Illustration: Ashley Siebels
Ethereum. Ripple. Dash. No, these aren’t the titles of dystopian novels or proposed names for future Kardashian offspring, along with Bitcoin, these are some of the forms of digital currency that fall under the umbrella term of cryptocurrency.
Crypto-what? On the simplest level, cryptocurrency is “a digital asset used as money which uses cryptography to secure transactions” according to Paul Armstrong, Founder of hereforth.com. So, why are people so fascinated with the new currencies? In the early days of the internet, brands like Flooz and Beanz tried to create new payment methods that circumvented traditional dollars and cents models.
The transparency proposition
Unlike the money we’ve always used, cryptocurrencies aren’t controlled by big banks. So, instead of the Federal Reserve keeping an eye out (or guaranteeing things), cryptocurrency relies on the transparency proposition of something called Blockchain, which ostensibly provides the ability for anyone to monitor the action without the ability for any individual to manipulate or change the process. Or, at least, that’s the premise.
A short Blockchain timeline
“Blockchain’s origin is somewhat steeped in mystery but it is commonly agreed that it first appeared in 2008 and was created by an individual or group that known as Satoshi Nakamoto,” Armstrong explained. (Nakamoto is also credited with creating Bitcoin). “At first, Blockchain was used to create secure transactions for Bitcoin. There are now hundreds of different types of Bitcoin available along with the original Bitcoin.
“While Bitcoin receives the lion-share of coverage (due to volatile market and rising valuation), Blockchain remains the most interesting element thanks to its flexibility and potential to completely alter industries from food traceability to voting, legal contracts to copyright infringement,” Armstrong said.
More about Blockchain
“Blockchain technology enables decentralization,” said Amanda Gutterman, Chief Marketing Officer at ConsenSys. “Cryptocurrencies, like Ether and Bitcoin, are securely exchanged peer-to-peer over a decentralized network of nodes. The infrastructure that maintains the transparent ledger of transactions is not subject to human manipulation and works automatically, without human intervention.”
This means that individuals and groups can “establish a shared source of truth about who owns what and what transactions have been made.”
And it isn’t just about currency. While the first use case of a Blockchain was with Bitcoin, which Gutterman described as “the experiment in monetary theory,” she explained that Blockchain is used with many other types of transactions that happen in a market such as: “land title and document registration, the donation and disbursement of charitable offerings, exchanges between neighbors of solar energy, and the remuneration of artists for their work directly from fans. The list goes on and on.”
Armstrong believes that “Blockchain remains the most interesting element thanks to its flexibility and potential to completely alter industries from food traceability to voting, legal contracts to copyright infringement. The foundational technology (i.e. other things can be built on top of it) is based around trust and accountability — both incredibly powerful attributes that a number of industries are looking to increase due to a variety of factors.”
What about the bad guys?
Some believe cryptocurrencies were originally created by shadowy types to launder monies earned through nefarious activities. Armstrong explained that “Bitcoin is an unregulated and decentralized currency which means bad people can use it to bad things easier than other methods.
“Besides this issue, any money that is not going into the economy and banks, will be seen as a threat by governments and banks (although a lot are investing and exploring the technology) to investments, stocks and stability. There is also the issue of taxation to consider — while every transaction is recorded incomplete transactions are essentially invisible and although rules are being drawn up, right now there is a lot being gotten away with.”
Thumbs down from Buffett
Despite cryptocurrency being worth billions in trade internationally, Berkshire Hathaway CEO Warren Buffet isn’t particularly impressed with it. Buffett recently told CNBC, “In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending.” Buffet also declared the new forms of money to be “a mirage” and explained that it’s simply another way of transmitting money.
Armstrong clarified that the danger of cryptocurrency is “that people lose money because of volatile markets and forces moving within those markets.”
He further explained: “Due to the largely unregulated nature of the new economy and existing large Bitcoin owners (known as ‘Whales’), the Bitcoin markets remain volatile and unpredictable although the trends are going up although many consider Bitcoin a bubble and a system built on nothing.”
The reason to care
For true believers though, Blockchain and its offshoots offer the purest form of currency.
Gutterman said, “Most applications of blockchain technology beyond the sending and storage of money you hear about are being built on the Ethereum platform, and most of the time people say ‘blockchain’ what they really mean is “Ethereum.’
“The reason to care is that Ethereum is changing how control and power work in our world, and putting the user back in charge of his or her data and identity, reputation, assets, and experience of using internet tools and applications. Instead of decisions being made by powerful groups of people in back rooms, decisions on open-source blockchain software are made transparently.”
“The rules of the game are visible to everyone equally,” Gutterman added. “Ethereum is the substrate upon which a world can be built that is more transparent, efficient, and just.”