Cryptocurrencies are changing the world. They are an entirely new kind of money, with a different design and a different structure. This is a big deal.
The downside is that most people don’t understand what cryptocurrencies are. Most people think they’re just another kind of currency, like dollars or euros or yen. They’re not, as we’ll see in a few moments.
Some people also think that cryptocurrencies are just digital versions of some other kind of money, like gold or bitcoins. This is wrong too.
Cryptocurrencies share some characteristics with gold and bitcoins, but they are really something different from both of them, and very different from traditional or fiat currencies like dollars or euros. In fact, I am going to argue that this is the most important thing about cryptocurrencies: they are quite different from all other kinds of money we have seen before, including gold and bitcoins themselves.
There are two ways to read the news about cryptocurrencies. One is that these are a fad, bound to disappear. But in fact this reading is superficial and misleading. The other is that they will change everything: that they will replace government-issued currency, as a matter of course, within a few decades.
A lottery ticket is a token of hope that something good might happen. Cryptocurrencies are similarly tokens of hope—but they have a bigger payoff potential than lottery tickets do.
Cryptocurrencies aren’t just speculative investments. They’re also a way to make sense of the world. Cryptocurrencies are about changing the rules—about establishing new rules for money and wealth, and then challenging our old assumptions about how things work in the real world.
Nowadays we think of money only as an agreed-upon medium of exchange: dollars, euros, yen—these are all accepted methods to settle debts and obligations between people. The money itself doesn’t have any value; it’s just a token you can use to trade other things for value.
Banks control most of the world’s money supply, but there was once another way: gold coins and bullion were also used as money, but when governments got overextended in their commitments to fight
It’s easy to feel that cryptocurrencies are a new fad, but they are not. They are based on a concept that has been around for decades, and one that is part of all modern currencies. Cryptocurrencies rely on the idea that it should be possible to create digital money like electronic cash, with no central authority and no limits on how many units you can have, or how you can use them. This means there is no way to issue more money than there is demand for.
The idea of cryptocurrencies was conceived in a paper by Wei Dai (who goes by the name of “Wu”) in 1998. It said that if you could create an electronic currency in which people knew only about the balances and transactions, then there would be no way for a central authority to inflate the currency supply.
Bitcoin was the first cryptocurrency to become widely used – though only after other competitors had been created and then destroyed by hackers and financial disasters. There are now dozens of different cryptocurrencies, each with its own rules about how much money can be created, what percentage it can represent of all wealth in the world, and how difficult it is to make changes to the underlying algorithm that controls the issuance of new coins.
Cryptocurrencies are still new, so we don
Cryptocurrencies are like digital gold. You can buy them with dollars, euros, or bitcoins—just like with real physical gold. But unlike real physical gold, they’re not limited by any government or bank. They’re also a lot easier to make than real physical gold.
That makes cryptocurrencies a good way to store value, and a good way to transfer value around the world quickly and cheaply.
But you need to be careful when you use them for that purpose. The value of your cryptocurrency might go down due to any number of reasons: because there’s a recession, an accident in one of the mines, some political situation in your home country that makes it difficult for you to travel there, or because the price of oil rises above $100 per barrel and causes people to switch from fossil fuels to electric cars. And if you don’t know how the market is going to move over time, the price could go up much faster than you expect.
Cryptocurrencies are a new kind of money. Like other kinds of money, they have value: the dollar has value because we believe that it is worth something. They are valuable because people already trust them to be reliable. What cryptocurrencies add to the mix is a way for people to move their wealth from one place to another without trusting anyone else.
This is a very powerful new capability. It has some potentially serious negative consequences, but it also has huge potential positive effects.*
As with any new technology, cryptocurrencies will also have some drawbacks and maybe even some unintended negative consequences. Most of these we can learn from through careful study of what has happened in the past, and searching the literature for hints about what might happen in the future.**
The past is not always a guide to the future, but it’s usually a good place to start looking when you’re trying to understand why things happened as they did.
It’s the first time in history that human beings have created a digital currency. I think it’s awesome, and I’m going to be talking about it more in the future.
I’ve been studying money for a long time, and I don’t believe you can build a permanent money system on top of a trust-based system like Bitcoin. But there are several problems with traditional currencies, and cryptocurrencies will probably solve them all.
For instance, governments have always printed money “out of thin air,” which means they’re typically worth less than they were when they were issued. That’s because people punish governments for printing too much money, either by refusing to use it or by demanding higher interest rates on the money they do use. So high inflation is an indirect form of taxation; it’s caused by printing too much money, but because of the way we reward people for using our currency, this ends up being a hidden tax on everyone.
Cryptocurrencies overcome this problem by not having any concept of government or central bank. Although that may sound scary, it actually solves a lot of problems. It makes it easier to borrow against your assets without having to borrow against your assets; if you lend your car to someone else and you never see it again, you won
In cryptography, the best known way to find out whether a number is prime is to divide it by every other one. That is called a “primality test.” If one of the numbers is prime, the result of the division will be either 0 or 1; if not, the result will be something else. The mathematics behind this test is incredibly complicated–the proof that Fermat’s Last Theorem was correct is based on it–but its essence can be described in a few simple steps.
The basic idea is to multiply a number by itself and see if that produces another number that is divisible by all the numbers you have tried so far. If it does not, then there are an infinite number of primes between your starting point and your target. If it does, then there are only a finite number of primes between them, and so your target must be prime.
This method works well for small numbers–it works on any positive integers except 1 and 2–but in general it can take a long time before you find a solution. For example, if you start with 100 million options and try 100 million different combinations at once, each combination might take about 20 minutes to run. Therefore the best way to do primality testing on very large numbers