Cryptocurrencies and the economy: A beginners guide

Cryptocurrencies are increasingly likely to cause the most groundbreaking changes to society over the coming decade. This may sound optimistic, but after reading this article and viewing the resources listed you’ll find a compelling argument to why the future of crypto is so bright. 🚀🌙

In the first half of the article we’ll look at what cryptocurrencies are, a brief history of cryptocurrencies and the economy over time and then some factors that will influence the adoption of cryptocurrency.

After that we’ll finish off with attempting to answer questions like what may happen with cryptocurrencies and the economies in the future, a list of cryptocurrencies and services you should know about and then finally a list of the most engaging resources I’ve found so you can learn more.

This isn’t a technical article though you may want to pause at different stages and use a glossary or google something for any terms you haven’t heard of.

Don’t miss the services section to see what services you can benefit from using right now and the resource section to learn from the best content.

Cryptocurrency

What is it?

A cryptocurrency is a digital asset. You can own and store cryptocurrencies on devices or online services. Many people may have heard of cryptocurrencies created to become a form of money and day to day payment. In reality this is just one use case for cryptocurrencies. Payments, contracts, games, e-commerce, social networks or advertising are just a few example markets that different cryptocurrencies are trying to disrupt.

How does it work?

Cryptocurrencies work through the use of a blockchain. A blockchain holds a growing list of records that are secured and linked together using cryptography. Cryptography involves the use of mathematical functions to encrypt sensitive data. Cryptography is what keeps a blockchain secure and prevents anyone trying to do anything malicious — like create a fake transaction or change an existing one. Collectively all the records of a blockchain produces a digital ledger for that cryptocurrency. This shows the flow of a cryptocurrency and data from one address to another.

How can I own it?

To own cryptocurrency you will need to use a digital wallet to send, receive and store the coins. For smaller amounts of cryptocurrency and easy access the use of an online exchange or mobile digital wallet can be suitable. Online exchanges offer digital wallets so users can buy cryptocurrencies with fiat currency and also exchange them for other cryptocurrencies. Mobile digital wallets are useful for people wanting to store cryptocurrencies on their own personal device but also have quick access. For larger amounts of cryptocurrencies a hardware digital wallet would be recommended. These are electronic devices purpose built to store cryptocurrencies. These offer one of the most secure ways to store cryptocurrencies but leave the responsibility to you for looking after your own cryptocurrency. There are more detailed articles on the types of digital wallets available if you want to learn more.

Who controls it?

The majority of the top cryptocurrencies are decentralised. This means that there is no central authority running the network. Cryptocurrencies can have servers from across the world validating transactions to maintain its digital ledger. Being decentralised means people can send cryptocurrencies like Bitcoin to each other without a middle man. This can help remove fees and also need for trust to accurately and securely complete a transaction. Instead of one company storing and being responsible for maintaining a ledger of transactions it is instead decentralised with a large number of people across the world. For the people that help support these networks a reward is given after each block of transactions that helps maintain the network. This removal of a central point of failure can help create a more secure network overall.

In the beginning (2009)

Economy

The US was just coming out of the financial housing crisis. The world saw a negative 1.6% GDP growth for the year and stock markets had plummeted. Large US banks were a large part of the problem after accepting an increasing amount of subprime mortgages. Some large banks collapsed, many were close to following them. Not soon later many were bailed out with little to no repercussions for their actions.

Crypto

Bitcoin was released, the white paper called it a peer-to-peer electronic cash system. Only a handful of people knew about it or were involved in the technology. There weren’t any cryptocurrency exchanges for you to easily transfer fiat currencies into Bitcoin.

Result for cryptocurrencies

There were some clear problems emerging with the US government supporting a ‘too big to fail’ approach after bailing out big banks. The federal reserve, led by only a handful of people, were able to make the decision to print their currency and bail out the banks. Bitcoin had little public exposure and was far less developed than existing financial systems at this point.

Crypto bubble (January 2017 — July 2018)

Economy

Over the period of January 2017 to July 2018 the stock market was seeing record highs, the FTSE 100 had grown by 5%, S&P 500 over 20% and the NASDAQ grew over 39%. 2017 GDP growth rates remained steady but were trending lower. Some example GDP growth rates were United Kingdom with 1.9%, United States with 2.9% and China with 6.8%.

Crypto

The number of cryptocurrencies in the market exploded. You could use tools like CoinMarketCap to find out about coins and their current value, total circulating supply, market cap and more. Multiple exchanges like Coinbase, Binance and Kraken were now established and available 24/7, it was easier to exchange fiat currencies into any number of cryptocurrencies. Bitcoin started 2017 under $1000 but by the peak in late 2017 it had nearly hit $20,000 per bitcoin. Factors such as global news stories, larger investor buying, potential price manipulation and a fear of missing out (FOMO) were seen as contributing factors that led to the bubble. By July 2018 the price of Bitcoin had dropped from its highs to below $7000 with other alternative coins also seeing major drops.

Result for cryptocurrencies

There was a lot of excitement around cryptocurrencies and what they could do for society. It was now easier than ever to get hold of different cryptocurrencies. However, there were a few major issues surrounding the space. Firstly there were a number of coins introduced in this period that were trying to take advantage of the situation. Some were outright Ponzi schemes and others were copies of existing projects with minor changes passed off as something new. When many people did not understand the space it was easy for people to get scammed into buying coins from these sort of projects. The other major issue was many projects were still in their infancy and without a real end product to use. The most established coins were still not in a position for day to day use. The stock market was still breaking records. Cryptocurrencies were still in their infancy, not regulated and not supported by governments. This type of environment had a lack of continuous driving force to push cryptocurrencies towards a critical mass of adoption.

Present day (2020)

Economy

The stock markets were reaching new highs up until the COVID-19 virus took hold of the world. Once countries went into lockdown central banks responded with dropping interest rates even further across the world (USA 1.5% to 0.05%, UK 0.75% to 0.1% and China 4.2% to 3.85%). Global GDP figures look likely to go negative for the year. Central banks across the globe have been printing their own currencies to try and ease the pressure on their economies. Now, after a few months on from the lockdowns, the stock markets have been recovering, recently even reaching all time highs. The excessive printing of fiat currencies appears to be a large part of pushing asset prices higher. There are numerous pieces of content in the resource section that reviews the current situation of quantitative easing and the stock market.

Crypto

Access to cryptocurrencies has continuously improved. There are numerous hardware, mobile and web wallets for people to store their cryptocurrencies as well as a vast amount of online exchanges to get any cryptocurrency. Some products are receiving significant growth with the Brave browser recently reaching 15 million users. There has been high growth in crypto backed debit cards where people get rewards and cashback. One of the bigger developments in the market is the decentralised finance (DeFi) space. You can now find a growing number of lending apps emerging. Collateralised loans using cryptocurrency are proving a popular way for people to lend and borrow without needing to sell your crypto coins.

Result for cryptocurrencies

Before the global economy shut down there were already signs we were drawing closer to the end of an economic cycle. Interest rates were low and GDP growth was slowing in most major economies. Now with COVID-19 also taking effect central banks set interest rates to some of the lowest seen in history. This has left central banks with a diminishing ability to influence the economy beyond printing fiat currency. Over in the cryptocurrency market there have been record numbers of people holding at least 1 bitcoin, an increasing number of people using the DeFi borrowing and lending services and a growing integration of payment cards to benefit from using cryptocurrencies in day to day life.

Future adoption

To think about what may happen to cryptocurrencies in the future here is a non-exhaustive list of potential factors that could either help or prevent adoption.

Economy

• Quantitative easing — It’s normal for economies to move in cycles with increasing and decreasing levels of access to credit. However what has been seen more recently has been an attempt to prevent any downward cycle by stimulating economies through excessive quantitative easing. Although this may work now, the end result will likely make for a much bigger downturn in the long term. With interest rates next to zero the only option many central banks have is to print more currency. Eventually this will lead to noticeable inflation and a further devaluing of fiat currencies.
• Wealth gap — There has been an increasing divide between the wealth of top 1% versus the majority. This has become an increasing issue over time and if it continues it will likely lead to social unrest and a need for wealth redistribution. The question is will the wealth gap get worse or better in the future? It seems unlikely that the top 1% come together and redistribute the wealth themselves. Changing fiscal policies to tax the wealthy far more than they are today could be a viable path forward. Though for a fiscal policy with higher tax to truly be effective there would need to be a collective effort from governments across the world to prevent tax havens. If a global effort for better fiscal policy makes little progress it could be likely the wealth gap continues to deepen over time.

Crypto

• Trust — Cryptocurrencies are still a new market, trust is still a key factor for people when considering moving any large amount of money or their valuable data over to new systems. Providing there is a continuation of few technical flaws, repeated hacks or outages the level of trust in cryptocurrencies should increase over time. Another component of this trust is regulation. In the early days this technology had no regulation on how it should be used. Over time there has been an increasing number of companies such as Gemini and many others who are trying to work with regulators to become fully compliant. Another area companies such as Gemini are working on is trying to bring cryptocurrencies into ETFs. If these efforts are successful it would make for a large step forward in cryptocurrency adoption.
• Technology — The crypto market is still in its infancy. Many cryptocurrencies are working on large changes to improve the security, functionality and scaleability of their blockchains. It is safe to say you can expect to see the technology in this market improve over time.
• Usage — If trust and the technology improves consistently over time the door will be more open for an increasing number of people that want to try using cryptocurrencies or building useful applications with them. Whether that’s as a trusted store of value or for alternative applications offering a better service, more control or just no middle man fees. Improving the use cases for cryptocurrencies and the services built on top of them will be what helps bring cryptocurrencies more usage and eventually to a tipping point for more adoption.

Governments

• International competition — If cryptocurrencies prove their advantages over existing systems at scale, such as lowering costs or providing higher reliability, then this could produce a cascading effect for adoption. Countries like Venezuela, Zimbabwe, Lebanon and Argentina have seen massive inflation over the passing years. Many people have seen seeing large amounts of their wealth get eroded. In Venezuela people have already been using cryptocurrencies to prevent the issues of inflation for a number of years. Citizens of countries struggling with inflation may end up moving over to another currency like the US dollar, a cryptocurrency or a new world reserve currency. With nearly all countries currently printing large amounts of fiat currency and causing it to devalue the chances of a new currency being a cryptocurrency could increase over time. For any countries that do move over to a cryptocurrency the impact on growth and value to the ecosystem would be significant.
• Corruption — Corruption is seen as an ongoing problem in many countries. When money and state are closely combined opportunities can present themselves for corruption. Can a centralised system ever be free from a few corrupt individuals? If there is a bad downturn across the world economically corruption could become an even bigger issue. Decentralised cryptocurrencies may prove increasingly as an effective way to prevent the illegal creation and flow of money.
• Monetary policy control — Some cryptocurrencies are looking to become a currency for day to day payments. If these cryptocurrencies prove popular it could remove the need for central banks. Many governments and central banks will likely not want this kind of change as it would limit their power to influence the monetary policy. Certain cryptocurrencies could be made illegal as a result. As cryptocurrencies are decentralised it would be very difficult to take down a network — even with a fairly large global consensus. Would governments have enough power to prevent people from using cryptocurrencies? What if the majority of the population wanted to use them?

Attempts to answer the bigger questions

How could cryptocurrencies affect economies?

Existing cryptocurrency projects are already giving people a better service for a range of industries whether that’s from better interest rates on lending, cards with cashback or browsers that pay you for your attention. New and improving services are likely to only become increasingly available over time.

If decentralised services are adopted on mass they could help reduce costs and distribute the economic benefit from the system. If this is successful for multiple services it could help maintain a lower wealth gap across economies. One of the other benefits of lowering the cost to popular services is it will make economies more cost efficient. This could open up doors to new businesses that weren’t previously viable or improve the economics of existing businesses and services.

Cryptocurrencies can also have a large impact on finances. Eventually people will be able to own and use their money in new ways. Being able to lend and borrow to a global audience could open up opportunities across the world. The currently unbanked population could see drastic economic changes as decentralised services allow them to enter a global market without any barriers or need for permission.

How could economies affect the adoption of cryptocurrencies?

It’s impossible to fully predict the future for each economy in the world. What we can think about though is what may happen in different scenarios. In the first scenario, we may see economies recover from the COVID-19 crisis and maintain normal levels of inflation. If this happens then the need to migrate to a new form of currency like a cryptocurrency becomes far lower. If their system is working for now why make the effort to change?

In the other event, certain economies could becomes far worse or even collapse leading to a lack of trust in their economic system. This may make the need for a more stable currency. If a cryptocurrency became that solution it would result in an explosive demand for those cryptocurrencies.

Economies could either have a small or enormous impact on the adoption of cryptocurrencies. The impact will be based on how many economies fail to become stable again and also how they solve the problems that emerge. In search for a better answer we can continue to follow some of the key influencing factors. At present it looks like the leading two factors to follow are the wealth gap and monetary policies causing quantitative easing. Something to monitor is the worst performing currencies and economies over the coming months and years. How did they solve their economic issues? Are any of the population using cryptocurrencies more or less than before?

Will we see mass adoption of cryptocurrencies?

To answer this question let’s break it down into three sections. First the adoption of blockchain technology as a whole, next using cryptocurrencies within services and finally using cryptocurrencies as a form of currency and payment.

Anywhere where it may benefit to have decentralised systems or data can benefit from blockchain technology. Many companies have already begun utilising this technology in their existing systems. It may be the case you are using a blockchain in the background of a service you already use. For example some companies are exploring the use of blockchain to track their supply chain of the products they offer. This means products you buy may be being tracked using blockchain technology. This is just one example and due to the massive number of applications for blockchain we can safely assume we will see mass adoption. Most people will eventually be using the technology day to day, likely without even knowing it.

There are already a number of services using cryptocurrencies that add benefit to the end user. The Brave browser is a great example. When you see adverts you’ll be paid in BAT tokens for your attention. If a service like this gains mass adoption it will be a cryptocurrency token you end up interacting with on a regular basis. You can find a growing number of other decentralised apps on sites like dapps.com or searching for them in the cryptocurrencies lists like CoinMarketCap. Looking at the metrics for some of these services makes it clear there are a growing number of users. Overall it cannot be certain on the number of services you use that end up using a cryptocurrency or being built on one. However it does look increasingly likely you’ll be interacting with a cryptocurrency in a service you use in the future.

Now the final major area of potential mass adoption is cryptocurrencies as a form of currency and payment. It is likely we see countries use blockchain technology for their own currency in the not so distant future. Korea and China have already been experimenting with the idea. What is difficult to predict however is whether the adopted cryptocurrencies will be ones created by central banks and governments or instead be ones that already exist today. For collapsing economies, cryptocurrency may become more likely due to a lack of trust in their government. For stable economies a centrally issued cryptocurrency may be pushed by the government as the better option.

Is now a good time to learn about cryptocurrencies?

It’s worth looking at the space just to find out whether there’s a service that you may benefit from already. As with any new service make sure you look into the company for more details before using it yourself.

If you are looking to invest then cryptocurrencies make for a high growth sector that has a lot of opportunity. Naturally this also comes with plenty of risk. With projects now starting to get real traction this will eventually cause a rising tide of awareness in the space, especially once people see how fast the market is progressing. Now is the perfect time to learn about which cryptocurrencies you think will grow in the future and can keep an eye on through the coming months and years.

Cryptocurrencies to watch

Disclaimer — This is not investment advice. These are just my own personal favourite cryptocurrencies at the time of writing.

Explainer videos about these coins have been added to the resources section.

Bitcoin
Initially developed as a digital cash for payments. More recently has become known for becoming a form of digital gold.

Ethereum
Open source platform for decentralised applications. Ethereum provides the infrastructure for people to use smart contracts in their own software applications. This speeds up development by not needing to create your own blockchain.

Cardano
Built from the ground up with a rigorous scientific approach showing the highest amount of research papers and continuous development work in making a smart contract blockchain suitable for a global audience. Cardano is looking likely to become a great competitor to Ethereum in the not so distant future.

Basic Attention Token (BAT)
Used in the Brave browser, advertisers buy tokens to pay for adverts, users see adverts and get paid in tokens for their attention.

Chainlink
Connecting smart contacts with real life data. This cryptocurrency helps bring off chain data onto the blockchain so it can be used by smart contracts. Sports match results or weather data are both examples of the type of data chainlink can help with.

Kyber Network
A decentralised exchange. Kyber network is an on-chain liquidity protocol making it easy to swap one cryptocurrency for another. It’s used in an increasing number the decentralised finance applications for liquidity.

There are tons of cryptocurrencies to look into. Some of the other ones I’m watching (in a rough order of preference) include: Origin Protocol, Cardano, CRO (Crypto.com coin), Theta, SwissBorg, Tezos, Energy Web, VeChain, iExec, Bancor, Cosmos and Enjin.

Services to consider

Honest disclaimer — There are affiliate links used below that help support this content.

Brave (Browser)
Brave is a browser, just like Chrome, Safari or Firefox, that you download and use to browse the internet. The main difference is it automatically blocks ads and ad tracking across sites. When it does show you ads, you’ll get paid for them in basic attention tokens (BAT). You can exchange these tokens on exchanges for any other cryptocurrency, back to a fiat currency or donate it to other content creators. It’s completely free so give it a try!

Crypto.com (Exchange, debit card, borrowing and lending + more)
Crypto.com gives you can easy way to exchange fiat currencies to cryptocurrencies but also has a wide range of other financial products that you could benefit from. One of their flagship products is their debit card. They have tiered cards, and to get most of the different types you need to stake (invest and hold for a period of time) their MCO cryptocurrency. Each cards cashback percentage and rewards depend on the amount you stake. Some rewards include paying for your Netflix or Spotify subscription. Another popular product is their borrowing and lending services. When lending out your cryptocurrency they typically offer interest rate yields of 2% to 12% depending on the length of commitment and type of cryptocurrency.

For the best value for money the ruby red debit card may be the best option. You can get $50 free when using this referral link or use the code uxcgabezyu when asked.

Coinbase & Coinbase Pro (Exchange, debit card + more)
Coinbase is likely the easiest way get started and exchange fiat currencies for cryptocurrency. It has higher rates than other exchanges but you can transfer funds over to their trading platform Coinbase Pro to get lower fees.

Gemini (Exchange + more)
Gemini provides an easy way to exchange fiat currencies to cryptocurrency. Gemini has a focus on meeting regulations, letting users store their cryptocurrency as securely as possible and even provide insurance against theft.

Changelly (Exchange)
Changelly is an easy to use service for changing one cryptocurrency to another. It is great service to use if you decide to get your own hardware wallet. You only need your email address to have an account.

BlockFi (Borrowing and lending)
Offers lending and borrowing borrowing services. Lending out your cryptocurrency on BlockFi can yield interest rates from 3.2% to 8.6%.

Blockfolio (News)
The mobile app for Blockfolio is one of the easiest ways to keep track of what’s happening in the world of crypto. There is a signal tab where cryptocurrency creators and supporters can push news updates about their cryptocurrency. Another tab is for news that aggregates all of the major cryptocurrency news articles into one place that you can read in the app.

Personal favourites — A great starting point would be considering the Brave browser, a lower tier Crypto.com debit card (Ruby) and using Blockfolio to learn more from the news and markets. These are the services I currently use the most alongside using all the free resources mentioned in the next section.

Resources

The most important resources are the economy, podcasts, youtube creators and article lists below. The podcasts and youtube creators have a favourite piece of content chosen to get you started! A lot of the people in the following content are also active on Twitter.

Cryptocurrency
• What is cryptocurrency video — Explains using the comparison of fiat currencies to bitcoin and how they are similar and also differ.
• DeFi Pulse website— List of decentralised finance projects that also visualises the total amount locked up in the DeFi market over time.

Bitcoin
• Whitepaper
• Explainer video — Explains a basic history of fiat currencies, what bitcoin is, what it can be used for and how it works.

Ethereum
• Whitepaper
• Explainer video — Explains what Ethereum is and what it is used

Cardano
• Why Cardano? — A detailed overview of why Cardano was started and what it aims to become

Basic Attention Token
• Explainer video (embedded on site)
• Brave browser review video— Includes the privacy aspects and usage of BAT tokens for advertisements.

Chainlink
• Explainer and review video
• Explainer and technical overview video
• Technical overview and use cases article

Kyber Network
• Explainer video

Economy
• How the economy works video
• Wealth gap article — By Pew Research Center
• Wealth gap article — By Bloomberg
• Argentina Inflation article
• Inflation and Bitcoin article
• The price of tomorrow book — Outlines the flaws of the inflationary economic system and also the impact of deflationary technology moving into the future. Together the books provides a compelling case on why fiat currencies days are numbered and a new solution will be needed.

Podcasts
• The Investors Podcast — Finance topics including company valuations, market conditions, economic history and analysis discussions. More recently has episodes discussing Bitcoin.
— — Great episode — Current market conditions.

• What Bitcoin Did — Focussed on interviews with guests on what is happening in the Bitcoin market whilst also some content on politics and economics.
— — Great episode — The Myth of Deflation.

• Once BITten! — Bitcoin podcast that goes over what is changing in the eco system and interviews with leading people in the industry.
— — Great episode — Preston Pysh — People Know Something Is Wrong.

• The Pomp Podcast — Interviews with people both inside and outside the crypto industry.
— — Great episode — An open Letter to Ray Dalio.

Youtube creators
• Gold Silver with Mike Maloney — Well known in the Gold and Silver space and is an author of his own book on the subject. Does insightful deep dives into the economy and central banks.
— — Great video — How & When Deflation Turns To Hyper Inflation.

• Coin Bureau — Does great reviews and well thought out content giving enough information to understand what different cryptocurrencies and services do and why you should know about them.
— — Great video — This Is Why Ethereum Is Super Valuable.

• Hashoshi — Crypto developer that talks about what is happening in the industry and also cryptocurrency reviews. Has good explanations and also good coverage of the technical details.
— — Great video — Bitcoin Today, Chainlink, Ethereum 2.0 & More.

• Crypto Daily — Mostly talks about Bitcoin and the current crypto market but also adds a lot of good related humour to his videos.
— — Great video — Wall Street Saying One Thing Then Doing Another.

• Ivan On Tech — Good for daily news on the crypto market, always has timestamps so can skip to what you’re interested in hearing about.
— — Great video — US Banks Get Permission To Store Customers Crypto.

Articles
• Ray Dalio articles — Billionaire macro investor that gives detailed articles on the economy and current issues.

• Masters Of Slaves And Money — History on money and corruption, how that’s present in current fiat currencies and how Bitcoin solves those issues.

Thanks for reading

Hope you enjoyed the write up! What are your thoughts on cryptocurrencies and the economy? Feel free to share any thoughts or anything I’ve missed in the comments.