I know I’m late to this party, but what’s up with cryptocurrency? Bitcoin was all over the news a little while ago, and I still hear people talking about it. As I understand it, it’s not just Bitcoin. A bunch of these cryptocurrencies exist, and people buy and sell them (and, I presume, paying to stuff with them--they do serve as currencies, right?).
I’m very confused about how any of this works, to be honest. Experts, can you give me a crash course in cryptocurrency?
Cryptocurrency is an exciting thing. It’s exciting for tech buffs, exciting for investors, and exciting for all of us who are interested in the future. The idea of cryptocurrency sound simple, though the underlying technology is anything but simple. Cryptocurrencies are digital currencies.
A digital currency sounds like a cool idea to a lot of people, and it’s easy to see why. Imagine a world in which you never had to carry cash, and could always pay for things in person and online with funds that you owned online. Cryptocurrencies have long had the potential for convenience, and many hopes to see cryptocurrencies that were also private--making transactions harder to trace, for good and for ill. However, cryptocurrencies had a problem. Since they were digital, someone could hack them. Without security, there was no way to make cryptocurrencies functional.
Then came a type of technology known as “blockchain.” Blockchain technology is a tough thing to explain, but suffice it to say that blockchain is a type of technology that makes it easy to record things but very, very hard for hackers to disrupt or alter that record. Thought blockchain, it became possible to swap cryptocurrencies like cash, without having to fear hacking and vandalism. The first big cryptocurrency to use blockchain was Bitcoin, which remains the most prominent cryptocurrency. Bitcoin uses blockchain to keep track of whose Bitcoins belong to whom, and it uses an artificial scarcity system to force “mining” of Bitcoins by computers that solve calculations for new Bitcoins. The calculations also make up a part of the way that Bitcoin records and protects transactions.
Bitcoin grew in popularity because it worked as a cryptocurrency and because it made it possible for folks to make private transactions online (that last bit made Bitcoin popular among a certain criminal element early in its life, but Bitcoin has long since gone mainstream).
Bitcoin’s popularity--along with its scarcity--soon made it valuable. It wasn’t long before people were buying Bitcoin in the hopes that it would get more valuable. Since Bitcoin was so new, nobody knew where it would settle. The value of Bitcoin relative to U.S. dollars five years from now remains anyone’s guess.
Bitcoin’s fluctuations have made its original purpose as a currency less viable, at least for now. In the meantime, it’s primarily for investment and speculation. Folks buy, hold, and trade it in the hopes of making profits. Customers can also trade bitcoins competitors and imitators too, of course, and you can find plenty of websites dedicated to cryptocurrency and blockchain news, quotes, and investment advice. Volatility still exists in cryptocurrencies, but, as a whole, they’re not going anywhere anytime soon. You can expect to keep hearing about Bitcoin in the news and from friends and acquaintances for a long time to come.
“It’s money 2.0, a huge huge huge deal.” - Chamath Palihapitiya