Crypto currency is digital cash. You may be thinking digital cash is nothing new, our current system of exchanging money uses mostly digital transactions, we all use cards or phones to transfer money. But while that system is digital, it isn’t cash. It consists of numbers stored in a database of a financial institution, and you have to ask their permission to open an account, and transfer the money.
If you have cash in your wallet, you can give it directly to someone else, you don’t need permission from anyone to exchange it for a product or service. And as long as you keep your wallet secure, you know it will be there when you want to withdraw it.
When Bitcoin was created in 2008 it was described as: “A purely peer-to-peer version of electronic cash which would allow online payments to be sent directly from one party to another without going through a financial institution.”
Even though our centralised digital money seems the same on the surface, it’s what goes on behind the scenes that makes crypto currency totally different to the banking system we have now. With our current centralised banking system, if you want to send money to someone, you first need to open a bank account, then instruct your bank to make the payment, then your bank makes sure you have the funds in your account, and then they transfer your money to the other bank.
But with cryptocurrency, there is no centralised authority, the middle man is removed from the transaction. Cryptocurrency is a decentralised system. When you make a transaction, you send money directly from your digital wallet to someone else’s wallet. It’s a peer to peer system which can send and receive money anywhere in the world, almost instantly.
You are your own bank, you’re in control of your information and your money. You don’t need to trust a third party with your personal information. You don’t need to trust anyone else to send or receive your money. And you never need to trust a bank to give you the money when you ask for it.
Instead of trusting a third party with your money and your personal information, your wallet is secured by digital encryption techniques that are close to impossible to hack. It is this system of encryption that gives crypto currency its name. And instead of requiring a central authority to record and confirm all the transactions, they are recorded on a public digital LEDGER called the blockchain.
What is the blockchain?
The blockchain is the technology behind cryptocurrencies. The block chain is a public digital ledger. A ledger is a record of transactions. Originally a ledger was recorded on paper, each transaction was a line on a page and a running balance was kept. A series of those pages was called a ledger.
The block chain follows the same principle, each block is like a page in the ledger recording a number of transactions following each other. And each block is placed in a chain. Just as one page followed another in a ledger, on the block chain one block follows another.
But if there are no centralised banks, who updates the digital ledger when someone transfers money in or out of their wallet? This is done by a network of decentralised computers. When a transaction is initiated and money is sent from a wallet, the transaction is broadcast to a network of decentralised computers. The network consists of computers all around the world and each computer is called a node.
The nodes validate the transaction using algorithms and then securely record the transaction as a series of letters and numbers called a hash. Each hash is linked to the previous one so any unauthorised changes will become apparent when the next hash is added. When a certain number of hashes are reached, they are converted into a block, and that block is linked to the other existing blocks in a way that is permanent and unalterable, it can’t be removed and it can’t be altered.
And each node has a copy of the chain. Anyone can view the entire history of transactions. The block chain is a transparent public digital ledger that cannot be tampered with. The block chain is a system that doesn’t require you to trust anyone and is impervious to corruption from centralised authorities who hold the power over your money or your personal data.
It’s applications are far reaching. It’s use isn’t restricted to transferring money anywhere in the world directly, quickly and cheaply. It can also remove the need to exchange fiat currency when travelling and is a global currency. It can also can give everyone in the developing world access to the benefits of financial services. It can also protect people’s wealth from government economic mismanagement and corruption.
That is only a few of the benefits of currency based on block chain, there are far more applications. Imagine a social network like Facebook, but the users are in control of their own data. They vote on what data can be collected and what can be done with it. If there is any monetary gain from the sale of that data, it goes directly to the users, not the Board of Directors and shareholders of a centralised company.
While meme coins like Doge get the most media attention, there are a large number of high quality block chain projects developing applications that have potential to benefit ordinary people and give control back to the individual, rather than an elite central authority.
Does that sound like a hustle to you? Or is it a quiet revolution that is already underway, and which has the potential to create more equitable world.
