When a reporter calls me for a comment about cryto currency, I always ask if there is any particular reason why they are interested. Sometimes they say something like, “Oh, we just want to know what you think about cryto currency.” That doesn’t make much sense to me. Cryto currency is not like conventional money: it’s not issued by a government or controlled by a bank. It’s distributed by computers, so what can they possibly tell me that I didn’t already know?
But sometimes they have a real story to tell. A few weeks ago the reporter who called me asked this question: “What do you think will happen to cryto currency?” I said, “I don’t know. The biggest problem with cryto currency right now is that nobody knows what it is.”
Cryto currency is not like conventional money because it is not controlled by or issued by anything. But that also means it is difficult to talk about in conventional terms. To understand why that’s the case, you have to understand how blockchains work and what public-key cryptography was invented for.
The future of money will be determined by the ability of new systems to provide the kind of trust that money provides.
Bitcoin, a very early example, provides no such trust: it’s not clear if you can use it to pay anyone if you can’t even figure out its true origin. But it does provide enormous trust-building capability: once you’ve already decided to use it, you don’t need to worry about whether someone is going to double-spend or otherwise abuse your money. And that’s a huge thing in a situation where everyone trusts everyone else not to double-spend (or re-use a credit card number, or any of the other ways people lose money).
A cryto currency that could be used on the Internet would solve the problem of trusting anyone at all.
Crypto currency is the closest thing to a “world computer” that we have yet invented and the idea of it is quite exciting. It’s difficult to read about without thinking about all sorts of other things, like science fiction and the future and what it all means. But the reality is much simpler, and much more interesting.
I’ve been following crypto currency for about a year now, but I’ve never understood why it was so interesting. It seemed like an old idea with a new name and some new technology, but that was all.
But as soon as you start asking questions, it starts to make sense:
Crypto currency isn’t a replacement for money—it’s just another kind of money. So it doesn’t matter how smart or crazy you are: if you can make it work you can get rich. But not just any old way of making money will do; there are compelling technical reasons why crypto currency works:
It’s decentralized: no one controls it or has any power over it.
It’s secure: its security is based on math instead of trust. Protecting your crypto currency means solving math problems that ordinary people can’t solve (which are called cryptographic puzzles). If you can’t solve them, your crypto money vanishes without
A few years ago, an internet entrepreneur named John McAfee launched a website called Bitcointalk.org. Bitcointalk is the biggest forum for bitcoin, a digital currency created in 2009 by a programmer named Satoshi Nakamoto.
The website has become a kind of clearinghouse for all kinds of information about bitcoin, but its most popular section is one titled “Bitcoiner’s Weekly” or “BW.” The BW forum is like the bulletin board at your local mall, except that everyone posts anonymously and there are no prizes to win.
McAfee is controversial. He’s been arrested in Belize on charges of running an illegal pyramid scheme, and also in Arizona on charges of possessing obscene materials. He has a career as an online entrepreneur going back to the early days of America Online and BoingBoing. At one point he was dating a model named Shawna Forde, famous for her role in a reality TV show called “Made.”
The BW forum started out as nothing more than a place where people could argue about bitcoin prices and charts. But after McAfee announced plans to launch his own cryto currency, some members started arguing about whether he should be allowed to do so—-not whether it was a good idea but whether he could get away
Crypto-currency is a big deal because it’s the missing piece of the internet, or at least its financial side. To understand the significance of crypto-currency, you have to understand the web.
When Tim Berners-Lee proposed a new way to share information on the Internet, he didn’t have in mind a way to send messages or browse websites. He was imagining a way for people to store and share their data securely. He suggested that computers could be linked together so that people could more easily share files and passwords and other information that would now have to be sent by email.
In theory, this would make it easier for people to keep in touch with each other. In practice, it made it easier to steal everything from them: credit card numbers and passwords, medical records, tax forms…people had been using computers in limited ways since before there was an Internet; why couldn’t they just use them as they were intended?
Block chain: what is Block chain?
Block chain is a technology that records transactions in a distributed ledger. It uses the same cryptographic principles as Bitcoin, but it has many advantages. Block chain allows each participant (a miner or a bank) to keep their own copy of the ledger, yet to agree on the current state of the ledger. Each participant can trust the integrity of their own copy of the ledger, but each participant can also verify whether other participants’ copies are correct. This makes block chain an ideal basis for a currency.
Most currencies use centralized systems that are vulnerable to fraud and human error. The integrity of all participants’ ledgers must be maintained by a central authority, which can be tempted to cheat in order to increase its power and wealth. This is why we’ve needed banks for thousands of years: they have tremendous power over the economy, and they’re susceptible to corruption and greed just like any other large organization.
Block chain solves these problems by maintaining the integrity of all ledgers in the network without involving any single entity with excessive power or wealth.
Financial transactions can be made faster and with less cost. The cost of verifying a transaction is zero. In contrast, financial transactions are time consuming, expensive, and error-prone. Verifying a financial transaction requires asking someone to confirm that the other person has paid up. This requires asking strangers to verify each other’s identities and to trust each other. Verifying an identity is expensive; requiring strangers to trust one another means accepting a risk that they will cheat.
Blockchain technology makes it possible for people to transact without having to trust each other. On the blockchain, you can transfer funds from your account at Bank A to your account at Bank B, but you don’t have to know anything about Bank A or Bank B or even the details of their transaction systems. As long as both accounts are properly signed by their owners (and as long as there is no fraud), money can be transferred directly from one person to another without going through any third party.”