What is “Cryptocurrency?”

What is “Cryptocurrency?”

May 2nd, 2014 by Christopher C. Wright

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Bitcoin. Litecoin. Ðogecoin. Namecoin. Recently there has been a lot of press about these so-called “cryptocurrencies” — what are they and how have they become such a powerful force on the internet today, driving a multi-million-dollar market of computing equipment? Today we explore how these decentralized, online monies are changing the face of e-commerce, perhaps forever.

What is a “Cryptocurrency?”

BitcoinIf someone hands you a dollar bill, you understand its value; it can be traded for a candy bar, a small coffee, or left as a tip for good service. The value of the dollar is regulated and determined at the national level by the Federal Reserve, a governmental body focused solely on the financial requirements of the United States of America. Through similar regulatory bodies in other countries the value of the Yen, Peso, Euro, and other currencies are determined on a global scale.

With reports of corruption and fear of governmental overreach when it came to online purchases, an unknown individual going by the pseudonym “Satoshi Nakamoto” released the specification for a new form of currency that was not beholden to any governmental oversight — a currency that would exist online only, that could be traded for goods and services with all records open to the public, and he called it “Bitcoin.” After explosive growth in popularity over the past year, similar currencies such as Dogecoin, Litecoin, and others have gained steam, with large online communities supporting their online coin of choice.

But Who Controls it and how is it made?

Once an online coin is released into the wild, nobody “controls” it in the way that the Federal Reserve regulates the US Dollar. While the government may dictate that a certain number of bills be produced every day, online currencies have caps and limits placed on them only when they are created, not to be changed later. This means no single person or organization can control the future of a coin; it is solely up to the community surrounding it to decide its future by their continued support.

Since there is no central authority to print new amounts of these currencies a method had to be devised to generate wealth. Released in the Bitcoin specification were complex mathematical problems, the answers to which had to be formatted in a very specific way. Every time a computer found a valid answer and that answer was verified by other computers, the person who found it would receive a “finders fee” bonus, and the whole community went to work on the next set of problems. This process, called “mining,” is how the majority of cryptocurrency wealth is created, by dedicated miners and their often specialized computers designed for these specific computations. These highly cryptographic processes are in fact where the term “cryptocurrency” dervies.

But What Can I Buy?

Wallets work differently for online currencies than with paper money. Imagine everyone in the world had access to see every bank transaction, anywhere. There would be no doubt in anyone’s mind which accounts had how much money at what time. This is the process through which cryptocurrencies keep anyone from lying about how much they have, and making purchases they cannot afford. Since everyone has access to see every transaction for every wallet, verification of balances and fund transfers are very quick and propagated out to the whole community.

While there are many sites such as Cryptsy.com and others which offer something of a stock-market trading system for various cryptocurrencies into real-world money, the majority of purchasing is done online between supporters of a given coin. At its essence online currencies are the truest form of “fiat money” where the value is determined not by a material representation, but by decree or agreement. If someone agrees to sell me a t-shirt for 500 Ðogecoin, that t-shirt is worth 500 Ðogecoin. Someone else may be selling the same shirt for 1000 or 50 Ðogecoin — it truly boils down to what the market will bear, and what the community believes having the coins is worth.

That said, the aforementioned trading websites like Cryptsy keep a current ticker of how much USD these coins are currently trading for, which often gives a baseline for how “valuable” a coin is when compared to the Dollar. At the time of writing Bitcoin is far and away the most successful coin at nearly $450 USD. Other coins are far less valuable, but much easier to mine; for example 1,000 Ðogecoin is currently worth about $0.47 USD.

So Why Do it?

dogecoin_altSome people participate in cryptocurrencies because they believe that they will see a huge upshot in value and real-world application, much as Bitcoin saw at the end of last year, shooting up to over $1000 USD per coin. Others wish to use cryptocurrencies for their online purchases because transactions are almost entirely anonymous, making it less likely for others to discover just who bought what item and for what purpose. Many join in the excitement of online currencies because of the communities that spring up around them. One of the largest success stories is that of Ðogecoin, which has donated thousands of real-world dollars to sponsor Net Neutrality, send the Jamaican bobsled team to the Sochi Olympics, and even helped send NASCAR driver Josh Wise to the Aaron’s 449 stock-car race.

Most coins have a thriving community on Reddit.com, a site known for its diverse interest groups and subforums. The Ðogecoin subreddit boasts over 84,000 subscribers and includes affiliate links where one can play poker, receive free Ðogecoins to get started, and much more.

How to Get Started

Each coin has a corresponding website that should explain the particulars and specifics of getting started with that individual currency; there are too many unique features and steps to list them all here, but getting a wallet is often as easy as just several mouse-clicks. With a wallet to receive money you can start participating, as often experienced or long-term community members will tip new members to help get them started.

Need More Help?

The internet is awash with news about cryptocurrencies such as Bitcoin and Ðogecoin, much of it contradictory or confusing. While we have attempted to cover the topic in brief, the most important aspect to participation in any online community, online currency-based or otherwise, is your own education and research. We are more than happy to answer your questions sent to info@msmbmetworks.com as a way to help our clients and friends better informed about trends sweeping the greater internet.

Care to contribute? Christopher’s personal Ðogecoin wallet address is: D6EqNhnvu1gCBgCmv6HakJv5djyYyKHSjw

MSMB Networks — Your IT Professionals!

Christopher C. Wright is the CTO of MSMB Networks, focusing on network and system administration, upgrade planning, disaster recovery, and IT budget analysis in Petaluma and all over Sonoma and Marin Counties. With more than fifteen years of hands-on experience, he is committed to educating and protecting his clients, ensuring they receive the best individualized support possible. Email him at christopher@msmbnetworks.com

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