Crypto this, bitcoin that. Something or the other about cryptocurrencies and financial technologies is constantly resurfacing on the news these days. So, as the world shifts towards relying more on digital ways of life, it’s important to understand these changing technologies, especially when it affects our money.

 

     Recently, many governments and large organizations have started to accept crypto as a valid medium of exchange. A prime example being the nation of El Salvador - which was the first country to accept Bitcoin as legal tender. In the past, the UN has organized crypto funds that work with both Bitcoin and Ethereum, and most recently, president Donald Trump has signed to form government cryptocurrency reserves in the US. Currently, the US has about $17.5 billion worth in Bitcoin. 

 

     So, what exactly is crypto, and how is it different from the money saved in banks worldwide or the cash we carry around? In simplest terms, cryptocurrency is any decentralized digital currency. Decentralized means that this money doesn’t pass through a bank or any central authority. Instead, it’s secured through cryptography, which is the art of writing and solving codes. All the records of a cryptocurrency are kept in a public ledger and verified by a decentralized network. Since the verification is being done through a decentralized network, it is almost impossible to double spend or counterfeit transactions.

 

     The verification process is also where something known as blockchains come in. Blockchains are a way of storing information. In this case, it stores records of the transactions. The way they work is by grouping together some information (the transactions) to create a block. Nodes in the network then work to verify if transactions are legitimate based on a set of parameters. Finally, to finish the process, the block needs to be added to a chain, hence the name blockchain. To do this, individuals (known as miners) solve a complex math problem using really powerful computers. The first miner to solve this problem gets to add the block to the chain and in turn, gets a portion of the cryptocurrency as a reward. Once that block is added to the chain, it cannot be altered and has been permanently recorded, which is what makes blockchains such a secure way to store information publicly. 

 

     While there are certain risks to investing in cryptocurrency, such as the immense amount of energy required to mine crypto or the few regulations due to the decentralization, it is important to understand that it is a new technology that will improve the more people work with it. Decentralization makes crypto easier to trade across borders and allows faster, low-cost transactions. Since crypto has a fixed supply, it is also protected from issues like inflation, unlike traditional currencies which can be printed in unlimited quantities. The technology also allows a person more independence with their money.

 

At the end of the day, crypto is an innovative form of financial technology with significant potential. However, it is still constantly developing, so the more we choose to work with it rather than against it, the better it will become.