Why You Shouldn’t be Skeptical About Cryptocurrency

I’m sure by now you are familiar with Bitcoin — a confusing form of so-called “digital currency”. Bitcoin along with thousands of other cryptocurrencies — Ethereum, Ripple, Monero, Dash, Golem (the list goes on) exist in our world today. It is easy to be skeptical about these cryptocurrencies, especially if your understanding of their structure and function is limited.

A cryptocurrency can simply be defined as a form of digital currency that uses advanced forms of cryptography to work. Now I’m sure that you’re wondering what cryptography is, so I will break it down for you.

When a transaction is made (e.g. Alice sends $5 to Bob), this is recorded permanently and publicly on a decentralized ledger called the blockchain. When this transaction occurs, it is hashed (translated into a 64-digit numeric and alphabetic sequence) and stored permanently in a block with many other transactions. Many blocks compose the blockchain.

Now you might be thinking, what about hackers? Hacking the blockchain is nearly impossible due to its mathematical structure. If one small change is made transaction, the entire series of blocks is altered. This is due to the hash of the next block (in the chain) being generated partly from the hash of the last block. Thus, one small change will result in the entire blockchain being altered. Since the blockchain is stored on many different nodes (devices that are connected to the network), this change will be rejected as it does not match the other copies of the blockchain.

Okay, so you now have a general understanding of how a cryptocurrency works. But what’s the point? Who cares?

The technology of creating a fool-proof ledger could not only save billions of dollars in transaction fees, but also prevent fraud, hacking, and other forms of corruption. So maybe Warren Buffet is right when he states “You aren’t investing when you [invest in cryptocurrency], you’re speculating”, however, the underlying technology of cryptocurrency is an incredibly valuable technology which has the potential to revolutionize the way data is stored.