If you were paying any attention to rumblings in the payments industry in the mid-2000s, you probably heard someone say the words “Bitcoin,” “cryptocurrency” or “blockchain.” Following these utterances, you probably met the stare of the person talking to you with either a blank look or a look of skepticism, as you probably connected these terms with the dark web and nefarious purchases.
Now, cryptocurrency, and Bitcoin in particular, is becoming more mainstream – even if many Americans are still confused by the mysterious world of digital currencies. Many skeptics consider digital currency to be a speculative bubble. Some consider cryptocurrency to be the future of payment processing. Either way, let’s hop into the discussion to explain what exactly cryptocurrency is and why it should matter to you.
What is a cryptocurrency?
Cryptocurrency is the general name given to represent different digital coins. Many people are most familiar with Bitcoin, but there are various altcoins that compete with Bitcoin in different ways. Ethereum, Ripple and Litecoin are some major altcoins you may have heard of (but there are others in the market).
Ethereum, Ripple and Litecoin operate a bit differently from Bitcoin. Bitcoin operates off a blockchain, which essentially is a digital ledger of all transactions that occur with the specified cryptocurrency. To put it really simply, the blockchain is managed by ledger-keepers, who are also called “miners.”
While trying to explain the inner-workings of blockchain gets super technical (just think really, really big computers with lots of processing power), just know the ledger-holders must all agree on any changes to the blockchain for every transaction. This keeps everything (the ledger, your transactions and so on.) accurate and secure. For Bitcoin miners, they can earn a specific number of Bitcoin just by keeping track of the transactions that occur – also commonly called “mining.”
How does cryptocurrency work (and why do people like it)?
Cryptocurrency is founded off the idea of decentralization. Unlike most payment options to-date, cryptocurrency has no general need for the intermediary, i.e. the banking system. This intermediary system has been integral in maintaining the integrity of our monetary system.
Banks, especially when it comes to digital transactions such as stocks and non-cash transactions, help validate transactions. This is especially helpful in preventing “double-spending” in which a transaction is replicated, primarily through error or from a matter of hacking. The claim that Bitcoin makes, however, that that the blockchain system is more secure than any banking system, processes transactions faster than any bank can dream and gives the transactional authority back to the person who holds the money.
Cryptocurrency in its essence is a peer-to-peer method of transacting business – and it’s for this reason that cryptocurrency got a bad rap in some circles. People who have been in-the-know about cryptocurrency remember the coins being used to fund dark web transactions and other (sometimes illegal) enterprises. No longer is this the main use case, however. Now, people who own Bitcoin and other altcoins can use their money to purchase items found on the common market (just see how this guy purchased a Tesla Model S with only 81 bitcoin).
Whether you believe that cryptocurrency is just a flash in the pan of the payments industry, or you believe cryptocurrency to be the future of our global economy, most can agree that it’s an exciting time to witness the volatility and growth of these digital markets.