Hold on, Dorothy; Kansas is about to go bye-bye.
Disclaimer/What is this?
This is a compendium, a summation, a compilation (and a number of other synonyms of "I looked up things on the Internet and now I'm going to write about them").
The aim of this is to provide a very broad (and likely superficial) overview of Cryptocurrency, to those with little to no knowledge of cryptocurrency. If you've already got an account on Pub0x and spent any time reading posts here, you're probably not the intended target audience. (You'll likely grow bored rather quickly, which is fine. When you do, you're highly encouraged to branch off to find cryptocurrencies and/or projects you like and do your own research AKA DYOR.) However, you probably know someone (or a few thereof) you'd like to bring onboard the crypto bus/train and are having difficulty getting the benefits and wonders of this technology across to them. To the extent that is possible, this piece endeavours to stay away from fintech and technical jargon that could overwhelm (or bore) those not already familiar with it. The focus here is on technology, not finance. Maybe it will help you out, but I make no guarantees. After all, you can take a horse to water, but you can't make it drink. Not everyone is going to like it. That's their loss, in my opinion.
The author is by no means an expert on the subject, merely an enthusiastic proponent with a passion for crypto and a desire to share knowledge (albeit limited). I'll do my best to keep this factual, but it may very well be influenced by my opinion.
Think of this as a condensation/distillation of the relevant parts of extensively-read project/software documentation, to highlight only the important/relevant ones to laymen.
Etymology of "Cryptocurrency"
- The suffix "crypto-" is the English aproximation of the ancient Greek kryptos (???????), which means "concealed", "hidden" or "secret".
- Currency is a mechanism/medium/vehicle for value exchange, etc.
- There's a little more to cryptocurrency than just secrecy and use as money. If you're reading this, you've probably at least heard of (if not know a little about) Bitcoin, Ethereum or one of ten thousand or so cryptocurrencies.
In "cryptocurrency", "crypto" refers to "cryptography", the underlying science/technology on which it relies: taking a piece of data, encrypting it through the use of a cipher and key, then sending it to a remote recipient (whom may be able to decrypt it with the same/derived key), all with the peace of mind that it won't be decipherable to a bad actor whom intercepts it. (That's an oversimplification of the theory, anyway. If you're interested in learning more about cryptography, I've posted some an introductory tutorial in several parts on this blog. However, such knowledge isn't necessary to follow this guide, or even to make use of cryptocurrency.) The use of cryptography, in various forms, dates back to a pre-Hellenic and ancient Egyptian period in human history. The difference between then and now is a progression in technology that makes it possible to use more complex and more efficient ciphers. The modern era of cryptography got its start with Alan Turing and the Enigma machine 9which decrypted Nazi Germany's messages faster than the keys could be changed, a major step for military intelligence technology.)
Cryptocurrency makes use of cryptography software/technology in order to provide security for exchanges/transactions. (It does in theory, anyway. The algorithms themselves aren't vulnerable to hacks, the online Websites providing facilities for exchanges are/were.) It's certainly better for online/international transfers of funds than the traditional fiat finance (TradFi) way of doing things if you keep your wits about you.
A Very Short History of Bitcoin, the First Popular Cryptocurrency
The idea of a decentralised network for exchanging/transfering a store of value is as old as cypherpunk culture/ideology (and one of its aims). At least ten years before Bitcoin came into existence, various proposals for how to make such a thing workable existed in the cypherpunk space. (Some even had implementations.) The difference is that Bitcoin (and the cryptocurrencies that followed it) took those ideas and improved upon them.
From the "History" section of the Wikipedia article on Bitcoin (accessed on 2023-02-23 @ 15:16 GMT +02:00):
"On 18 August 2008, the domain name "bitcoin.org" was registered. Later that year, on 31 October, a link to a paper authored by Satoshi Nakamoto titled "Bitcoin: A Peer-to-Peer Electronic Cash System" was posted to a cryptography mailing list. This paper detailed methods of using a peer-to-peer network to generate what was described as "a system for electronic transactions without relying on trust". On 3 January 2009, the Bitcoin network came into existence with Satoshi Nakamoto mining the genesis block (block number 0) of Bitcoin, which had a reward of 50 Bitcoins."
We wish we had that much, right? Hindsight is almost always 20-20, though ...
A Small Explanation
"Satoshi Nakamoto" is the alias of the creators of the Bitcoin Whitepaper, the famous technical document that details Bitcoin's functionalities, objectives (which are both political and technical) and so on. (Lexical analysis of the document leans heavily towards the conclusion that it was created by multiple people, rather than just one.) All cryptocurrency projects that wish to be taken seriously should have a whitepaper; lack of one is very often a key sign of sign of an illegitimate/scam operation.
"Peer-to-peer" is a networking term that means "from one (or more) individual(s) to another (whether people or devices) without the need to pass through a single centralized connecting device/hub". (That last part is important.)
The Importance of Bitcoin and Ethereum
Bitcoin (BTC) and Ethereum (ETH) are important in the cryptosphere (the realm of cryptocurrencies and related technologies) because they are the first two cryptocurrencies, on which almost all others are based in some way. However, being the first iterations of the technology, they are subject to a number of technological flaws (such as transaction speed, price and privacy) on which later cryptocurrencies try to improve. While these two are not the only cryptocurrencies (of which there are at least ten thousand), they are the ones most commonly considered/discussed in educational material and tutorials about/on cryptocurrencies (so much so that "Bitcoin" is often conflated with "cryptocurrency", especially by those ignorant of the cryptosphere).
A Brief Introduction to Blockchain Technology
As the term implies, a blockchain is a chain of blocks (chunks of encrypted data). These blocks hold data relevant to the functioning of a particular cryptocurrency's network, in an immutable chronological and sequential manner. I'm not going to go into the finer details of how this works (because it is complex and I don't completely understand it myself; "it just works").
This topic is the subject of large textbooks (including on specific blockchains; O'Reilly has published some good ones). I cannot hope to do it justice here, merely to introduce the concept thereof.
In short, Bitcoin (and by extension, many cryptocurrencies) work like this:
- A network of computers exists and communicates. They compile and share transaction data, through the use of cryptographic functions (solving mathematical problems)
- Once a computer has enough transaction data for a block, it will bundle it into one and upload that to the blockchain, thus causing it to grow.
- The wallet associated with that computer often receives a reward (Bitcoin) for its efforts. Therer may also be transaction fees involved
To give an example:
- Bob sends 1 BTC (or, more likely, a fraction thereof) to Alice.
- George's computer, which runs a certain piece of software that designates it as a "node" in the BTC network, receives a "note" that Bob sent an amount of BTC to Alice. It stores this in a block.
- Once George's computer has a sufficient number of notes to complete a block, some complicated mathematics is done to prevent fraud/forgery (the "double spend" problem). This has a cost, which is paid for by Bob (and everyone else whom sends cryptocurrency).
- If the checks pass, the block is uploaded onto the blockchain.
- The amount of BTC that Bob sent to Alice is sent to her and the processing fee owed to George for running a node is sent to him.
The topic of blockchains (including their workings and how to develop them, which isn't covered here) is more complicated than that gross oversimplification implies. The topics of mining (finding/solving blocks) and staking (lending out cryptocurrencies, in the hope of receiving interest) are not covered here, since there are ample tutorials in existence (often on the Websites of organisations that provide such services). Pub0x itself is certainly a wealth of such tutorials and advocacy therefore (although the clarity/quality of such varies widely; your mileage may vary).
That's all for now. In the second part, I'll cover the role/use of keys in cryptocurrency transactions and wallet addresses. Before then, you might want to read through my introductory cryptography posts (particularly those concerning keys and asymmetric encryption). Non-fungible tokens (NFTs) also get a brief mention.
Post thumbnail: Photo by Roger Brown on Pexels
