Cryptocurrencies 101
What is Cryptocurrency?
In the simplest terms, cryptocurrency is a decentralized digital currency that isn’t issued by governments or central banks. Every time you’ve seen stories about Bitcoin going up in value or the world of Ethereum, you’ve been seeing cryptocurrency at work. Cryptocurrency is stored in a digital wallet and can be used to buy goods and services from any vendor who’s willing to take it — but unlike your checking account at a traditional bank, it doesn’t exist in physical form and isn’t backed by any government.
The three cryptocurrencies you’re most likely to have heard of are bitcoin (the original), Ethereum (the new kid), and Ripple (the one that big banks like). The nature of each varies slightly, but they all serve essentially the same purpose: to digitize payments so they can be made without using fiat currencies and without having to rely on central banks. They accomplish this via blockchain technology, where encrypted data is stored across a network of computers and regularly updated with new transactions that create an ever-growing history of all previous activity.
History of Cryptocurrency
One of the first things to know about cryptocurrency is that it was invented by a guy called Satoshi Nakamoto — or maybe it’s a group of people; no one really knows for sure. His invention was Bitcoin, and since then, many other coins have been created.
The first coins were mined using high-powered computers. The idea behind cryptocurrencies and blockchain technology is that all transactions are tracked and verified by the community, rather than by any kind of central authority like a bank or government. Cryptocurrencies also differ from regular currencies in another important way: they are deflationary. Basically, this means that there’s a limited supply of them available to be mined, unlike traditional currency which governments can print more and more of.
What is a distributed ledger?
This means that the database is spread across a network of computers, making it an example of what we call a distributed ledger. A distributed ledger is perfect for recording events, property, transactions — in short, anything that can be described digitally. This makes it incredibly valuable in fields as diverse as finance, real estate, and shipping. One reason: verification. Because so many people are looking at it, the data can’t be corrupted by anyone; there’s no master copy for a hacker to corrupt. It’s decentralized and immutable; this means that no one entity owns the information (as you might with your personal computer) or can change it without permission from all the other participants in the network (which is nearly impossible).
Blockchain technology and cryptocurrency have revolutionized the way we think about finance.
Blockchain technology and cryptocurrency may very well be the future of finance. However, as it turns out, blockchain technology also has other applications — including every industry that we daily interact with, from art to collectibles to social media.
In fact, many people have predicted blockchain’s role in the future of decentralized applications and smart contracts (i.e., automatically enforced contracts based on pre-set criteria). In the case of self-executing contracts, escrow accounts can be set up with a neutral third party who will release funds based on whether or not the terms of the contract are met. Smart contracts do not require any intermediary parties to process transactions, which can save both time and money. These types of contracts could potentially transform industries like real estate and entertainment law by cutting out middlemen while enhancing security at every step along the way.
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