About 4 years ago, a close friend of mine approached me with an enlightening introduction to the ever-growing popular topic of Bitcoin and cryptocurrencies. He mentioned that he had learned about this technology through his neighbor, who appeared to be a bit of a wiz on the topic, and that I should really dive in before this information became too mainstream. He then proceeded to tell me that what we were looking at was a high risk high reward investment and that once involved, we would need to let our money sit for a minimum of 5 years in order to see a decent return.
I’m going to be honest. At the time, investing was not my forte. And to be real honest, it seems neither was researching, because all I heard was “high reward” and I was sold. I didn’t rush home and buy Bitcoin that day (my funds were somewhat limited at the time), but in the few months following that conversation, I decided to invest a small amount into Bitcoin and just let it be.
I think now is a good time to note, I am not a Bitcoin millionaire. I do not hold a large amount of Bitcoin, as I mentioned, my funds were rather limited at the time of my initial investment. However, I am invested, so I may have a bias when I speak to the magnificence of this cryptocurrency, and others like it.
With that being said, I’m sure most everyone at this point has heard of Bitcoin or some other Cryptocurrency (most likely Ethereum, Litecoin, Ripple, Etc.), but I’m not convinced that the majority of the population actually knows what it is.
What Is A Cryptocurrency?
Simply put, A cryptocurrency is an anonymous message that is protected by cryptography and kept honest and true by blockchain technology.
Doesn’t seem so simple at first? Stick with me a moment…
Different coins, ie Bitcoin, Ethereum, Litecoin, send different types of messages. Bitcoin does really well at sending large messages that may take longer to arrive whereas, Litecoin, for instance, is better at sending smaller messages that will arrive at a quicker rate.
These messages are in effect, transactions. And these transactions are available for everyone to see. For example, someone begins a transaction, let’s call him Santa, that states “I will pay Jesse 100 Bitcoins.” I send Santa my anonymous public address (used only for receiving payments) and Santa in turn, sends me the 100 Bitcoins. Now available for the public to see is the message, or transaction, stating Santa paid Jesse 100 Bitcoins.
These messages are encrypted (digitally secured) and then verified that they are true and correct by a community of “miners”. When a miner verifies that a message is correct, ie. Santa did indeed have 100 Bitcoins available to spend and Santa did indeed send those 100 Bitcoins to Jesse, the majority of other miners on the network then must agree that the original miner who verified the transaction is telling the truth about the correctness of the transaction. Once verified, that message is then placed into the blockchain, further extending the ledger.
Each new transaction warrants another miner to verify the correctness and again, add that transaction to the blockchain. In all probability, a new honest block, will only be created if the previous block in the chain was also correct. So, with that deduction, we can assume that the older the message in the blockchain, the more true and correct that message is, and it is nearly impossible to go back to a previous block and make an alteration without completely polluting every other ensuing block in the chain.
Are you still with me? Blockchain technology deserves an entire article in itself (probably multiple articles) so I won’t dig in to that too much just yet. However, let me attempt to break down the idea of cryptocurrency usage on a slightly more elementary level.
Let’s look at the common analogy of going to a token arcade. You first enter into the arcade holding your government issued fiat currency. However, you must convert that currency into tokens in order to play any of the games in the arcade. Once converted, you now have tokens and are able to participate in playing any arcade game of your choosing.
When it boils down to it, that is essentially what cryptocurrencies are used for. They are tokens that allow an individual to participate in activities that require a cryptocurrency.
So what we have so far — cryptocurrencies are a series of anonymous transactions or messages, that are protected by cryptography (digitally secured) and verified in a public ledger, by a community, to ensure that all transactions are true and valid.
Why Do We Need Cryptocurrencies?
As mentioned above, cryptocurrencies are anonymous and are maintained and verified by a community. What this means is that cryptocurrencies can run completely independent of any centralized governing authority. In other words, cryptocurrencies are decentralized. Let’s go back to Bitcoin for a moment. Just like gold, there is a limited supply and the government does not control the appreciation or depreciation of the commodity. But unlike gold, Bitcoin is easy to transport and convenient to use. For this reason, Bitcoin is essentially, digital gold. This makes for one of the major benefits of cryptocurrencies — in a Bitcoin run world, no longer would governments self inflicted currency depreciation remain a serious threat. Furthermore, this calls for a greater accountability and responsibility in how government currency is managed and maintained. And I think we can all agree, demanding increased accountability from our governments and our banks is never a bad thing.
Additionally, to extend briefly on the topic of convenience. Not only am I able to make any payment digitally (mobile, desktop, etc.), but on top of that, I am able to subdivide a payment to a greater decimal than I ever could with a fiat currency. Making payments easily and more accurately divisible.
This is not an exhaustive list, but the final point I will mention as to why cryptocurrencies are necessary is for the purpose of security. I touched on this momentarily above, but I will elaborate just a bit further. The concept fueling cryptocurrencies seems backwards. It is essentially saying, in order to keep a secure and more accurate ledger of payments, rather than just giving a single ledger to one trusted third party in order to manage, we are instead going to give a copy of the ledger to the whole community, that way anyone at any time can see the extensive list of ongoing transactions and these transactions can be verified by any individual. This is a shift in trust and ultimately a shift in power.
To Conclude…
Bitcoin is a cryptocurrency. A cryptocurrency is a series of digitally secured messages, or transactions, that is kept on a public ledger, and kept true and honest by having each transaction verified by miners and then solidified in the blockchain. The blockchain is the running list of transactions that have taken place on the cryptocurrency’s network and one can assume, that the further back in the blockchain a transaction is, the more true and incorruptible it is.
I wanted to keep this somewhat short and succinct, not getting into too much detail (I left A LOT out), because I think it’s much better to tackle this gigantic monster of a topic in small sections with specific articles.
Please feel free to reach out to me with any specific questions or leave them in the comments section below!
I hope you enjoyed my first Steemit post :)
A shame you’re not around anymore, this is a great article.