Cryptocurrencies – what’s the hype about?
If you’re reading this, I’m sure you’re just as fascinated by the rising presence of cryptocurrencies as I am. This is my attempt to explain it to you in the simplest possible way – as not knowing the crypto- terminology used in every crypto-related article can be super confusing!
First, lets start with a few terms:
Crypto – Short for cryptography, which means to encrypt (or make something secret).
Cryptocurrency – A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Examples: Bitcoin, Ethereum, Litecoin, etc.
Blockchain – In simplest forms, it’s nothing more than an encrypted logbook of transactions that can be integrated into organizations, or well basically anything. The scary thing? It has the power to disrupt life as we know it through eliminating the middle man (banks, portals, organizations) if done right.
Cryptocurrencies are the result of a blockchain built with a certain purpose. Although blockchain is considered to still be in it’s embryo-phase, there’s already a list of applications ranging from profile verification, financial transactions and information verification. How does the blockchain principle actually work? In actual fact, it’s very simple when explained well.
Blockchain transactions do not take place through one central authority. This eliminates the risk of fraud and the level of integrity of each transaction rises. Around the world there are thousands (could be millions by now) of private computers ready to authorize blockchain transactions. These computers, known as miners, are used to complete, verify and log the “block” of transactions. Each computer uses it’s own computing power, and is rewarded by an x-amount of a certain cryptocurrency applicable to the certain blockchain. This is hopefully starting to make a bit more sense now..
With cryptocurrencies being a decentralized digital currency that can be transferred between peers and confirmed in a public ledger, certain cryptocurrencies are associated with certain transferes of data. Bitcoin was originally created by Satoshi Nakamoto and published his invention in a paper called “Bitcoin: A Peer-to-Peer Electronic Cash System”. The heading basically tells us that Bitcoin is a cryptocurrency related to the financial world. While another cryptocurrency, Ethereum, is a blockchain-based cryptocurrency that uses decentralized computing as a platform for smart contracting (scripting). The list of cryptocurrencies seems to grow by the day, each with a variation of “parent” cryptocurrency on which its foundations are built. Bitcoin has set the trend, however it is unknown which of the “younger” cryptocurrencies have the potential (and legitimacy) to execute scripts on their “White paper” (Basically a document describing the cryptocurrencies policy and application in detail).
Cryptocurrencies do not have any physical values such as commodities like gold or hard-earned cash. On the contrary, cryptocurrencies have value because it is accepted that it has value. People use Bitcoin because other people use Bitcoin. The result? A Crypto-craze that has lead to everyone wanting a piece of the pie as global leaders and business-idols predict the glamorous future of anyone jumping on the bandwagon in these embryo-phases. The real trick, however, is to determine (which at this stage could be called a guess) as to which cryptocurrency will dominate next.
So how would a consumer use cryptocurrencies for their everyday life? There exists various different “wallets”. Many are in the form of an app on your smartphone, with a unique profile code associated with it. To send cryptocurrency, you simply scan a QR code on the other person’s phone or on a product/purchase slip. You can also just read-in the other entity’s unique profile code and almost instantly send them some of your crypto-credit at a small fee (this fee is unique to all transactions, and determined by the wallet provider you choose) To receive, it would work exactly the same.
I actually tested it out, I downloaded a wallet app (Luno) on my cellphone, then created a profile on my computer at another wallet-provider(Blockchain). I made a payment with a Visa card to my Luno account and received credit in Bitcoin. The Bitcoin price fluctuates so much, I lost 10% before I could make a transfer. I sent money to Blockchain and almost instantly I had two wallets with a fraction of a Bitcoin in both. I requested a pay-out and received funds back into my FNB account. The process seemed flawless, except that I lost a few bucks in the process (It was right after Bitcoin caught a dip after China banned crypto-payments on certain goods). Nevertheless, it was super exciting. You’ll see it’s even possible to buy products on Hoorah with your Bitcoin. Upon checkout, you’ll received that QR code that I mentioned to scan.
Well that’s about as far as my knowledge stretches when it comes to cryptocurrencies. I’m sure when we talk about this again, everything will be common knowledge and this post will seem like grade 7 work to a matric. Nevertheless, it’s exciting to follow the progress of blockchain and all it’s inventions!