originally written 2018; revised 2025

Introduction: Fintech and Cryptocurrency

Man has lived through a Stone Age, a Bronze Age, an Iron Age, the Middle Ages, the Age of Reason and the Dawning of the Age of Aquarius, all of which have led to where we currently find ourselves, in the middle of the Age of Technology. True, using harder stones to quarry huge blocks of softer stones so you can build a pyramid is a form of technology, and the ancient Egyptians were doubtlessly satisfied when they looked up at their engineering marvels, as were the aliens who’d helped them. Nevertheless, Fourth Dynasty Egypt did not live and breathe its cutting-edge Stone Age technology. Moreover, not every Egyptian had a pyramid in his backyard: technology wasn’t for the average Joe in 2611 BCE.

What makes our age the technological one is that today’s average Joe has access to even the most sophisticated of technologies. One of the consequences of having such marvels as computers and smartphones as part of daily life is the belief that technology offers all the answers we could possibly want. While previous generations might have seen that as idolatrous, the belief that our salvation lies in technology is in some ways justified by the astonishing progress made during the past half century.

 Just over fifty years ago, a soon-to-be-cult television science fiction series showed futuristic humans having spaceship-to-shore conversations using portable cordless devices with tops that flipped up. At the time, the Star Trek communicator was both incredibly cool and a fantastic impossibility: everyone wished they had one, but no one thought such a thing could exist. Yet today, the Star Trek-inspired flip phone is already obsolete, and the communicators we carry around today can do things that Gene Roddenberry never even imagined. (Admittedly, we have yet to build a Star Trek transporter, but, given how the communicator has become a reality, maybe we shouldn’t count out a device that dismantles, moves and then reassembles people molecule-by-molecule. It’d certainly be an improvement on flying coach.)

The dinosauric flip phone illustrates how technological progress marches on at an exponential rate. We needed forty years to get from Star Trek to a functional communicator, and less than a decade to get from that to the iPhone. New technology comes at us so relentlessly that we scarcely have time to take new inventions for granted before something else comes along to render them passé. Once upon a time, a computer known as the 286 was marketed as the last computer anyone would ever need. Landfills were overflowing with them in a matter of years. Today, no one would dream of marketing a computer as the last one you’ll ever need: a campaign like that would be laughed off the internet.

Technology has completely transformed our world, and our faith in technology is boundless. If there isn’t something to do something, we believe that it’s only a matter of time before someone invents something that will, and we believe that the world will be a better place because of it. Technology has also come to mediate nearly all our experiences. Look but to people who attend live events only to watch them through the camera screens on their phones. You sometimes get the feeling that your fellow humans would rather put reality through technology than experience it first-hand.

In this Age of Technology, promise and progress have not come to every field at the same rate. Communication has changed to the point of being unrecognizable to an earthling of fifty years ago, but someone from the late 1960s transported to our time would have no trouble recognizing or knowing how to use our silverware or bedding. Cars are enormously different from what they were, but jet airplanes are remarkably similar to 1960s models (they’ve just crammed more seats into them.)

One of the fields that technology has transformed relatively slowly is finance. True, the proliferation of ATMs in the 1980s changed the way people interacted with their banks: before the ATM, you could only get cash if you went in person to the bank before it closed at 3:00 p.m.. The debit card also shook things up a little, but today’s retail banking still resembles the retail banking of the late 1960s in more ways than not.

Nevertheless, the financial world has begun to close the gap in terms of technological progress. The shift is taking place both on the retail and back-room levels, and has opened up a whole new field of technological development. A word has even been coined for it: fintech.

Fintech (or FinTech, but not Finn Tech, which would be a polytechnic institute in Helsinki) is a contraction of “financial” and “technology”, and is defined by the Oxford English Dictionary as “computer programs and other technology used to support or enable banking and financial services.” The online version of the dictionary goes on to use the word in a sentence: “Fintech is one of the fastest-growing areas for venture capitalists.”

The revered Oxford English Dictionary understates its case: we believe that fintech is the fastest-growing area for venture capitalists today. Unlike some other fields, the financial sector still has plenty of room for technological growth before it starts reinventing its own wheels. The world of finance affects things we use every day and cannot live without, but it really hasn’t experienced too much in the way of progress. Investment capital has been pouring into the technology sector for over twenty years, but the irony is that financial technology has not been an object of investment on the same level as communications and transportation technology.

What is fintech?

A familiar example of fintech that has drastically altered our financial lives is the payment service PayPal.

Established in 1999, PayPal has gone on to become one of the world’s leading mechanisms for moving money. Its IPO took place in 2002: with shares priced at $13.00 each, it raised $61 million in capital. Only a few months later, the company was sold to eBay for $1.5 billion, its shares worth $23.00 apiece. That represented a 76% increase over the IPO price in a matter of months. In 2015, eBay spun PayPal off into an independent company that now has 197 million registered users in 202 markets, and that can process transactions in 25 currencies. Few are the websites today that don’t offer PayPal as a more secure and convenient alternative to credit and debit cards. The service has expanded in other ways as well: PayPal offers lines of credit, and makes it possible for someone to send another person money by using nothing more than an email address and a few clicks. We’ve come to take that for granted; we ought to remember that nothing remotely like it existed thirty years ago.

PayPal, although still in use, is actually something of a fintechasaurus. The fintech companies of today offer services and capabilities beyond the wildest imaginations of PayPal’s creators. An Investopedia article from June, 2017 listed ten leading fintech companies that perform a dizzying array of financial functions. The companies on the list offer new approaches to payment services for businesses large and small, innovative takes on all kinds of accounting software, and the early stages of fintech’s conquest of the lending and insurance spheres. Loan officers and insurance agents are on their way to being replaced by computer software. The experiences of getting a mortgage or buying life insurance will be irrevocably transformed as a result, and all those insurance salesman jokes won’t be funny anymore.

Progress in fintech can be found in every area of today’s financial world. In the investment sector, fintech’s first breakthrough was the development of online brokerages that made it possible for people to buy and sell securities without having to call in (and pay for) orders with a human broker. Online brokerages also put near-instantaneous trading abilities into the hands of the public, which severely upset the securities-trading status quo that had been in place since the first brokerage house was established in the late eighteenth century. In recent years, fintech’s most game-changing contribution to the financial markets has been the development of trading algorithms that allow computer bots to handle the exchange of securities. Although automatic trading has been around for decades, its older forms cannot begin to compare to the sophistication of the software available to the average investor today.

The ordinary consumer may not realize it, but fintech is also having a huge impact on back-room finance. While our idea of a payment service is something along the lines of PayPal, or maybe the VeriFone terminals we tap with our credit card chips at a point of sale, there is far more than that to the services that manage the way companies large and small process payments. Fintech is also a source of rapid change throughout every aspect of the banking industry, meaning that our money is being handled by increasingly innovative technologies of which most of us aren’t even aware.

Unprecedented Change Ahead

Money is the driving force of any capitalist society. It is the thing we exchange for the three fundamental necessities of life: food, clothing and shelter. We cannot survive without money, so we spend large portions of our waking hours working for it. In addition to providing the necessities of the present, money is also the key to future security: we save for retirement in order to have security against being too old to work, and a substantial bank balance provides a safety net against disasters like unemployment or illness. Money is even necessary after our lifetimes are over: funerals aren’t free.

Until the Lydians minted the first coins in the eighth century BCE, the world operated on a barter system. Paper money was invented during the Tang Dynasty in China somewhere around 740 CE, but it wasn’t until the eighteenth century that paper replaced coins minted of precious metals in Europe. At the end of the twentieth century, plastic credit cards supplanted the widespread use of cash. Most recently, services like Apple Pay are starting to eliminate the need for those credit cards to which we only recently had grown accustomed. The day is pretty much here when our children will receive their allowances on their smartphones instead of in their hot little hands. Parents will even be able to set up recurring payments, thereby eliminating the once-a-week ritual of being pestered by your kids for their money.

Conveniences like being able to pay a friend back the twenty bucks you owe him while using nothing more than your mobile phone would have seemed like science fiction not too long ago. (Even science fiction fiction: what would Captain Kirk have said if he knew he could use his communicator to pay Spock for the illogical sucker bet he’d made?) With the progress taking place in this area of fintech, twenty-dollar bills may be on their way to being obsolete as well.

The obsolescence of credit cards, twenty-dollar bills and leather wallets is headed toward a world far beyond that of automatic transfers of dollars using smartphones. One of the most radical turns fintech is currently taking is upending the very concept of money as we understand it. Fintech is introducing an entirely new kind of money that operates on principles unlike those that have governed currency until now.

When you think about it, very little has changed since the Lydians minted those first coins. Perhaps the appearance of money has changed (from metal to paper to plastic), but it still works the same way, with currency issued by a central institution that in some way underwrites its value. If there’s a currency, there’s a bank that’s issued it and that stands behind it. That’s how things worked with the Bank of Troy (the Trojans were Lydians), and that’s how things work with the Federal Reserve.

Fintech has begun implementing a radically different system, one that does away with the central bank. It also does away with coins and bills, and replaces them with computers and the internet. This new kind of money has acquired the name cryptocurrency.  The best known of the cryptocurrencies is Bitcoin, which has made quite a name for itself, both on financial markets and in the news. The investing public has recognized the potential this new form of currency and its ability to transform completely the thing on which the entire financial universe is built: money.

Although it is growing into a part of our culture, this new money is still mystifying to many people. The rest of this book is devoted to de-mystifying you, the reader. Although Bitcoin and the many digital currencies that have followed it are rooted in concepts that formerly had nothing to do with money, the average person may not be acquainted with them, so they are explained herein using straightforward language. We do that in the next chapter, and then use those concepts to present and define cryptocurrency. We then take you through the steps required to acquire digital money, before embarking on an examination of how this money of the future is impacting our present, and, finally, our future.

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