Every year, the digital world encroaches further into our lives. We don’t hail taxis anymore, we press a button on an app. We don’t put checks in the mail, we just send a quick Venmo. The digital world is very demanding on our bank accounts. Check your online bank statement and you’ll see dozens of “pending” transactions.
The digital world needs a currency designed especially for it, with all of its needs in mind.
That’s the idea of digital currency, virtual currency, or cryptocurrency – being able to buy, sell, and send money online without relying on banks, credit cards, or in-app transfers.
Cryptocurrency is a “Peer-to-Peer Electronic Cash System”. In other words, you don’t have to go through a bank in order to process a transaction. In theory, this makes buying things or sending money far quicker and with fewer (or almost no) fees.
Cryptocurrency is decentralized. This means that there isn’t a controlling party (like a bank) that can interfere or manipulate the currency in any way. Not that you should be worrying about government control of money every day. But on the globalization scale, it’s important.
So, without a bank verifying everyone’s money transfers, how does it work?
How Cryptocurrency Operates
It all starts with what’s called your wallet (I know. Brilliant naming, right?). Your wallet contains your cryptocurrency and a couple of important characteristics: a public key and a private key.
Think of the public key as your “check number”. And the private key as your “digital signature”.
When you declare a transaction, say you want to send two Bitcoin to your friend, this transaction is sent off to the Bitcoin network to be verified by miners – they are the people whose computers are mining cryptocurrency. (Mining cryptocurrency is another story, but just imagine them as the people panning for gold).
Once your transaction reaches the Bitcoin network, the miners’ computers run a whole bunch of cryptographic functions to verify your public and private key, making sure that it is in fact a real transaction.
Forging a transaction is about as difficult as guessing a number (with a computer’s help) between 1 and 115,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000.
Once the Bitcoin network verifies your transaction, the transaction is stamped into the blockchain, which is basically this massive running record of all transactions. Thus, your transfer is complete.
You might be thinking, “Alright. Cool idea. A little over my head. But incredible that somebody made this work. What good does it do me, though?”
What can you do with it, today?
At the moment, cryptocurrencies are mostly investments. If you believe in the underlying values of cryptocurrency and its chance at changing the future, then it’s worth investing in.
It’s quite volatile, though. So, it’s best to not bet your house on this. Rather, it’s more of a risk investment that you probably won’t want to check every day, or you’ll drive yourself crazy.
There are tons of cryptocurrencies out there. Bitcoin, Ethereum, and Litecoin are the main ones.
You can get started by obtaining a wallet at Coinbase. It’s quite intuitive to use and you can be buying, selling, and gifting cryptocurrency in no time.
What can you do with it, tomorrow?
Ideally, cryptocurrency will be used in everyday commerce down the road. Currently, there aren’t many things you can buy with cryptocurrency. Some of the more notable ones are:
- Book a flight on Expedia.com
- Donate to Wikipedia
- Subscribe to Bloomberg.com
- Buy a gift card on Gyft, which can then be used at Whole Foods, CVS, Target, etc…
Eventually, cryptocurrency transfers will be quicker and almost fee-less. This means no more waiting for bank transfers that take three-to-five business days. Or getting gauged by PayPal’s 3.5%.
All in all, who would’ve thought that paper money would get us this far? So how far will cryptocurrency take us? Well, that’s up for discussion.
(Qu Harrison Terry is a “techno-futurist”. This article is provided for informational purposes only. It is not intended as investment advice nor does it reflect the opinion of this publication.)