For the past couple of years, there’s been a lot of chatter about cryptocurrency. You may have heard of Bitcoin, Ripple, or Litecoin but the cryptocurrency conversation doesn’t end there. With all this talk going on, it’s easy to feel confused or ever feel left out of a significant investment opportunity.
No need to worry, I’ve got you covered!
Generally speaking, cryptocurrency refers to digital money that operates on cryptography. Cryptography is a form of communication that provides privacy and security to the parties involved. Most people have heard about Bitcoin, which at the time of this writing is the highest valued cryptocurrency, but Bitcoin is just one component of the broader cryptocurrency conversation.
In 1982, David Chaum introduced the “blind signature,” a technology that allows users to obtain and spend digital currency anonymously. In 1990, Chaum founded DigiCash which commercialized his idea of anonymous digital transactions. Unfortunately, the company filed for bankruptcy in 1998 and later sold its assets a few years later.
You may be wondering to yourself, “so considering that cryptocurrency has been around for decades, what’s up with all the recent hype?”
Well, the resurgence of cryptocurrency came about with Satoshi Nakamoto’s (still relatively anonymous) creation of Bitcoin, specifically its use of blockchain.
In short, a blockchain is a growing list of records which is secured using cryptography. Cryptography is a form private communication that allows the blockchain to operate without a bank or central server.
If you want to get even techier, this decentralized payment system maintains the security of funds and provides the same record-keeping functionalities as the banks. Each transaction generates a block. The block represents a permanent signature and record of the transaction that is verified collectively by all the nodes connected to the network like in a peer-to-peer system. Kind of like Napster did back in the day with music. Except, this time around it’s not the record labels or retail stores being left out, it’s the banks.
After verification of a transaction, its record is added to the system in the form of a block and series of blocks are formed creating the blockchain. The blockchain is secured and can’t be altered without a consensus from the nodes (i.e., points) on the network.
And in the same way that Napster inspired the creation of other peer-to-peer applications, Bitcoin has done the same with what is now known as “Altcoins,” alternatives to Bitcoin, such as Ripple and Litecoin.
As it relates to finance, blockchain poses a cheaper, more efficient, and secure way to make financial transactions. What makes blockchain technology so exciting is its ability to be applied to much more than digital money such as healthcare, music or any other area that security of records is a top priority.
As you would imagine, there is a lot of speculation that this will be the future form of money. Along with that speculation comes a lot of eager investors looking to capitalize on this opportunity.
Bitcoin has seen its fair share of drops (dropping by more than 60% this year) and will probably continue to be a volatile investment. Despite its performance, digital currency will likely continue to make headlines and timelines as more disruptive technologies emerge.