Using physical money to pay for everyday needs is only part of the story of money – cryptocurrencies are becoming a larger portion of that story. This is because money is much more an idea than a valuable asset. The value of money is in the promise to exchange it for goods, services and financial assets.
The value of money depends on the belief of this exchange “idea”. But this system is evolving. Oftentimes, this idea is abstracted – the concept of money nowadays is more about the exchange of digital information. When talking about the digital economy, a fundamental part of this sector is quickly becoming cryptocurrencies, powered by blockchain, which is an innovation proposed by Satoshi Nakamoto in the bitcoin (BTC) whitepaper back in 2008.
With blockchain technology it is guaranteed that cryptocurrency, like bitcoin, can be spent securely without depending on a third-party like a government or a bank. To achieve this, cryptocurrencies use something called cryptography.
If someone wants to send bitcoin to another party two “keys” are required to conduct this operation. One public key shows that the wallet exists (like a username) and a private key that signs the operation (like a password). It’s possible to share a public key with anyone, it is only the private key that needs to be kept safe because it is used to settle transactions.
Both keys together are used to “sign”transactions into a group of them known as a “block” which contains recent transactions which are then transferred to computers in the network, also called blockchain nodes. Those nodes make calculations to guarantee that this cryptocurrency wasn’t used more than once at the same time. At least six nodes need to be checked and validated. If valid, the transaction is committed, added to the blockchain and propagated across the network. This process is known as cryptocurrency mining.
Mining is very important to cryptocurrency networks. For example, if someone wants to make a fraudulent transaction or try to fake a cryptocurrency, they will need to change all records of at least half of the network and forge the calculations of blocks added after the transaction. In short, for someone to falsify a transaction on the blockchain, they need to have at least more computing power than half of the other nodes.
To encourage people to dedicate processing and electrical power to maintain digital wallets there are fees paid to miners for doing this work. Nevertheless, it can be said that much computing power utilizing the blockchain is wasted. But important transactions can be made by using it. For example, Brazilians working in another country could send money to their families back in Brazil without paying for intermediaries that charge high fees – cryptocurrency could safely eliminate this.
The blockchain can be used as a digital trust protocol for many other things – and that makes it a really exciting technology. Registration, certificates, collective decisions, games and opinion polls can be public and at the same time safe, avoiding numerous frauds, unalterable and without depending on a central authority.
Blockchain is so useful that since 2011, a multitude of cryptocurrencies have been created to serve different purposes. Litecoin (LTC), for example, was made to be faster and cheaper. Zcash (ZEC) was designed to keep transactions private and avoid tracking. Iota is a blockchain that uses less computing power. Ethereum (ETH) and Solana (SOL) are cryptocurrencies that have many uses, such as a virtual machine for programming or serves as a basis for NFTs, which are changing the economy all by themselves.
The value of cryptocurrencies is volatile but blockchain technology is solid. This is just beginning of utilizing its enormous potential.
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