Understanding Cryptocurrency

photo by André François McKenzie

by Tyler Hatfield

In last month’s column about ransomware, https://bit.ly/ 2Yr3HHj , the term “bitcoin” was briefly mentioned. But what is it?

Bitcoin is a digital currency or cryptocurrency used to pay for things online, and there are several different ones in existence.

These currencies exist only online, which is why they are called cryptocurrencies. They are traded the same as paper money is online. They also have a specific value that allows them to be traded for real money, but this value is very volatile and changes by the second.

The major difference with cryptocurrency is in how they are created and stored.

Unlike traditional paper money and funds stored digitally with banks or credit cards, bitcoins are made up of long strings of encrypted letters and numbers.

These chains of encrypted data get stored in online pseudobanks that hold them on heavily secured and encrypted data storage drives until the account holder “trades” them, the same way money is spent from a debit card.

What makes these currencies bizarre comes down to how they are made and handled. Rather than being printed like standard money, these coins are calculated by computers.

This is done using a hash, which, in simple terms, is a very advanced mathematical formula. A computer runs the formula and, after some time, calculates one of the long strings that makes up a coin. These are then stored in the banks previously mentioned.

What is interesting is that anyone can do this with their personal computer, but there is a catch or two.

Processing cryptocurrencies requires a very powerful computer to generate coins at a reasonable speed. The process is called mining, and the speed at which coins are processed is referred to as the hash speed.

The hash speed is very important because it directly affects how much money is being created. A powerful computer may mine up to $7 in coins per day, but the cost of the electricity spent producing those coins is often photo by Andre Francois McKenzie near or more than the amount earned. Because of this, cryptocurrency mining has fallen out of favor with small or individual groups, while it has continued to grow in large mining corporations that can produce currency on a much larger scale.

Then why do cryptocurrencies exist? Because they have many legitimate uses, as well as some less savory ones.

On the positive side, cryptocurrencies are nearly impossible to manipulate and very secure when stored correctly so they are great for investments; paying off large debts, like tuition; and general online shopping.

However, on the dark side, because cryptocurrency transactions and the coins themselves cannot be tracked, cryptocurrencies are the top choice for things like online drug transactions, human trafficking and scams.

As noted in last month’s column, a common bitcoin use is in ransomware demands. Since it cannot be tracked, data kidnappers cannot be tracked like they could be if ransoms were paid through debit cards or bank accounts.

Cryptocurrencies currently are not for the average person and have few uses for people outside of special jobs and hobbies.

Tyler Hatfield has a passion for technology that he would like to someday turn into his own business. He runs a small media group, hatsmediagroup.com, and works on computers on the side. He can be contacted with questions and for recommendations at hatsmediagroup@gmail.com