Cryptocurrency Is All the Rage, But What Is It?
Over the past several months, the value of several crytpocurrencies has skyrocketed and plummeted, causing major gains and losses for some investors and sowing seeds of skepticism among those who don't understand it. If you're one of those who doesn't have a full grasp on how cryptocurrencies work, you're not the only one.
Cryptocurrencies have spiked in popularity in recent years, with many of their investors desiring to get away from currencies that are controlled by central banks (U.S. dollar, Euro, British pound, etc.). These digital currencies offer a decentralized means of exchange, where the value of the currency is set not by a single institution, but by the market itself.
But how exactly does it work? Mark Jamison, scholar of technology and economics, offers an explanation to cryptocurrency in the attached video.
If you own cryptocurrency, or coin, you control some numbers on a ledger that is stored on computers all across the world. The ledger contains all of the transactions that have ever occurred for that cryptocurrency. You control your coin through a wallet, which is really just software used to engage in transactions.
You control your wallet through a private key – a code – that is required to transfer coin from your wallet. Your wallet also has a public key that people use to send coin to you.
A cryptocurrency is completely digital — as if your checking account did not have the option of getting cash from the ATM. Everything is done electronically, through key codes and complex mathematical formulas that encrypt the transactions, so your data and money are secure.
You might be asking if this can be hacked, and all of your money stolen. Cryptocurrencies work in unique ways to thwart hackers.
What keeps someone from changing the ledger and stealing your coin? A technology called Blockchain.
Blockchain incorporates the existing ledger into a code called a hash. If someone tries to steal coin, the hash changes and all the computers that store the ledger cry foul. In fact, every time you engage in a transaction, these computers, called miners, verify the transaction by solving a complex mathematical puzzle that involves the hash.
The inherent complexity of the system is what helps to make it secure.
For more information on how cryptocurrencies like Bitcoin work, click here for recent stories on the subject.
What are your thoughts on cryptocurrency? Are you intrigued by it, or skeptical?