Cryptocurrency: What is it, and why is everyone talking about it?
Jai Malik - February 22, 2022
Introduction
Imagine a world in the future where everything is digital. Not only that, but everything is far more efficient than the present. In this world, individuals are able to make their own financial decisions as they choose in a collaborative structure. The ideals of a great society combined with a stable system based on proof and security. Seems far-fetched, doesn’t it? Well, a quickly developing technology called cryptocurrency, which, chances are you may have already heard of, has the potential to paint this world into reality. Since the first cryptocurrency, Bitcoin was created in 2008 by a person or group under the name of Satoshi Nakamoto, both its popularity and value skyrocketed! In fact, that very same cryptocurrency hit a 1 trillion dollar market capitalization in February 2021 (CNBC)! Cryptocurrency is a relatively new technology many people are using for a more secure form of peer-to-peer transactions that is revolutionizing many parts of the internet which has many differences (and benefits) over traditional currencies. So, how does this technology work, and why is it so important?
What is cryptocurrency?
First of all, cryptocurrency, like any other regular currency, is a medium of exchange. You can use it to buy goods and services (wherever it’s accepted), and there’s a vast community of people investing in the range of cryptocurrencies that exist today. Even so, there’s a lot more to it than what appears on screen, which makes the technology much more interesting and complex. This medium of exchange is digital, secure, and decentralized, making it appealing to people - it’s not owned by a mass body, and transactions are based on proof rather than trust. Due to the way everything is verified, you can be confident in what you own and the value it holds. Therefore, this sets it apart from normal currencies which are government-regulated and can be left without any value as the looks on the currency are changed, or a new bill is introduced while another is removed. Instead, tasks are managed and broadly distributed among users of the cryptocurrency via the internet. As different as the thousands of cryptocurrencies are, all are based on a technology called the blockchain.
A blockchain is an open and distributed ledger that records transactions in code. It’s almost like a checkbook that’s distributed across tons of computers worldwide. Transactions are recorded in “blocks” that are all connected on a “chain,” which is why it’s called a blockchain. “Imagine a book where you write down everything you spend money on each day,” says Buchi Okoro, the CEO of African cryptocurrency exchange Quidax. “Each page is similar to a block, and the entire book, a group of pages, is a blockchain.” To prevent fraud or illegal activity, each transaction method is validated using one of two main techniques: proof of work (PoW), or proof of stake (PoS). For PoW, each participating computer, or miner, solves a mathematical puzzle which helps verify a group of transactions, or a block, then adds them to the blockchain ledger, hence completing the transactions. It’s almost like a rubix cube. The first computer to do so is rewarded in cryptocurrency. PoS is much less energy intensive, where in a raffle system someone is chosen to validate a transaction based on how much cryptocurrency they’ve staked. Both are good in their own ways, and use consensus mechanisms to make sure hackers can’t break the system. Only when a single person gains access to 51% of the ledgers to match their fraudulent version will it actually be correct. Something like this occurring is unlikely, especially with the sheer amount of computers today. (Forbes) This makes cryptocurrency secure, efficient, and advanced. To summarize, the technical features of cryptocurrency and its technology are what sets it apart from anything else available to a user. Thanks to the blockchain and code, transactions can be done in a more secure fashion. Also, with the normal capabilities of the internet there’s much more versatility in what both consumers and producers can do. The collaboration elements, fair technology, stable transactions, and platform are all things which define cryptocurrency.
What can cryptocurrency do?
In addition to the capabilities of cryptocurrency, people are actually using it in a plethora of ways to truly take advantage of them, and integrate the technology further into our everyday lives. Two of the most well-known cryptocurrencies are Bitcoin and Ethereum, which are almost the fundamental layer of many cryptocurrencies and blockchain structures. Not only that, but some cryptocurrency tokens have been developed for a specific niche. Some examples of these are the Pi Network, a new cryptocurrency which allows people to use it and even mine it entirely from a mobile device developed by Stanford graduates, Solana - a cryptocurrency based on a new blockchain to make everything efficient, and allow for apps to be built on top of it, and even “meme coins” made entirely as a joke such as Dogecoin or Shiba Inu.
At this point, it’s almost as though individual businesses are being developed on cryptocurrency/the blockchain, with new ideas being brought to the table and exponentially growing the community. One demonstration of this is non-fungible tokens (NFTs). These are digital collectibles people buy, which are almost like virtual sports cards or video game items. They can be exchanged freely, and because it’s based on the blockchain just like cryptocurrency, authenticity can be verified. People buy these either to make money, or even just to show to others as a status symbol in the same way you would buy designer clothing - even if that same image can be screenshotted. The actual proof that they own the image is what values these NFTs. Did you know that one of the first few NFTs sold for 69 million dollars? (NYT) This, combined with other wild sales and trading volume demonstrates the market there is for cryptocurrency and things connected to it. Cryptocurrency is also being recognized in a variety of ways. In June of 2021, El Salvador passed a new law to adopt bitcoin as legal currency, becoming the first country to do this. This law allows bitcoin to be used as payments for goods and services, and even taxes. Businesses can price their goods in cryptocurrency, and exchanges won’t be subject to capital gains tax (CNBC). President Joe Biden even signed a bill into law recognizing these forms of cryptocurrency use, making digital assets such as cryptocurrency and NFTs taxable (CNBC).
In terms of general usefulness, cryptocurrency can do many things normal currencies do and more. Because of this, many large companies, including Tesla, Square, and Microstrategy are beginning to use their balance sheets to buy into cryptocurrency, as well as integrate it into their platforms. Major institutional investors and other corporations are beginning to support this leap into the metaverse, due to its major use cases and the appeal it has to a variety of groups. It’s clear that all cryptocurrencies can be used for a variety of different purposes. In a future society where everything is built around efficiency while still allowing for diversity and creativity, this technology will only supplement the change. Cryptocurrency is beginning to grow as a modern solution to a modern society, and this is why it holds much importance.
Why is cryptocurrency so important?
Speaking of importance, there’s many examples of how cryptocurrency as a whole is on the rise because of its benefits. The COVID-19 pandemic changed daily life in a variety of ways, from the increased use of technology to the way people communicate. Cryptocurrency is also something the pandemic impacted, which could be the reason behind why people are talking about it. Video calls and virtual classes weren’t the only big thing changed by cryptocurrency. That being said, how many times have you bought something online in the past few months? Most likely, that number could be quite high! That’s right: cryptocurrency is helping digitalize transactions and help the transition between the physical world to technology flow. Many people agree now that technology is a major part of the future. Another example of this is a survey from cryptocurrency website Coindesk that shows bitcoin investors in the U.S rose to 32 million, up 11 million from last year’s 21 million, and almost half of the respondents said they believe digital currencies would become mainstream by the end of the decade. The survey demonstrates many investors and even experts consider cryptocurrency to be the new mainstream.
The traction cryptocurrency is gaining even led to social media company Facebook to change its name to Meta in a recent announcement from billionaire and CEO of the company, Mark Zuckerberg. It’s often quite rare for companies to change their name, especially when the brand has already been established in a certain market. A lot of what’s been happening on a major scale, such as name changes, transactions, and other means of popularizations have recently been trickling down to an everyday level. These results show how many people are talking about cryptocurrency as a whole. Especially with the rise of the internet in recent years, many agree it’s an important subject with everything being enhanced by technology in one way or another. Also, with the pandemic making this develop even quicker, the results are scaled as well. Nowadays, there are a vast variety of tools, groups, forums, servers, and so much more that have helped the technology spread. To summarize, because of the development in recent years of cryptocurrency, combined with the rise in its use, the natural public reaction is of course, everyone is talking about this. From headlines on Wall Street to simple discussions with friends, there are many different ways the information is spreading quickly.
In conclusion, cryptocurrency is an intricate, rapidly developing technology that combines the benefits of traditional currency with the internet. Because of the use cases, security, and benefits, cryptocurrency appeals to many. Now that you’ve learned about this technology, take some time to consider what you as a person can do with it. Take some time to research it more, code something of your own, try out something new - it doesn’t matter what. The point here is that many people are discussing the possibilities of crypto and how it can make a huge impact on society. It unlocks the potential for you to help build new things, because there’s almost no doubt about it now: Cryptocurrency could very well be our future!
