What is Cryptocurrency Part 2 — Technology

Intro

Throughout history, technology has pushed the human race forward in unimaginable ways. Armed with the faculty of intelligence and the ability to make tools, humans were able to excel beyond any other mammal. Some like machine guns or anthrax gas enabled the darker sides of the human race to commit horrible acts of violence. Others like the light bulb, and penicillin saved lives. Still others like the internet democratized the world by giving anybody access to voice their opinions, raise capital, and have the power to make a living from the world. In the world of 2022, there is another technology that enables the next thing that needs democratizing — access to one’s wealth. This technology is cryptocurrency. In a previous post, we explored the ‘currency’ part of the what is cryptocurrency question. Now it is time for us to look at the other part: The technology that enables cryptocurrency.

Is Cryptocurrency a Digital Currency?

To understand how cryptocurrencies work, we must know how it can be like a digital currency. According to Wikipedia, a digital currency is defined as any currency, money, or money-like asset that is managed, stored or exchanged on digital computer systems. So how might a digital currency be better than paper money?

The Technology that Makes Crypto Tick

- A Decentralized Digital Currency and Enter Blockchain

Cryptocurrencies are able to replicate the 5 characteristics above, but on top of that they do it in a DECENTRALIZED manner. Decentralized means that the cryptocurrency is maintained by 1) pure technology and 2) by a group of random people

- Blockchain, what makes cryptocurrency secure

Traditionally, data is structured in the form of large encrypted data tables (like excel sheets). Once a hacker breaks into these huge databases, they have access to ALL of the data in those tables. If I am a bank or an ecommerce store, the last thing I would want is for others to have the ability to access my data and manipulate it. The most important thing in any business is trust and if somebody is able to fraudulently claim that they are owed money or buy something with someone else’s money by making up transactions, the trust is forfeit and the business has to close.

- The Random People that Make Crypto Work

We have discussed how a blockchain is a secure digital ledger, but how are its blocks created in the first place?

Wrap Up: Crypto Can Work, But Will It Stick?

We now have a better idea of how blockchain technology and distributed consensus can enable cryptocurrencies to be like money. However, just because something functions like money does not mean that people will regard it and use it as such. As with any technology, cryptocurrency also follows the technology adoption cycle where even if technologies gain early adopters, they may still fail to acquire enough mainstream users and ultimately fail. An example of this was Google’s failed social network service, Google+.

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