Even with the constant buzz around bitcoin, ethereum, and other digital currencies, cryptocurrencies, and the revolutionary blockchain technology upon which they are built, remain a mystery to many.
A 2021 survey by Pew Research Center revealed that only 16% of Americans have ever invested in cryptocurrency, despite the hype from crypto investors . This number grew to 31% between 18 and 29, and to 43% for men, compared to 19% for women.
For many others, their skepticism about digital currencies may have stopped them from trying to understand the language and the technology.
However, cryptocurrencies and related technologies can reach into politics and intertwine in the larger economy . This makes it important to be familiar with what cryptocurrencies are and how they work, as well as their potential pitfalls and potential. Here’s a quick overview of blockchain technology and cryptocurrency for those who aren’t familiar.
What is it called “blockchain”?
It can be either depending on the usage. A type of database is called a blockchain. Different blockchains are used to build different cryptocurrencies. Bitcoin is built on top of the bitcoin blockchain, while ether is built upon the ethereum Blockchain. Some tokens or cryptocurrencies are built on top other cryptocurrency blockchains. Many tokens, for example, are built on top of the Ethereum blockchain. However, at their most basic, all cryptocurrencies can be supported by a blockchain.
Refer to the technology as “blockchain” The public ledger system in its entirety is called “the blockchain.”
Blockchains store cryptocurrency transactions in encrypted digital records that are stored on servers around the globe. Developers can use some blockchains to create applications and program contracts. Some blockchains allow developers to create applications and program contracts.
The latest trend in blockchain technology is NFTs (or nonfungible tokens), which are digital items such as images and videos that are protected and stored on the Blockchain. This ensures each item or asset is unique and unchangeable.
Do you think there is a simpler way?
Fundamentally, cryptocurrency is digital money. Blockchain is a digital ledger that records transactions for digital money. This digital currency is not backed by any government.
What is the process of creating cryptocurrencies?
Different cryptocurrencies use different digital architectures (code), so their functionality varies. Let’s take bitcoin as an example. It is “mined.”
Here’s how crypto mining works. A network of computer processors that run on huge amounts of electricity, producing an incredible amount of heat and noise, compete to solve a mathematical problem. These calculations are required to verify bitcoin transactions and record them on the blockchain. The first computer to solve the puzzle wins a newly-minted bitcoin. This is an example of the open-source code that Satoshi Nakamoto created, which was responsible for the launch of bitcoin in 2009.
Participants are encouraged to spend resources, in this case money or electricity, to maintain a record of who has which bitcoins. Read more.
What is the deal with decentralization?
A further feature of the blockchain’s design, is that transactions are publically recorded on multiple computers that form a global network. These computers, or nodes, constantly compare information to verify their accuracy. This is how an error or fake transaction is prevented from being logged.
The open-source nature of blockchain makes it decentralized and free from control. However, governments and large corporations may be able to restrict access to certain digital tokens under certain circumstances. China, for example, banned cryptocurrency trading in September 2021 due to concerns that cryptocurrencies might weaken government control over the financial sector and facilitate crime. Binance, a major cryptocurrency exchange stopped accepting transactions made using certain Russian credit cards. This was in response to Russia’s invasion of Ukraine.
Blockchain is how secure?
Blockchain is considered very difficult to hack by cryptocurrency enthusiasts — that’s why it’s so appealing. However, the security of a blockchain depends on the platform being used.
Although the bitcoin blockchain has not been compromised, ethereum suffered a major crisis in 2016 due to a software vulnerability. Although the ethereum blockchain was not compromised, $50 million worth of ether was stolen.
Many cryptocurrency-related services and technologies have been hacked or simply exploited by their designers to deceive and steal from participants.
The cryptocurrency exchange , where users can trade cryptocurrencies for conventional currencies, have been compromised numerous times. Digital bank robbers have emptied the accounts. In 2018, the CEO of a cryptocurrency trading platform died without remitting a key passcode. This effectively locked out customers of millions of dollars worth of cryptocurrencies.
Consumers have limited options for recovery, whether they are victims of fraud or security breaches or simply forgot their password. The preprogrammed, centralized system does not offer insurance or password reset.
The investments have few protections. Although U.S. prosecutors pursue criminal behavior like false advertising and stealing, if the value a new cryptocurrency token drops, it is considered lost. Even bitcoin’s value, which some call “digital gold,” can be extremely volatile.
One final thought. Cryptocurrencies are still criminals’ preferred payment method. Illegal drugs and other prohibited commodities are often traded for cryptocurrency. This currency can be transferred over long distances faster than cash, making it harder for prosecutors trace. For most cryptocurrencies, the public record of who owns it is visible. This makes it easier for criminals to launder stolen, fraudulent, or ransomware-attacked cryptocurrencies.
From where does the “value?” of cryptocurrency come?
This age-old question – who decides how much a dollar is worth? Cryptocurrencies complicate matters further. Contrary to traditional currencies, cryptocurrencies are not supported by any government, central bank, or physical asset.
Their values are determined by market faith and people’s trust in them. Backers believe that more people will desire a digital currency that is free from government oversight and that their value will rise as more people invest in cryptocurrencies.
Some cryptocurrencies can be used as both an investment and as a unit of exchange, which is a departure from traditional currencies. Many people buy bitcoin in the hope that they will eventually be able to sell it. Some people might pay a fraction of bitcoin to buy a firecracker burrito at Taco Beyondo in New Hampshire — one of many of businesses accepting bitcoin payments.
How about the environmental impact?
Crypto mining uses a lot of energy, as mentioned. According to U.S., a peer-reviewed study found that bitcoin’s annual electricity consumption was 45.8 Terawatt hours as of November 2018. This is comparable to Hong Kong’s net electricity usage in 2019. Energy Information Administration. This doesn’t take into account the energy used by other cryptocurrencies.
Additionally, Bitcoin’s energy consumption has risen annually: The Bitcoin Mining Council estimates that the cryptocurrency consumed 220 Terawatt hours in 2021.
It is important to take into account the source of electricity when assessing the environmental impact of cryptocurrency. Crypto miners are often looking for electricity at the lowest price, which often leads them to high-polluting sources of energy like coal. Sometimes, they are forced to look for the lowest cost energy from renewable sources such as hydroelectric dams because of logistical constraints. These variables should be taken into account when calculating cryptocurrency’s exact energy consumption as well as their environmental impact.
The environmental impact includes the energy used to cool computer processors as they heat up while working, as well as electronic waste generated by miners upgrading their equipment or disposing of older models.
Blockchain for Government
Blockchain technology is a shared ledger system that involves various nodes that performs one part of a transaction. Each node is connected to the other and when one node performs its part of the transaction, it is moved to the next node. As a result of this, a complex system is developed that allows for quicker and more efficient transactions. A blockchain can help the government in various ways. On-chain government models allow for effective management of resources and increased monitoring. A blockchain if developed in the right manner can help the government to bring all individuals in the country on the same page. This means that the government can register individuals, business owners as well as government resources on a blockchain and allow them to create a shared ledger where people can benefit from the resources added by the government.
Blockchain for Government ; In addition to this, a blockchain would also help them to store government data in a more protected and secure manner through on-chain cryptography. This can further help the government to reduce labor-intensive processes. Moreover, the government would be able to win the trust of the local population and improvise online systems.