Cryptocurrencies. The dream of money for everyone.

A deep-dive into the world of cryptocurrencies - what they are, how they function, how they can be used, what their importance to the world is and what risks are attached to it.

Cryptocurrencies TL:DR Cryptocurrencies are money and can be used for payment like any regular currency. Cryptocurrencies are a store of money but technically more secure than a tenner in your wallet, a gold bar buried in your garden or your current account at the Silicon Valley Bank. Cryptocurrencies are a form of money transaction and make bank transfers, credit cards, PayPal and Western Union (theoretically) obsolete.

And now from the beginning

“Bitcoin is the internet of money”, Andreas Antonopoulus, global bitcoin explainer

Suppose I send you a song as an mp3 file over the internet (That makes the author sound very old). I attach a file to an e-mail, and as soon as I click Send, you have it. You can now listen to the song. If you have the right software, you can even change the song. Last but not least, you can make a copy and send it to someone else.

So if you pass along the song to Aunt Clair, there are now three identical copies of that file. I have the song, you have it and so does Clair.

This is how digital information typically moves on the internet. They don't really transfer content, they copy it. When people in the early Stone Age transferred a vinyl record to cassette, the copy was worse than the original. With each additional copy process, the quality deteriorated. There was always only one original. The characteristic of digital data is that each copy has the same quality as the original.

This means that the original is no longer worth anything. Because why pay money for an original when the free copy is equally good? That is the reason for the downfall of record companies.

But now consider copying money. If I send you a euro, it's important that I don't have a copy. There cannot be a copy. But that contradicts the digital principle. Digital money is very practical because you don't have to walk around with a money case. Every bank transfer today takes place digitally. There are no bundles of money transferred from one safe deposit box to the next, but only numbers in a computer file of the bank.

Now who guarantees us that when we make a transfer, no one copies the amount of money and it is now duplicated? The bank. That is their most important task. We customers trust the financial institutions not to make secret copies.

That is a fine solution if you live in a country with good banks and honest bankers (cough…). But still, having to trust an institution is a crutch. It would be better if we could eliminate the human factor and trust with digital money. So we would need digital money with copy protection.

That brings us to cryptocurrencies and naturally to Bitcoin. It is not the only but the first working digital money with copy protection.

The problem with money

The problem with traditional currency is all the trust that is needed to make it work. The central bank has to be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. The banks must be trusted to hold our money and transfer it electronically. But they lend it out in big credit bubbles and keep only a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves steal our accounts.

How and why does money work? We rarely think about that. We just use it and because we use it, we believe it has value. This belief is confirmed with every purchase and thus solidified until there is no longer any doubt about it. Of course, money has very tough rules and the central bank makes sure that they are respected. So it sounds almost philosophical when the inventor of Bitcoin (like many other economists) assumes that trust is the basis of our money.

This is also logical. Because trust is the basis of all economic activity. Where this does not exist, contracts are needed and even with these we trust the signature of the other party and possibly a notary.

Creating this trust is expensive, the producers of trust - banks, lawyers, notaries, credit card companies - charge money for every transaction. So there is an obligation to pay for the use of the trust. It is not always clear whether these middlemen are not just highwaymen pursuing their own goals, as well as abusing their position of power.

But let's look at the most basic of all banking services, the bank transfer. If we were to put the money for the rent in an envelope and send it by snail mail, there would be no proof of the transaction. The landlord could claim not to have received the money. The bank guarantees that the transfer actually took place. So without a bank, we could not transfer the rent to our landlord.

This principle has been true since the invention of the bank transfer in the 17th century. Until today. The invention of Bitcoin in 2009 has made the need for the intermediary - the bank, lawyers, notaries and credit card companies - obsolete. Not the institutions themselves, but the need to use them. Blockchain, the technology behind Bitcoin, creates the trust for every conceivable economic transaction. It doesn't need institutions to do it, only computer code and a network of volunteers. How it works, what it can be used for everywhere and what revolution is yet to come, we take a look now.

What Bitcoin is

“Writing a description of this thing for the general public is damn hard. There is nothing like it,” Satoshi Nakamoto, Bitcoin inventor

Bitcoin is a digital or virtual currency. It works like any other currency from a user's point of view. One can exchange euros at an exchange office and buy Bitcoin at a fixed rate in exchange. As with other foreign currencies, the exchange rate fluctuates. Today, one Bitcoin is worth the equivalent of 26,000 euros. Tomorrow it could be 28,000 or 24,000 euros. You can own the bitcoins you buy and sell them again when the exchange rate is higher, for example.

This is similar to currency speculation, but also to trading securities such as shares. However, there are also some shops and especially online shops where you can buy with Bitcoin. In this sense, Bitcoin is a world currency. You exchange euros for Bitcoin once and can then buy a luxury mountain bike in the USA, 5,000 Fidget Spinners in China and a guaranteed real diamond in Israel without having to exchange currencies three times. You can definitely also get paid in Bitcoin for services.

Cryptocurrencies: no, thanks!

But how real is a cryptocurrency already anchored in our daily world? Let's take a big city like Vienna, Austria. There is a physical exchange office there where you can buy and sell Bitcoin. Then there is a hairdresser who accepts Bitcoin in payment for haircuts. Then there are a few ATMs where you can buy Bitcoin. Recently, you can even buy Bitcoin at the Austrian post office.

Then nothing comes for a long time. H&M doesn't take Bitcoin, McDonalds doesn't either, the supermarket doesn't, restaurants don't. Practically nobody takes Bitcoin or another currency today. In 2023, cryptocurrencies are not (yet) usable as a general means of payment.

Moreover, at least today, holding cryptos is associated with a risk of getting hypertension from all the stress. Bitcoin and co. can have extreme fluctuations - called volatility. That is wonderful, but only for speculators and the manufacturers of blood pressure medication. Finally, it should not be concealed that there is absolutely nothing of real value behind Bitcoin: no gold, no bank and no promise of any country. The exchange value of Bitcoin has no basis in reality, nobody is forced to accept Bitcoin. Now, at the latest, it's time for a spoonful of valerian.

Even the biggest fans of the digital currency have to admit: Bitcoin is meaningless to almost everyone 13 years after its invention.

Why cryptocurrencies then?

In mid 2023, all crypto currencies together have a value of $1,1 billion. This so-called market capitalisation is a promise of the digital currency's future. This is because most cryptocurrencies are currently not held by consumers, but by investors.

Bitcoin is seen as a threat to banks, credit card companies and money transfer companies like Western Union, as the cryptocurrency could replace all their services almost for free. The virtual currency could also be used as a means of payment at Amazon, or a donation tool for YouTube stars and bloggers. Investment funds are jumping on the bandwagon, banks are trying to implement blockchain technology.


Today, 0.9% of global gross national product is held in cryptocurrencies. In 2015, the World Economic Forum surveyed over 800 CEOs and technology experts about their expectations for the future. 58% of the respondents state that in 2025 ten percent of the global gross national product will be in Bitcoin and Co. However, for cryptocurrencies to reach that lofty valuations, they would have to replace the dollar and the euro as world currencies. As things stand today, this is not very likely, but it is possible to speculate on it. Many do.

Advantages can also be disadvantages

The biggest difference between a cryptocurrency account and a bank account is its (relative) anonymity. Funds in bank accounts can be attributed to owners, can be viewed by government authorities and are therefore taxable. A cryptocurrency account consists only of a number. For the tax authorities, it is currently relatively impossible to trace a connection of digital money to the account owner. This is of course a great advantage for individuals. Those who don't have to pay tax on their earnings easily save a good deal of their money.

But what happens to our welfare state if more and more income is smuggled past the tax office? That is a question to which nation states do not yet have an answer.

What does a crypto coin look like?

Although articles like to depict coins with a strange B for Bitcoin, this has nothing to do with reality. Cryptocurrencies are not made up of coins, only numbers. It's like online banking. When you transfer money from your account to another, you are not moving real money, just a digital version of it. The money only becomes physically real when you withdraw it from the ATM. Bitcoin goes one step further and does away with this last step. It now only exists digitally. Nevertheless, you can exchange it for euros.

Cryptocurrencies only exist as a computer program. Bitcoin for instance was written 13 years ago and has not been changed in its core. The rules are laid down there that can turn a software into a currency: There can be a maximum of 21 million until the year 2040 , until then new Bitcoins are created and circulated at regular intervals by the software. The Bitcoins are individually numbered, so to speak, and cannot be copied. They are therefore originals. While one euro is divisible into 100 cents, one bitcoin can be divided into 100 million satoshi. This sounds strange, but it makes sense for applications that require smaller payments than 1 cent.

All Bitcoins are stored in a database, just like your money in the bank. The bank has a digital account book where all possessions and transactions are stored and Bitcoin has it too. Unlike the bank, the database does not belong to a single institution, but is spread across many thousands of computers worldwide. This makes it almost impossible for money to be stolen. A (virtual) bank robber does not have to break into a single bank, but into thousands of computers simultaneously.

When you buy a crypto currency, you use the service of an exchange. You send them the desired amount in euros and receive the equivalent value in the coin of your desire. At that time, it is stored in your account at the exchange. You can then take these coins “home”. Physically, the storage location of the currency never changes. All that is recorded in the large database of each currency is that you are now the owner.

Your coins can be accessed by anyone who has both the account number and the password. Normally, this is only you. But if someone else gets hold of these two pieces of data, they will have access to your Bitcoins. So you have to take good care of your access data.

In this article

And now from the beginning

The problem with money

What Bitcoin is

Cryptocurrencies: no, thanks!

Why cryptocurrencies then?

Advantages can also be disadvantages

What does a crypto coin look like?