What’s All the Hype About Bitcoin and Cryptocurrency? Completely Explained

bitcoin
pic credit: Pixabay

“Are you paying by cash or card?” We hear that question so often, we answer it without a second thought – after all, what’s to think about? The basic distinction between money in your pocket and money in the bank seems obvious enough. But that’s exactly why it might feel surprised to be given a third option: cash, card, or… cryptocurrency?

For over a decade, ‘crypto’ has been making headlines and causing controversy. And not without good reason. The meteoric rise of this mysterious ‘internet currency’ threatens seismic disruptions to our relationship with money, impacting how we spend, save, and do business. But to appreciate why that is, and where this whole thing started…

let’s get… a pizza. We’re in my favorite restaurant; I’ve ordered, and it’s time to pay. Cash? Or card? Cash is simple enough – I hand over money, I get a meal – but by debit or credit card, things get a little more complicated. Essentially: the payment terminal sends a message to my bank, who opens a spreadsheet and checks there’s enough money in the column by my name. If so, they transfer the right amount into the column by the restaurant’s name, taking a small cut for their trouble. The bank gives the thumbs-up, and I get my cheesy prize.

This system has worked well for a long time, but since the internet has made exchanging data much easier, some have started questioning the banks’ role here.

Do we really need someone overseeing our money and transactions? Isn’t there a better, smarter, digital way of doing things?

Well, for a long time… No. Because of a problem is known as “Double Spending”. The difficulty stems from the difference between physical objects and digital files. Imagine I have a painting: I hand it to you – now you have that painting. But if I email you a jpg of a painting, we both have that jpg, which is really just a ‘set of instructions’ showing software how to assemble an image of a painting. All I did was send you a duplicate of those instructions.

This system is great for most things, but not for money: If I could buy something, then copy the money I just used to buy something else – “double spending” it – then money would become meaningless. So the bank’s role in my pizza purchase isn’t just to transfer the funds, it’s to provide trust: To guarantee that I really have the money and that I’m handing it over. And for the most part, people have been happy with this arrangement.

That is, until 2008 when America’s subprime mortgage crisis threw many countries into recession. With economies tanking the world over, people’s trust in financial institutions took a serious hit, and as a result, the time felt ripe for new ideas. In the midst of this economic meltdown, as if by magic, one arrived. In October 2008, a whitepaper began circulating online describing Bitcoin: a digital cash system that functions without the need for a bank.

Instead, it uses blockchain technology: a way of preserving information in a series of publicly shared yet tamper-proof files. That may sound complicated but because it makes the record of transactions transparent, the blockchain prevents double-spending. With that problem solved, and the Great Recession raging, many saw Bitcoin as paving the way to a world where they could take back control of their money from the financial system that had so spectacularly failed.

Nineteen months later, in May 2010, the first Bitcoin purchase took place: 10,000 BTC, paid… for two pizzas. Since then, the value of Bitcoin has grown enormously: at the time, 10,000 BTC was about forty dollars; by November twenty twenty-one, this had ballooned to almost 650 million dollars. But it hasn’t been smooth sailing:

There have been major instances of hacking and theft, high-profile endorsements, and disavowals. El Salvador has made Bitcoin legal tender, while other countries have banned it, creating their own state-run alternatives. Cryptocurrencies have become popular with organized crime rings, and the carbon footprint of mining – the process of generating new currency – has been estimated to equal national economies the size of Argentina’s – and that’s just for Bitcoin – one of more than 10,000 cryptocurrencies in existence as of early 2022.

Throughout all this, some economists have maintained that a self-regulated currency is a “dangerous illusion”, insisting the crypto bubble will eventually burst, and leave investors looking for someone to blame. So, who was the mastermind behind Bitcoin? The original paper was authored by “Satoshi Nakamoto”, who… is a mystery.

Various names have been associated with the shadowy figure, and several people have claimed to be behind the pseudonym, but nothing has been proved conclusively. It’s not even clear that Nakamoto is a single person: it could be a moniker for a group. Over a decade later, we still don’t know for sure, adding intrigue to an already dramatic and contentious tale.

Ultimately, however, we might feel about cryptocurrency, the problems it was designed to address are as real and worth acknowledging as those it’s created. Digital technologies are revolutionizing every aspect of our lives, and there’s no reason money should be exempt – but that doesn’t mean throwing caution to the wind. Until we see how this technology evolves, and how the crypto community deals with the valid criticisms it faces, it remains to be seen whether Nakamoto’s invention will change the world, or leave it short-changed.

Also Read:

10 Things to Think About Before Investing in Cryptocurrencies

The Top 10 Most Trending Crypto Right Now 2022

Leave a Reply

Your email address will not be published.