Demystifying Cryptocurrency: A GUIDE FOR LAWYERS, PART II By Daniel Wood
Introduction
This is the second installment of a three-part series that aims to provide an approachable introduction to cryptocurrency and blockchain technology for attorneys who may have had limited exposure to these concepts, but who want a basic grounding to understand how this complex and evolving technology might affect them and their clients. The technology behind cryptocurrency and blockchain is likely to continue reaching into new sectors, changing the way people and businesses conduct transactions. In Part One, we covered some basic concepts about both cryptocurrency and blockchain, including the history of Bitcoin. For purposes of understanding the topics in this article, the key takeaways from Part One are: • Bitcoin was the first implementation of cryptocurrency and blockchain technology. • A cryptocurrency is a digital token or coin that relies on cryptographic techniques for its security and functionality. • A blockchain is the underlying technological structure on which most cryptocurrencies are based, serving as a peer-to-peer network and a public ledger that records every transaction involving any coins or tokens on the network. • Every computer program (often called a client) connecting to the blockchain becomes part of the peer-to-peer network.
• Each token or coin is a unique string of characters that cannot be duplicated or counterfeited and is associated with a unique address (i.e. a wallet) that represents possession of the token. The blockchain records the transactions such that each peer on the network can see the address associated with a particular token. • The peer-to-peer network collectively performs mathematical calculations to verify the validity of each and every transaction. It is therefore nearly impossible to fake a transaction. • Transactions are essentially processed automatically by the blockchain protocols, removing the need for a trusted intermediary (such as a bank or payment processor) to perform transfers. In this article, we will build on these concepts to explain some of the advancements that have developed in the years since Bitcoin was introduced.
Altcoins
In January 2009, the software that created Bitcoin was released under the pseudonym Satoshi Nakamoto. Satoshi Nakamoto uploaded the software to a free, open-source repository, making the code itself available to everyone. This means that anyone who wishes to do so can download a copy and view the code that comprises the Bitcoin software. Naturally, this eventually led to developers
creating new cryptocurrencies using the Bitcoin code as a blueprint. As early as September 2010, users on an online Bitcoin forum began discussing a hypothetical new coin based on the Bitcoin source code. In April 2011, this new cryptocurrency was launched as Namecoin. Among several innovations brought by Namecoin, it gave us the concept of alternative coins—or altcoins. Literally, altcoins are alternative cryptocurrencies to Bitcoin. Several more altcoins followed closely after Namecoin, but it was not until 2013 that most altcoins began listing on cryptocurrency exchange sites, which caused the most popular ones to gain steam. Today, according to CoinMarketCap.com, there are more than 23,000 cryptocurrencies. Generally, most viable altcoins are attempts to add new functionality or improve upon some aspect of Bitcoin. For example, one of the main purposes behind the creation of Namecoin was the ability to store data within its blockchain— an absolutely crucial and valuable development in the crypto space. However, because the source code for Bitcoin (and now many altcoins as well) is free and easily available, there is virtually no barrier to entry for creating new altcoins. The result is that we have over 23,000 altcoins—and counting!—zipping around the internet. It is safe to say that many altcoins have no practical purpose for most people, and the majority are quite volatile. January–February 2024 | San Antonio Lawyer® 21
