the way that I think about it, and if you if you can wrap your mind around that, then you can think about each of these cryptocurrencies as kind of their own digital economy. And the stronger the digital economy, in theory, the stronger the cryptocurrency should be.