What Are Crypto-Currencies?
What Are Crypto Currencies?
It’s all about that internet money!
Someone once said “If you can’t explain it in a way everyone understands, you don’t really understand it”. So . . . here I go. This post will attempt to be the end-all-be-all for your basic, neophyte-directed explanation of what exactly these crypto currencies are. They get labeled a lot as ‘digital money’. That’s an imperfect understanding of what is going on here. The potential is so much more profound than just something like PayPal 2.0. After I explain what these are I’ll try my hand at explaining what they portend for the future. Alright? Let’s do it. . .
There are a few words we need to know: blockchain, cryptography, and decentralized. Blockchain is a way to record information. In a blockchain network, a batch of data is recorded in a group called a ‘block’. Think of a mini-spreadsheet that everyone can see. After a period of time, like seconds or minutes, those data are permanently recorded with a block number and a timestamp. Then, when a new batch of information needs to be recorded, that block is recorded after the first block. So on and so on until you get a ‘chain’ of ‘blocks’. The reason for this is that if someone wanted to alter data on past blocks, every block in between then and now will also have to be altered. Doing so sounds easy, but it’s not.
The reason it’s not easy to alter previous blocks is because of cryptography. This one might be a doozy. Basically, to complete a block, the information sent to the block has to be encrypted with a really really really strong password. Like, an unbreakable password. Like, the odds of guessing the password are “one and then a number that has 75 digits”. Like, if you lose your password then it’s game over. If you want to put information on the block, then you have to have your password. That’s how the network knows that all the information going into the blockchain is from a reliable source.
Finally, the network recording all of these blocks is decentralized. That means no one is in charge, and everyone is welcome. There isn’t a central database controlling the network. In fact, everyone has a copy of the entire blockchain. If you think there’s some malfeasance going on somewhere on the network, just look it up yourself on the blockchain! All the data is publicly available 24/7. Because the network is decentralized, there aren’t any restrictions on who can participate.
So let’s put it all together. Bitcoin is the first cryptocurrency. It is a decentralized network that uses a blockchain secured by cryptography. It’s design is to act as a digital payment system. The cryptography means each user’s information is secured. The blockchain means that the network can’t be hacked or altered. The decentralized means everyone can participate. All of this means that Bitcoin can act as a global payment system with no intermediaries, no fraud, no artificial delays, no artificial fees, and with total confidence.
It’s not just Internet money
Digital payments are just the first iteration of what these kinds of networks can do. There is a growing marketplace of different networks trying to tackle all sorts of problems. Identify theft, data management, copyright protection, counterfeit protection, inventory management, voting protection, and cloud computing are all fields with blockchain experimentation. Blockchain technology has the potential of upsetting the corporate landscape, by removing the need for a central entity to provide a service. Imagine search without a Google, video streaming without a Netflix, cloud computing without an Amazon, and voting without a voting booth. That’s what blockchain technology can accomplish. It’s not going to happen this year, it may not happen in five years, but it is coming.