What is cryptocurrency? It’s a simple question which is voiced more and more often these days. Technological innovation has a way of seemingly appearing out of nowhere. And this is quite true of everything related to cryptocurrency. One day the term was seldom voiced outside the realm of computer science. The next one could hear people discussing it on the news. This rapid unveiling left most people with a lot of questions about cryptocurrency. People find themselves wondering what cryptocurrency is. They wonder about what one can actually do with cryptocurrency. And of course people wonder where cryptocurrency is going in the future.
It’s best to begin with a simple analogy. Cryptocurrency is essentially just another way of holding up an abstracted asset as a means of exchange for goods and services. In other words, cryptocurrency is another type of money. One can essentially think of it as drop in replacement for the dollar, yen or any other form of currency. For users the main difference is simply that it’s entirely digital. Most people pay for things through digital means these days.
It’s estimated that about 80% of the population prefers to use a credit or debit card rather than cash. And around 75% of all transactions are performed this way. Cryptocurrency streamlines this process by removing the option of physical cash. In this sense cryptocurrency is catching up to the public’s changing preferences. If most people don’t want to use cash than why bog down the economy by still keeping it as the foundation of any given transaction? However, this description still keeps things at a somewhat oversimplified level. It’s enough to give someone a basic understanding of what cryptocurrency is. But the most exciting aspects of this new form of currency can only be seen by examining it on a more technical level.
One can instantly see an important feature of cryptocurrency by looking at its name. The crypto in cryptocurrency refers to cryptography. Cryptography, in turn, is a form of encryption which keeps people from being able to access digital information. One can think of it as the digital form of a locked door within a house. Imagine someone has the equivalent of $100 USD locked within a single room. He has a key which will open that room and no other. He can use the key to go into that room to take any amount of money from that $100 total. Now imagine that the money was kept on a scale. After cash was taken off it automatically wrote that information into a central ledger. With cryptocurrency this ledger is known as block chain. After someone performed this transaction he would lock the room again and exit the larger dwelling. This is somewhat similar to how cryptography functions. With cryptography one has access to data based on set credentials. And transactions are logged into a block chain within the larger network. In this example the individual might keep his keys in wallet. And likewise, with cryptocurrency one keeps decryption keys stored in a digital container known as cryptocurrency wallets.
An interesting point with this system is that it’s largely decentralized. Nobody owns the cryptocurrency system. This is in dramatic contrast to most other types of online digital banking systems. Any of the popular methods of accessing, say, a credit card online work with one or more monolithic entities. This is typically an online vendor system and the bank itself. Cryptocurrency operates more like email. Nobody owns or has singular control of the SMTP or IMAP systems used for email. Anyone can use different email clients or interfaces to work with their email. The email is essentially just owned by the person accessing it. Cryptocurrency works in a similar way.
Developers can and do improve the software used to work with cryptocurrency. Again, this is similar to how developers improve and innovate with email clients. However, it’s important to stress that those developers aren’t actually changing the way that agreed upon protocols operate. Email operates on agreed upon protocols which can’t be changed. And likewise, cryptocurrency functions because the protocol itself is essentially set in stone. Methods to work with cryptocurrency can and do change. But while cryptocurrency is digital, it’s as resistant to change as a block of gold or silver.
The general idea of cryptocurrency dates back to 1983. David Chaum, an American cryptographer, proposed a theoretical currency called ecash. He’d later go on to implement it in 1995 as digicash. Most people consider this as more a precursor to cryptocurrency than a full implementation. One of the larger objections is that it was still fairly tied into traditional banking systems. The first truly decentralized cryptocurrency wouldn’t appear until 2009. An individual operating under the pseudonym of Satoshi Nakamoto created Bitcoin with an SHA-256 cryptographic hash.
Bitcoin was the first full cryptocurrency. But it was hardly the last one. Over time people have had new ideas on how the system could be implemented differently. This has given rise to a vast amount of new cryptocurrencies. It’s estimated that there are now around 6,000 different types of cryptocurrency. They’re largely referred to under a blanket term of altcoins. This is in reference to a set value of bitcoin being equivalent to a theoretical physical coin. It’s important to note that most altcoins quickly fall into disuse. The vast majority of cryptocurrency based transactions use bitcoin. And at any given time one can usually just take note of the top five altcoins for any given period.
Cryptocurrency wallets are often linked directly to a cryptocurrency exchange. This makes conversion between any given type of coin fairly trivial. One can usually convert between different cryptocurrencies with just a few clicks on a website or mobile app.
The future for cryptocurrency as a whole seems quite secure. It’s clear that cryptocurrency will be around for a very long time. One might well see it rising ever further into a direct competitor to standard country backed currencies. At the moment most development is going into making the process of actually using cryptocurrency easier for the average person. This includes including bitcoin options with online shopping cart systems. And physical kiosks and ATMs have gone from a rarity to a near certainty within major cities. One can exchange standard curry for cryptocurrency within these ATMs. Or conversely one can sell cryptocurrency for local physical currency by using it.