A cryptocurrency is a digitally represented, cryptographically created token that has the attributes of a currency. Although the most well-known cryptocurrency is Bitcoin, of the attributes of currency – durability, divisibility, portability, acceptability, limited supply, and uniformity, there are better fits than Bitcoin as an acceptable medium of exchange. Among those, we might consider Bitcoin Cash, Litecoin or Dash.
Comparing cryptocurrency to digital fiat currency, the advantages as a representation of money are clear. Cryptocurrency is, generally, strictly uniform, highly divisible, highly portable, durable, of limited supply and with growing acceptability. In many respects, cryptocurrency is more like money than traditional concepts of money. Its difficulty in being recognised as such by many highly respected finance and market experts show that Bitcoin is also a philosophical position on what money actually is – a position that has been a resounding success.
Bitcoin is the gold standard in cryptocurrency, earning a status as an idealised representation of the ideas and philosophy behind their existence and use. However, it is the blockchain technology behind bitcoin that made it so valuable.
The blockchain is a public, digital ledger containing the entire set of Bitcoin transactions. Blockchain technology was created to facilitate digital transactions in a way that did not require a third party to validate the transaction. The Bitcoin blockchain solution is a set of records that show the full history of the digital token. The provenance of a token and the chain of transactions since its creation should indicate the rightful owner of the token. When the first blockchain transaction was processed with a de-centralised computing network, the trust-less, de-centralised transaction was possible.
So blockchain is a list of bitcoin transactions that have been organised into blocks that go back to the origin of the coin itself. The usefulness of the blockchain is in proving the validity of a new bitcoin transaction where it is validated on a public ledger by a de-centralised group of computers. With this process, the de-centralised, trust-less transaction has been created. The entity known as ‘Satoshi Nakamoto’ is credited with creating the blockchain technology. Blockchain developers created the full Bitcoin protocol following his release of the Bitcoin ‘white paper’.
Nakamoto and his blockchain technology not only helped spawn Bitcoin. But also Ethereum, which creates its value through its use of smart contracts.
Smart Contracts are what really got the party started in the cryptocurrency world. They took it just from being an alternative to cash and gold to being able to revolutionise pretty much every industry the same way the internet changed the world. As Vitalik Buterin (the creator of Ethereum) once said “Think of Ethereum like the app store for the Blockchain”. A smart contract is simply applications and code stored on a blockchain that execute when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. Most recently they have made Decentralised Finance (DeFi) possible.