The Future of Money: How Crypto Works

Let’s begin with a quick refresher. Cryptocurrency is a digital system of money in which all transactions are recorded, protected and kept anonymous. It is a currency that has no single governing authority.

What is the tech behind Bitcoin and Crypto?

The basic technology of Bitcoin is Blockchain, which is a type of digital ledger. A ledger is a collection in which account transactions are recorded. Blockchain is basically a record of every instance of buying and selling that is copied and pasted across the entire network of systems. As the name suggests, a blockchain is a chain of blocks, see figure below. Each block contains a number of transactions, and every time a new transaction occurs, a record of that transaction is added to the next-to-be-created block and, then, it can be accessed by every ledger’s participant. This scheme is similar to a database that is controlled by multiple participants and can be referred to as Distributed Ledger Technology.

Why Do Bitcoins Have Value?

Currencies have value because they can function as a store of value and a unit of exchange. Currency is useful if it can maintain its relative value over time. Assigning value to currencies is a matter of debate. Originally, their value came from physical things, like gold, whose value was decided by how difficult it was to extract. In other words, the value of a currency is a measure of its demand and its ability to create trade and business. Bitcoin has a huge value for two reasons. One, it’s a rare thing, with barely any tokens (a single unit of a Bitcoin) coming into circulation, and two, it’s increasing in popularity with more and more communities existing online.

So, there you have it. That’s is an overly simplified description of the tech behind cryptocurrency. In the next installment, I’ll be talking about crypto mining and how you can acquire crypto. I’ll also be going over different types of cryptocurrencies.