A bit of a long reply this, but it's a complex area.The term cryptocurrency is derived from cryptography - i.e.the art/science of codes and ciphers. A cryptocurrency as generally understood is based on two related but not identical technologies / concepts - blockchain and distributed ledger. A blockchain is quite literally what its says - a chain of blocks. Information about transactions (the creation of more currency, sales, purchases, transfers) is recorded in highly encrypted form in a block of data which is then appended to the chain. Nothing is ever deleted from the chain. The distributed ledger part comes because the blockchain is not held in a central database but in a multitude of servers. For a block to be added to the chain, the servers involved in the blockchain have to validate the transaction and "vote" on it. In a cryptocurrency like bitcoin, more units of currency are created by solving very complex mathematical problems embedded in the code of the blockchain - what is known as "mining" - the miner who solves the problem is rewarded with a unit of cryptocurrency. The bitcoin software limits the number of bitcoins that can ever be issued.These properties give cryptocurrencies a number of chracteristics.Because the blockchain is ever growing and because transactions have to be voted on by multiple servers, transactions take a long time to process. This means that bitcoin can handle only about 7 transactins globally per second - compare that to the billions of transactions that the global financial system processes every second.Also, because bitcoin limits the amount that can ever be issued (I'm not sure if that is true of other cryptocurrencies) it is only ever going to be a "bit" player (couldn't resist the pun) in the financial system.The fact that multiple servers are used for each transaction and that a lot of processing power goes into mining (redundantly because miners are competing with each other) means that vast amounts of electricity are used. An estimate is that bitcoin use and mining consumes 0.21% of the world electricity supply - or as much electricity as Switzerland uses!If you hold cryptocurrencies, they only exist as a record in the blockchain and can only be accessed by a 64 character random key. If you lose that key you lose your access to your bitcoin forever. If you write it down, then anyone can access your bitcoins. There are people who offer to hold your keys securely for you - but these have been the subject of scams / frauds.Cryptocurrencies are said to be anonymous, which is attractive to some people. That is true in the sense that transactions are simply identified by an account number / cryptographic key - but if you can identify who owns that account / key, then you can track all the transactions that they have ever made. And of course, when you convert crypto into fiat currency, then there will be a record there.The main property of existing cryptocurrencies of course is that there is no one in charge - there is no bitcoin central bank. This is a major attraction for some people. However, because cryptocurrencies are not backed by anyone, they ultimately have limited practical utility. In the real world, to buy anything, you have to convert bitcoins into a "real" currency - and if someone accepts bitcoins for a trade, they then have to convert them themsleves (you can't pay taxes, mortgages etc. in bitcoin - nor can you legally run your accounts in bitcoin). Because there is no central bank backing cryptocurrencies and because they constitute such a small percentage of global finance, the value of bitcoin against other currences (and hence its value to be able to purchase things varies) hugely.In short, cryptocurrencies, as currently constituted are a form of gambling / Ponzi scheme.However, a cryptocurrency doesn't have to be decentralised - various countries (amongst them China) have considered issuing their own crypto-currencies. Such crypto-currencies could then be run on a very limited number of servers and not require mining and would be backed by the relevant central bank, thus overcoming some of the shortcomings described above. But then they become just like other fiat currencies - just using different technology. With the added benefit to a government of being able to track transactions easily.To answer your other questions - non-fiat cryptocurrencies are not the future in my opinion. I am therefore only concerned about people gambling on them and losing everything or being defrauded. Fiat cryptocurrencies may have a limited utility - but I would be concerned about loss of anonymity in that case (which is why their utility would be limited).
Andrzej Kowalski ● 2170d