What Is Cryptocurrency?
Cryptocurrency has been a popular topic of discussion for several years. However, at the end of 2017, with bitcoin futures trading beginning on the Chicago Board Options Exchange and Chicago Mercantile Exchange, the conversation has seemed to reach a fever pitch. But what is cryptocurrency? And what’s behind it’s meteoric rise?
Like money, a cryptocurrency is a medium of exchange. However, the cryptocurrency is virtual or digital, meaning that there is no physical coin or bill that owners of the currency possess. The “crypto-“ part of its name comes from the fact that it uses cryptography to secure and verify transactions. Additionally, a common characteristic of many cryptocurrencies is their decentralized nature: Whereas typical currencies are issued from a central bank, cryptocurrencies cut out the middlemen as a peer-to-peer system. This decentralization is touted as one its principal benefits, as it might increase transaction speed and let users avoid fees charged by banks and other more traditional financial institutions.
What Is Bitcoin?
Bitcoin, which was created in 2009, is credited as the first decentralized cryptocurrency. It’s also the first cryptocurrency to have its futures traded on a major exchange. Holders of Bitcoin are able to use it just like any other currency at thousands of vendors, including Overstock and Subway.
Bitcoin, though, has garnered widespread attention not only for its increase in popularity as a digital currency, but also for what is perhaps its biggest innovation: blockchain.
What’s Behind Bitcoin: Blockchain Technology
In the most basic terms, blockchain is a type of digitized and public ledger. Bicoin uses blockchain technology to maintain information on how much Bitcoin is owned and who owns it. Rather than possessing physical currency, or even a digital file that’s representative of the currency, individuals have a claim to a piece of information contained in the blockchain ledger.
So when a Bitcoin transaction is made, the currency is transferred between parties as a block of information that gets added to the historical chain of transaction data. This “ledger” is a public file—anyone can download a copy of it. Individual’s identities are encrypted, however, and this feature of the technology is among the many reasons it is so highly touted.
Just as Bitcoin and cryptocurrencies are gaining in stature, blockchain is expected emerge as an important technology with a wide array of potential applications, too. Blockchain could be used in everything from expedited transfer of title in real estate sales to international transactions—not to mention those that haven’t even been thought of yet.
So while the outlook for both cryptocurrencies and blockchain aren’t entirely well defined and the concepts may initially be difficult to grasp, one thing is likely: consumers of all stripes can be sure that these technologies will likely impact the financial futures of consumers of all stripes in the years to come.