CSA Online by James Dolan DIGITAL MONEY What cryptocurrency is, what it isn’t, and how it will change the way we buy and sell (or not) What is cryptocurrency, anyway? Think of cryptocurrency as digital money. Instead of a piece of paper printed with a special ink, it’s a chunk of computer code based on a complex encryption algorithm. Those same algorithms control the creation of new currency units (called “coins” or “tokens”), and also ensure that all transactions which happen with it are safe and secure. In this way, cryptocurrency functions as both a medium of exchange and a digital accounting system at the same time. You’ve likely heard of the most popular of these coins – Bitcoin. It was created in 2009 by Satoshi Nakamoto – a mysterious individual (or perhaps a group of individuals) who has never made their true identity known. Since then, there have been dozens of other cryptocurrencies created. Some of them, such as Ethereum, Tether, Solana and others, are serious in that their purpose is to replace traditional money as a medium of exchange, while addressing some of the perceived shortcomings of Bitcoin. Others, such as Dogecoin, were initially created as nothing more than a techno in-joke and have grown in value to become “investments” (perhaps more accurate to call them speculations) in their own right. OK, but how does it actually work? Here’s where it gets technical. The basic foundation of cryptocurrency is a technology called blockchain – a kind of computerized ledger that records all transactions across hundreds or even thousands of computers which comprise a network. Every transaction is grouped into a “block” with other recent transactions, and the block is then linked to all previous blocks. Over time, this creates a digital “chain” of transactions. This constantly growing chain of records makes the system transparent and secure: to alter any transaction, one would have to alter every transaction in the chain which, in practical terms, would be nearly impossible. To use cryptocurrency, you need a wallet. Unlike a traditional wallet, a cryptocurrency wallet isn’t where your coins are stored; rather, it stores the public and private keys to your coins; the coins themselves are kept secure on the public blockchain. Your public key is much like a bank account, allowing you to receive cryptocurrency transactions, while your private key is a super-secret password which verifies that you’re actually the owner of the funds that you’re trying to access, and also functions as your digital signature for every transaction which you make. The network then records the transaction and updates the balance in both your and your recipient’s public key. There’s a lot of hype around Bitcoin, Ethereum and other cryptocurrencies. But what is “crypto” (as it’s typically named), really? How does it work, exactly? And why are some people – tech bros, hackers, speculators, governments – getting so excited about it? Let’s take a closer look. 42 | www.snowbirds.org
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