This article, the first of several, gives you a broad view of cryptocurrency from its history to its present use, security, and regulations. Future articles will keep you current with this burgeoning means of exchange for investors, non-profits, and peer-to-peer businesses.
Is cryptocurrency the tech world’s logical successor to paper money? Historically, currencies have evolved to meet the needs of a changing world. Early ancient agrarian societies traded with goats and grains. Centuries later Egyptians and Greeks pounded precious metals into coins carved with identifying information. The Chinese began using paper money about 100 B.C., starting the paper trail to the present. Now, each country supports its paper money with the government’s creditworthiness.
With greater frequency, people leave home without cash except, perhaps, for a $100 bill tucked away for an emergency. Paper currency has been replaced by credit cards, electronic payments, and online banking. But these relatively low-tech innovations require a middle-entity, such as a bank or PayPal. Cryptocurrency uses advanced blockchain technology described as an incorruptible digital ledger of economic transactions. It is transparent, anonymous, and lacks a physical presence.
What is Cryptocurrency and How Does It Work?
According to Investopedia, “cryptocurrency s a digital or virtual currency that uses cryptology for security.” A unique long string of numbers, created algorithmically, identifies each transaction, which is simultaneously registered on a ledger shared by many computers in different locations. Each user has an encrypted account number which also measured in coins, such as a Bitcoin, not tied to the currency of any government. The value is set by the combined buy-and-sell activity of all account holders. Greater activity increases the value and decreased activity reduces the value. The value fluctuation creates investment opportunities.
Proliferating blockchain startups and established organizations are creating new uses for cryptocurrencies, which should enhance their investment allure. As blockchains, virtual currencies fit naturally with peer-to-peer blockchain-anchored organizations wanting to eliminate the middleman. As examples, the United Nations built a blockchain system using cryptocurrency to streamline support distribution to refugees and a UK non-profit has created Mycelia, a musical ecosystem to fairly distribute proceeds from music sales directly to musicians and production people.
Here is an example: Let’s say you win a prize paid to you in Bitcoins. To receive the prize, you must set up a Bitcoin account. You will get an account number. The prize will be transferred in virtual money to your Bitcoin wallet. You find a must-have piece of art for sale at OpenBazaar, a free, online-marketplace which buys and sells using Bitcoin. You transfer the sale price in Bitcoin to the OpenBazaar Bitcoin account. No middleman. No fees.
In addition, an impressive partial list of established companies worldwide from 1-800 Flowers to Zynga accept cryptocurrency.