Everything You Need to Know About Cryptocurrencies The value of Bitcoin rose over 900% since the beginning of 2017. As you may know, Bitcoin is not the only cryptocurrency on the market. In fact, the total value of the cryptocurrency market that started last year at $30bln rose to over $800bln by January 2018. While the market is susceptible to huge swings in price, the resounding growth demonstrates the excitement surrounding cryptocurrencies.
First Things First: What is Cryptocurrency? A Cryptocurrency is a name for a digital currency that runs on a computer program called a blockchain. If that all sounds too confusing, not to worry. This article will take you through the most important concepts relating to cryptocurrencies. What is Bitcoin? What is Blockchain? And Why is it important to you? Let’s start with the basics. Bitcoin is a digital currency not dissimilar to cash. It was created in 2008 in response to the global financial crisis. With retail banks failing to release people’s money
from their accounts, the controlling influence of the banks became all too real. Account holders were not in control of their funds and relied on the banks to distribute them. Unsurprisingly, a good many people were not happy about this and went looking for an alternative currency that banks did not control… enter Bitcoin. One reason Bitcoin has become so popular is that it gives users the financial freedom that was not available in the last financial crisis. Firstly, when owning Bitcoin, you are the only person able to move your money. There is no “Bank of Bitcoin” or “Bitcoin Reserve” to stop you from spending your money. There is no way for a hacker to seize the ownership of your Bitcoin, or a bank to draw it out of your account.
Secondly, you do not need to rely on a third party to broker the transaction between the buyer and seller. Since there is no central bank or clearinghouse to process the transaction, the money goes directly between two people — reducing payment time and lowering the cost of transacting. Finally, all transactions are made under a pseudonym, so it is extremely difficult to determine who the person making the transaction is. When we talk about pseudonyms, this means users are identified by what’s known as a “Public Address” rather than their real name. A public address looks a bit like this :
0XC2D7CF95645D33006175B596748372C79c 8945d3F0 As you can see it’s not much of an identity! Now that we know Bitcoin is a type of currency, what does the blockchain have to do with it?
Blockchain: but what is it? A blockchain is a decentralized, distributed, public ledger that stores the information on who owns the Bitcoins in the network. Think of it as a way to keep a distributed record of all the ownership of Bitcoins across the world. Sounds confusing? That’s what I thought. Let’s look at it from another angle. A blockchain is literally a string or chain of blocks in chronological order. Each block contains pieces of information describing who owns what. Every time the ownership changes, the new records are written to a block and added onto the chain. Since we know that Bitcoin is a currency we can look at an example through talking about dollars, where a dollar represents a Bitcoin.
How Blockchain Works? Jim, Fred and Jane all had $4 each, with a total of $12 in circulation between them. This information is written or coded onto a blockchain. Now, Fred pays Jane $2 to help him with a
task. A transaction has taken place that has changed the distribution of money between the three friends. The new accounts look like this; Jim $4, Fred $2, Jane $6. Since a transaction has taken place, the new state of accounts is written onto a block and added into the chain. The following day Jane pays $6 to Jim for his bicycle. As before, the new state of accounts would be written or coded onto a block and added to the chain. Each time a block is added to the chain, all of the users receive an updated copy of the accounts. Anyone that holds a copy of the accounts is free to view the information about it; this is what we call a public ledger. Since many different people are holding a record of the accounts, the information is considered to be distributed. The updated version of the accounts doesn’t eliminate the previous version but instead shows the sequence of changes that took place.
So What’s the Significance of This? It means that if any of the three people in this situation tried to change their account balance, the record would not match the record of the two other people. Since the record did not match, the original record would be held as the true version. Once you scale this up to a greater number of users, it’s clear that the blockchain technology allows for a group of people to interact without needing a third party to oversee the exchange. This is what we mean by decentralized.
To reiterate, a blockchain is just another name for a decentralized, distributed and public ledger (or a record of information). In the case of Bitcoin, the information represents a currency, but there are in fact multiple other bits of information that can be stored on a blockchain. This brings us to the final question, why is it important to you? In the same way that the internet has transformed communications, the blockchain will truly unlock the power of data. For the first time in history, a public record of information can be held in such a way that it is unalterable and indisputable.
Some common examples include land titles in developing countries, the source of foods or commodities and the allocation of government or charitable funding. In an increasingly global and interconnected world, the blockchain technology allows us to interact seamlessly with each other without the need for an intermediary. It increases trust, drives efficiency and puts ownership back into the hands of individuals.
Wrap Up
With significant growth during 2017, the world is starting to wake up to the transformative impact of blockchain technology. Having the likes of IBM, Google and Facebook all working to integrate blockchain technology into their operations it seems that this new chapter has only just begun.
About me: My name is Alice Emma Walker and I’m a user experience designer working in Canada, Hong Kong, and Australia. When I’m not designing, I’m automating my home with an Arduino, playing rugby, or traveling. Find me onLinkedIn, Twitter, and my website.
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