How to describe Cryptocurrencies?
Cryptocurrencies are a stand-alone digital asset designed as a medium of exchange. The most widely accepted cryptocurrency is BitCoin, and for this matter, we shall take BitCoin to describe and analyze cryptocurrencies, because what goes for BitCoin, goes for most other cryptocurrencies.
BitCoin is created, handled and held electronically. There are no physical or tangible units like banknotes or coins. BitCoin is not just an electronic derivative or a unit of the Dollar, the Euro or of any other 'central bank currency', also known as 'fiat money'.
BitCoin is absolutely independent from any fiat currency. No one controls it. No bank, no government, no single user.
What is money in the first place?
But let's start from the beginning. Most people do not understand what BitCoin is, because most people don't understand the very concept of money. They also don't understand the money that they use on a daily basis. So, to the common man, BitCoin may just appear to be a different form of that money that they don't understand and, hence, they may prefer to stay in their 'safe haven' of fiat, instead of sailing into unknown, white waters of crypto, which they believe, is the same thing with a different name. Would they understand how 'fiat' money works, then they would immediately realize that they have been, all along, navigating not in a safe haven at all, but between Scylla and Charybdis.
What is the difference between Crypto and Fiat?
Fiat money is emitted by the Federal Reserve or by the European Central Bank or, in the case of other countries, by their respective Central Banks. These banks control the money they issue by 100%. They control the money supply of a nation and the prime interest rate, they create money out of thin air for the purpose of lending, and they set the rate of inflation.
Though it is often said that the ECB is a government-run institution, this statement is simply not true. Congresses and parliaments have no say there. People who run those institutions are not elected, unless maybe for the position of a spokesman; and as long as there is someone willing to put collaterals (valuables) at risk, these banks will create new money and lend it out, and they will increase the money supply by doing so, automatically causing inflation.
So, what has BitCoin to do with all this?
Exactly... Nothing! BitCoins are generated not by some institution "lending" out money that didn't exist until the borrower signed a binding contract, but by a process called "mining", comparable to the mining of gold in a gold mine. Individuals are rewarded by the network for their work, which consists in confirming and encrypting BitCoin transactions, using bitcoin's blockchain transaction database as a distributed ledger. This work, of course, is not done by humans, but by machines. Since there is a hidden exponential function in this process, the maximum amount of BitCoins that can ever be created, limits itself. Thus, BitCoin is not an inflationary currency like fiat. It cannot be multipied arbitrarily. Here again, the comparison with gold is very accurate.
BitCoin is like the digital version of Gold
Like mostly, digital goods have some advantages over analog goods. If I can download a movie digitally, I can start watching it immediately and to a lower cost as compared to renting or buying a movie at my local video store, or ordering a DVD online, pay for the express shipping and still having to wait for a day until it gets delivered - perhaps just to discover that the DVD is broken and doesn't play.
It is similar when we compare Gold to BitCoin: I do not need to melt it down and remint it in order to obtain a smaller unit, nor do I have to bother about calculating the change for a gold coin in silver or fiat. I simply pay or demand the exact amount required in BitCoin. If that is just a few decimals behind the comma, so be it. I also need no bank to store it, like in the case of gold, and I do not have to physically hand over the coin. Transactions are done between Tipperary and Tokyo directly, immediately, without banks taking their conversion fees, and the recipient has his money a few minutes later. Anyone can see the transaction by looking it up on the blockchain. The recipient can't deny having received it, and the sender can't falsely claim to have sent it. At the same time, they don't even need to know each other's names.
And there are more advantages over Gold: No one can steal BitCoins. No bank can discontinue them, no government can prohibit their use or forfeit them, or shut down the server, or take the CEO to the court of law, because there is no server, no CEO, no intermediary, no central repository or single administrator, that could be made or held responsible for anything. And, least but not last, no individual can use the BitCoins of someone else - unless he has the public key and was given the private key of the owner.
BitCoin: The future of money...
BitCoin is much more than just bits and bytes. BitCoin is a declaration of war to the allmighty money scientists from the realm of Fiatland. With a true free market money dawning upon the blood-soaked soil of which they for centuries have harvested their bountiful crop, feeding on the misery of billions, the central bankers will wait at every switch of the way to derail that train to freedom. They will do whatever they can, and they will throw into battle everything they have in order to try and stop it. Their best ally is and will always be the ignorance of the masses. Will David beat Goliath once again? That's up to every single one of us.
»It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.«
 'Fiat money' translates into 'let there be money'. Like God is said to have created the light out of nothing by saying 'fiat lux' ('let there be light') the Gods from the FED can create money out of nothing by saying 'let there be money'. Click here for a detailed explanation on the banking system.
 Think of 'Blockchain' as a digital book keeping ledger where all valid transactions are recorded, and of which every user has an up-to-date copy. Every new transaction (block) is chronologically added to the already existing blocks resulting in a chain of blocks. That's the blockchain. Click here for a detailed explanation of Blockchain.
 As long as the owner - and only the owner - controls the private key.