Cryptocurrencies have much more potential than a transaction system of “internet money.” Historically, money was created to enable trade. It documents:
- Who owns what
- Who has what
- Who owes what and to whom
- Governments
- Banks
- Notaries
- Accountants
- Paper money in our wallets
What is the blockchain?
Great question.
The blockchain is a decentralized, open ledger of all transactions across a peer-to-peer network.
Think of this as a bunch of computers (nodes) that maintain collective bookkeeping through the internet. This bookkeeping is public and is not controlled by one party. Instead, it’s distributed across the network as one digital ledger. All transactions are logged and each node on the network owns a full copy of the blockchain.
These transactions are validated by state-of-the-art mathematical hashing algorithms from the computing power of “miners.” The same mathematical principles also ensure that these nodes automatically update and agree on each transaction within the digital ledger. This allows the data quality to be maintained by massive database replication. No centralized, official copy exists and no node/miner is trusted more than another. If anyone tries to corrupt or hack one of the ledgers on a node, the rest of the nodes will not agree and will refuse to record that transaction on the blockchain.
By using blockchain technology as a shared single source of truth, it automates the function of traditional trusted third parties and removes the need for them entirely. Also, being decentralized by definition means it can’t be shut down. We will see more and more adoption and uses for it. This is where we have varying cryptocurrencies emerge all with different technology and problems they solve, all operating on the blockchain.
What are the most prominent tokens in the cryptocurrency space? We'll cover that in Part 2.
Do you have any questions about cryptocurrencies?
What else would you like to know?
Reply in the comments below!