The buzz of cryptocurrency and blockchain technology has been reverberating within the financial services sector and beyond since bitcoin exploded in 2015. The truth is that many still understand the significance of digital currency and blockchain. Many tech wizards believe that cryptocurrency is the money of the future, and the technology it’s built on, Blockchain, will have a multitude of uses beyond the world of finance.
Bitcoin was invented by Satoshi Nakamoto, who never intended to invent a ‘currency’. The crypto-creator’s real identity remains a mystery. In 2008, Nakamoto announced the release of a peer-to-peer electronic cash system intended to prevent double-spending. The network is completely decentralised, meaning that it has no central server nor central authority. This was its most desirable asset, and Nakamoto’s ability to achieve a consensus without a central server or authority was celebrated across the digital world. Cryptocurrencies are an integral part of this groundbreaking decentralised service.
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Cryptocurrencies are simply defined by Blockgeeks as “limited entries in a database no one can change without fulfilling specific conditions”. It’s the same as any other form of currency. Your balance won’t increase or decrease unless you earn a wage, pay money to others or spend money on goods and services. The databases of cryptocurrency consist of a network of peers, with every peer in the network holding a complete record of all the transactions they have been involved in. After a transaction is signed and confirmed by users, it is broadcasted to everyone within the network. Once these agreements are signed they cannot be reversed, and consequently, they become a part of the network’s records. In this case, a history of transactions is otherwise known as ‘blockchain’: blocks of records and information connected to one another forever.
The job to confirm transactions within a cryptocurrency platform falls to the miners, who independently legitimise them. Miners are rewarded with cryptocurrency themselves. Anybody can be a miner, thanks to the fact that the network is decentralised. However, miners must find a ‘hash’ that connects a new block – similar to a proof of work mechanism. Miners compete to solve cryptologic puzzles, and after solving them can create a block to add to the blockchain, reaping their rewards.
The ‘crypto’ part of the name originates from this nature of the technology. What makes this system so desirable to so many people is the fact transactions cannot be reversed: users possess anonymity, it has a global reach, it’s secure, and it is readily available – if you’re willing to pay, of course. Cryptocurrencies are built on blockchain technology, and the potential for this technology is still being uncovered. It is an ever-growing list of records, or blocks, secured using cryptography. As Don and Alex Tapscott put it in their book Blockchain Revolution: “the blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions, but virtually everything of value.”
A cloud of mystery surrounds the name of bitcoin’s creator. It almost reflects the reasoning for the adoption of cryptocurrency: the word ‘Satoshi’ translates to ‘wisdom’ or ‘reason’, while ‘Nakamoto’ can mean ‘central source’. When it comes to the story of bitcoin, it appears that the clue is indeed in the name.