Crypto & You: A brief introduction to cryptocurrencies and blockchain

By Chris Pidgeon

Reading time: 13 minutes

Over the course of COVID-19, an emerging technology has been on the rise. Cryptocurrency, the complex, ’hot-topic’ software has taken the world of young entrepreneurs, investors, and tech geeks by storm. What makes it special is also what makes it function: the immense, complicated technology that powers it. That technology is also what makes it so difficult to understand, let alone to consider investing in. Let’s unpack and try to decipher what’s got so many so worked up.

What is cryptocurrency, anyhow? In its most strict and basic definition, it’s “digital money, created in digital form as a means of digital exchange”. Simply put, it’s like the coins you can purchase using real-world currency in a free game you downloaded from the App Store. You can buy a hat for your avatar with them. Except, in this case, these coins allow you to purchase anything you like, just like real currency, operating exclusively on the Internet.

By Chris Pidgeon

Reading time: 13 minutes

Over the course of COVID-19, an emerging technology has been on the rise. Cryptocurrency, the complex, ’hot-topic’ software has taken the world of young entrepreneurs, investors, and tech geeks by storm. What makes it special is also what makes it function: the immense, complicated technology that powers it. That technology is also what makes it so difficult to understand, let alone to consider investing in. Let’s unpack and try to decipher what’s got so many so worked up.

What is cryptocurrency, anyhow? In its most strict and basic definition, it’s “digital money, created in digital form as a means of digital exchange”. Simply put, it’s like the coins you can purchase using real-world currency in a free game you downloaded from the App Store. You can buy a hat for your avatar with them. Except, in this case, these coins allow you to purchase anything you like, just like real currency, operating exclusively on the Internet.

What powers and facilitates the cryptocurrency market is an advanced, up-and-coming technology known as blockchain. Blockchain technology was created in the late 2000s and was first used to implement the earliest and – still to this day – most popular cryptocurrency ever, Bitcoin. Blockchain is a digitised ledger system akin to what you might use for bookkeeping your business’ finances. You could imagine blockchain in this way: thousands of accounting books across the planet all holding the same information. Now, someone invents a way to update all that information at once, adding new entries or changing old ones in the same manner across all the linked books. Everyone who owns a book can not only see the new or changed entries, but also a receipt that describes what was changed, by who, when, and for what reason. This is a blockchain, and its applications are endless. Currently, blockchain is being researched and applied by thousands of savvy engineers and software developers across the globe, creating the next generation of applications and technologies.

The advantages of a blockchain system deal with some of the tougher concepts of finance, economics, and trading in the modern world. Firstly, blockchain networks are decentralised, meaning that no one single entity controls the ebb and flow of a blockchain, unlike other systems being monitored by centralized owners. Blockchains ensure that anyone can access a platform equally, and all decisions made on the blockchain are ensured by everyone else. Consequentially, blockchains become ’trustless’, as all members of a system have a method of sending, receiving, and verifying transactions, allowing everyone to understand how a transaction took place and to feel safe in undertaking their own transactions.

Any information stored on a blockchain is known as ‘immutable’. Immutable records can never be affected, modified, or removed by any future transaction. This is powered by cryptography and is, in fact, where cryptocurrency gets its name from. Each ‘node’ or ‘block’ added to a blockchain is identified and protected by a unique and complex cryptographic key, which is virtually unsolvable. This makes blockchains incredibly secure. At the time of writing, thanks to this technology, Bitcoin has never experienced any breaks in blockchain security. These aspects of blockchain technology are certainly wordy and abstract, but it sets up a system for trade and finance that is owned by the people, built for the people, and used exclusively by the people.

Back to cryptocurrency. Now that you understand the fundamentals of the technology that powers it, you can understand a bit more about cryptocurrency itself. Blockchain can be applied to anything – any kind of system that needs to share information at different points – but in this case, it powers an economic system. A peer-to-peer economic system, no less, using the decentralised nature of blockchains to make transferring money between buyers and sellers cheaper, faster, and easier. Removing an intermediary like a bank means no one can stop that transaction from occurring, and that the peers involved in the transaction remain in complete control. This is the future that modern traders and investors of cryptocurrency are working towards, one where banks have far less power and influence over the ways we finance our lives.

As of September 13, 2021, there are 76.62 million unique cryptocurrency wallets existing on Blockchain.com, the most popular cryptocurrency trading site, and over 8.4 million transactions daily. Cryptocurrency has assuredly become a major force in the finance industry, but for who? Who’s using cryptocurrency in their daily lives, or more accurately, what kinds of people? 2gether, a cryptocurrency payments app based in Spain, reported that “the everyday crypto user is a highly educated millennial male” using cryptocurrency for investment and actively going out of their way to actively spend it in their day-to-day lives on non-essential services – restaurants, for example. A key figure of the blockchain industry, Daniel Larimer, who is CTO of blockchain investment company Block.one, discussed in 2018 that the early usage of cryptocurrency will be like that of all early ground-breaking technologies. It will initially be philosophically supported by the kinds of people who would use this technology and want to see it grow and become widely used.

What we are seeing now is these initial supporters coming to the surface. Most people will only adopt a new form of technology once they are convinced it will have an improvement on their day-to-day lives without costing too much, being too difficult, or carrying too much risk. Current fanatics of crypto would claim it’s something everyone can and should get into, but realistically, there is an incredibly high barrier for entry. Not only is there a lot of learning to undertake, but there are many risky or shady deals, pieces of advice, or even scams being run by people looking to make a quick buck from the thousands of new users interested in the technology. However, we are beginning to see more adoption of crypto technologies by companies like Wikipedia, Microsoft, and even Tesla, who turned heads as they announced the ability for buyers to make purchases of Tesla vehicles using Bitcoin. This decision was soon after reversed, citing concerns around the newly studied environmental effects of cryptocurrencies like Bitcoin.

Yes, you read that correctly. Some virtual coins like Bitcoin have a significant impact on the environment. A process called mining is essential to the maintenance of certain virtual coins like Bitcoin. Mining can create new tokens, circulate new tokens, or take newly confirmed transactions and add them to the global blockchain. Computers undertake this process by solving a math problem, searching to find an appropriate cryptographic ID (as we discussed earlier) to store the transaction or token under. This process requires a great deal of energy consumption. Data has revealed that by August 26th, 2021, the bitcoin network had used as much energy in one year as the entire country of Argentina. Not to mention the huge amount of e-waste produced as computer hardware is destroyed, thrown away and replaced due to the intense strain on a computer system required to undertake mining.

For this reason, along with many others, we now have hundreds of different cryptocurrencies, seeking to differentiate from and fix the mistakes of the original coin, Bitcoin. Coins like Ethereum, Ripple, LiteCoin, Dash, IOTA, and Monero all seek to create a better, more viable digital currency that can simply and realistically serve a purpose for anyone, in any walk of life, without damaging the environment. A great example of a new cryptocurrency looking to make massive strides in the accessibility of the technology is IOTA, which is intended for use with devices interacted with in your daily life. The prevalence of self-driving electric vehicles may result in the appearance of smart taxis or Ubers – vehicles without drivers which take you to different locations without any kind of human interaction. IOTA is then primed to help facilitate payments between a smart car and your smartphone – no app or bank permissions required. As of September 13th, 2021, though, IOTA is not yet widely used, as Stellar, Ethereum, and Ripple (in that order) are the top three traded cryptocurrencies.

One of the more exciting and thought-provoking applications of crypto and blockchain technologies is the advent of NFTs, or non-fungible tokens. NFTs allow anyone to create a token as a one of one entity, ensuring that their name remains attached to that entity throughout its distribution across the Internet, forever. In other words, an artist could create a piece of digital art, sell it as a one of one authentic copy, and any sale of that piece would always be linked back to the original artist. Digital artists – as well as any creative existing on the Internet – could use NFTs to ensure they receive royalties from their works continuously, and create a blossoming digital economy of art, music, products, or services, just like our real world.

Hopefully by the end of this short but likely overwhelming journey, you’ve managed to learn a few things about cryptocurrency. It’s a massively complex piece of technology that takes months – if not years – to fully understand and become a real user of, not to mention a great deal of cash and smart investments. However, the philosophical ideals that proponents of cryptocurrency are fighting for have equally massive implications for the future of our society. One day, we may very well see a shift from traditional physical currencies to digital coins like Bitcoin or Ethereum, and it’s well worth considering an investment now. At the very least, educate yourself so that you can be prepared for these changes to come.

 

Sources: 1. Cryptocurrency as the currency of the future: a case study among Algebra University College students. 2020 43rd International Convention on Information, Communication and Electronic Technology (MIPRO 2. What do we mean by “blockchains are trustless”? PreethiKasireddy.com 3. Blockchain for beginners: What is blockchain technology? A step-by-step guide. BlockGeeks 4. Number of Blockchain wallet users worldwide from November 2011 to September 2013, 2021. Statista 5. Who’s actually using crypto in 2020 & what are they using it for? Finance Magnates 6. EOS’ Dan Larimer says all businesses will use blockchain in the future, cryptoglobe.com 7. Elon Musk says you can no longer buy a Tesla with bitcoin. MSN 8. What’s the environmental impact of cryptocurrency? Investopedia 9. Number of daily transactions in Bitcoin, Ethereum and 11 other cryptocurrencies from January 2017 to September 13, 2021. Statista

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