The absolute beginner’s explanation of cryptocurrency in 3 easy steps

Why understanding real money and currency is the key to understanding the foundations of crypto

Photo by Bermix Studio on Unsplash

Cryptocurrency can be hard to wrap your head around, I get it. But there is a simple way to understand this intangible asset — and that is by understanding how the value of money and currency works in the real world today.

Step 1 — How money and currency works

In the physical world, money was created from precious metals, like gold and silver. Because these were limited in quantity, and could be owned, gold and silver had value. So we created a system of using that resource to pay for things in an exchange of value. And coins were created from these metals, so that the amount of value was uniform, and could be counted.

As this happened, each country — as a group of individuals under a system of governance — created its own version of this, in different shapes, sizes and denominations. This, is currency (GBP, USD, etc).

Then, when paper money was created, the way it worked was basically as an IOU. The paper was worthless, BUT, it had relative value based on the corresponding amount of gold held by a bank. So you took your gold coins to a bank, in…