What exactly is a Bitcoin? What the hell is blockchain technology? What is the point of a cryptocurrency? Bitcoin and cryptocurrency news has been rampant. We have seen headlines covering its parabolic rise and comparable fall over the past year and currently, the cryptocurrency market cap is significantly down from its early January record high. An argument can be made that most cryptocurrency traders and investors are losing interest, based on the current decline in trading volume. That being said, it’s impossible to say which way the market is going to go, but one thing is for sure, cryptocurrencies are going nowhere. Read on to learn what they are and why they are the future.
Cryptocurrencies get their name from the cryptography required to keep them secure and to control the creation of more of a particular cryptocurrency. Cryptocurrency refers to a digital currency that is encrypted by an algorithm so that it can be securely traded between individuals. Each unit of cryptocurrency has a unique encrypted code formatted as a string of numbers and letters given to it during creation. This digital currency is traded through cryptocurrency wallets, which have a unique encrypted code that acts as the address in the crypto world. It’s basically a location where cryptocurrency can be sent to and sent from, so every fraction of a cryptocurrency always has ownership. Because of that, if you want to buy it, then someone else has to be willing to sell it. This ensures there is always a fixed number of a cryptocurrency available, which creates a supply and demand environment.
Most people associate cryptocurrency with Bitcoin, and there is a good reason for that. Bitcoin is mainly used as a store of value, but it was the first decentralized cryptocurrency, released in 2009 created by an unknown individual or group called Satoshi Nakamoto. Being decentralized means that no one owns or controls Bitcoin as there is no central Bitcoin bank. Bitcoin single-handily spawned today’s cryptocurrency industry and at the time of this writing, there are another 1854 cryptocurrencies know as altcoins — meaning alternative cryptocurrencies to Bitcoin. Bitcoins are created when a powerful computer, ASIC or GPU miner, solves a set of cryptographic problems in a process called mining. The ledger that stores all the information about mining transactions for Bitcoin is stored simultaneously on thousands of networked computers all around the world and is therefore controlled by the community. It does this through the blockchain.
Since all cryptocurrencies rely on this blockchain technology, it makes transactions unbelievably secure and virtually unhackable. Cryptocurrency transactions happen directly between individuals instead of through a bank and every transaction is recorded on a digital ledger called a blockchain. Think of the blockchain as the master ledger that records all past transactions and activity. Once users make a specific number of transactions using any cryptocurrency, the network computers group these transactions into a block since every cryptocurrency has its own blockchain. So the first computer that can solve a complex math problem gets to add its block of transactions to the blockchain and receive a monetary reward for doing so. This is, in essence, cryptocurrency mining. Every computer in the network adds the mining transactions of the new block to its copy of the digital ledger, and the process continues.
Now that we have a better understanding of cryptocurrency, bitcoin, and blockchain technology — why are they the future? Cryptocurrency is one of the most significant computer science innovations ever. We can replace trust in central organizations with trust in source code. Blockchain technology will allow us to have privacy and to monetize and control where our information goes. Since blockchain is a decentralized system, people can use smart contracts, which enable peer to peer deals between parties who do not know each other or even speak the same language, to skip intermediaries in any business transaction, saving everyone time and money. Some of the world’s largest companies such as eBay, Microsoft, Expedia and McDonald’s are working to integrate with Bitcoin and other cryptocurrencies because they will become part of the mainstream financial system in the next decade and a digital coin is free of the associations to countries that fiat currencies have. Cryptocurrency is a serious disruptor to the banking industry and we can expect a significant increase of new investment vehicles to come from crypto finance.
Blockchain technology has greater potential than the Internet. While the Internet is the computer network providing information around the world, blockchain technology has the potential to completely change government-regulated industries. Banking, healthcare, education, and government itself can be improved by blockchain because it is a flawless ledger. Many important cryptocurrencies are building networks that will solve real-world issues, like net neutrality, double spending, data tampering, identity theft, currency inflation and more. Humanity has and continues to struggle when it comes to interacting with all of the different types of economies, people, and ways of life on earth. Now imagine how amazing it would be if everyone and everything was connected through one completely secure computer database. Enter the cryptocurrency revolution.