Blog 1.2 — What Is Cryptocurrency?
Welcome To BlogChain
Introducing BlogChain, Alkimi Exchange’s new series! BlogChain’s mission is to demystify the world of Blockchain, Web3 & Crypto as well as the infamous AdTech & Programmatic Industry. We will also look at some hot topics in the news, giving you bitesize insights to keep you informed!
Let’s get into it!
At Alkimi we are using cryptocurrency within our ad exchange to increase efficiency and transparency for our users.
Cryptocurrency can seem very technical on first impression but we are here to show you that it doesn’t need to be. It’s possible that you already know a lot more about it than you think!
Expect to learn:
- The origins of the word ‘cryptocurrency’
- How cryptography was used in World War 2
- What a cryptocurrency is
Let’s tackle the question that no one can seem to answer simply.
So, what is cryptocurrency?
The word ‘cryptocurrency’ is actually two words merged into one. Let’s break those down individually.
‘Crypto’ refers to a process called cryptography. Simply put, cryptography is the study of secure communication.
The whole idea behind cryptography comes from wanting to send a message to someone that only they can open and read. You use cryptography to encrypt and decrypt messages.
Essentially, it gives you the ability to communicate privately with someone when you’re not in the same place. Cryptography can also be used to cover your identity.
In order to encrypt and decrypt a message you use an encryption algorithm, otherwise known as a cipher (a cipher is an algorithm).
In World War 2, ciphers were used as part of military communication. A British scientist named Alan Turing famously decrypted the cipher that the German military used.
By deciphering the cipher, Turing gained access to the radio communication of the German military and ultimately helped to save countless lives. This moment in history was made into the film The Imitation Game.
If you have seen The Imitation Game you will remember something called the ‘enigma’. The ‘enigma’ was the name given to the German’s ciphering machine, it is what they used to encrypt and decrypt messages.
Turing constructed a machine called ‘bombe’ to decrypt the cryptographic messages of the enigma. In the film, they changed the name from bombe to Christopher.
So, just to reiterate. Cryptography is the study of secure communication. A cipher is what is used to encrypt and decrypt messages.
‘Currency’ is something that people are happy to exchange with one another as a means of payment.
Over the course of human history, we have used many different forms of currency. Precious shells were once a currency, as was gold.
In recent times we have used a government-issued currency called ‘fiat currency’. And our newest form of currency is called cryptocurrency.
Now that we know what cryptography is, what a cipher is, and what currency is. We can see how they have combined to become cryptocurrency.
Let’s ask the same question again.
What is cryptocurrency?
Cryptocurrency is a digital currency that is designed to be used over the internet. It takes the idea of cryptography one step further by allowing you to send encrypted payments.
One of the key features of cryptocurrency is decentralisation. Cryptocurrencies are decentralised, which means that no one person, company or government has control over it.
As a result of being decentralised, it is possible to transfer cryptocurrencies to one another without the need for middlemen like a bank (HSBC) or payment processor (PayPal).
This is very appealing to some people, especially in areas of high corruption or hyperinflation where their local governments or financial institutions are untrustworthy. It is one of the key differences between cryptocurrency and fiat currency.
It is extremely difficult to control a cryptocurrency as a single organisation, which makes it very hard to corrupt.
Are you still following along? Keep it up!
Cryptocurrency was designed to be used over the internet because the internet has some interesting features that cryptocurrencies use to their advantage.
The internet is borderless.
When you use social media, and you text a friend via Whatsapp or Messenger, you will notice that it is just as easy and costs the same regardless of your friend’s location. Country borders don’t apply to the internet as they do to humans.
Your friend could be sitting next to you on your sofa, in New Zealand, or in Japan. The fact is, it doesn’t matter where your friend is because the internet is borderless. The same applies to cryptocurrency because it is entirely digital, physical borders are irrelevant and it costs the same to send cryptocurrency anywhere in the world.
The internet is permissionless.
You do not need to ask permission to send a WhatsApp message to your friend abroad. You simply press send and when your friend connects to the internet they will receive your message.
Cryptocurrency is also permissionless, you can send payments anywhere in the world without having to ask permission. No middleman can stop your payment from processing because they have no involvement. It is a peer-to-peer transaction, with zero third parties.
The internet never sleeps.
A bank closes during holidays, but the internet does not. A bank will not process payments on a bank holiday but cryptocurrencies process payments 24/7.
This is because cryptocurrencies are run on blockchains. You can learn more about blockchain in another blog that we wrote called what is a blockchain.
Let’s recap and wrap this up
Cryptocurrency is humanity’s most recent currency innovation. It leverages cryptography, decentralisation and the internet to make it fast, secure, globally accessible and 24/7.
In the next episode of Blog-chain, we are going to talk about the intersection of blockchain and cryptocurrency, and the people who made it all possible.
If nothing else, remember this.
Key takeaways:
- Cryptocurrencies use cryptography to hide the identity of their users
- Cryptocurrencies are decentralised and cannot be controlled by a single organisation
- Cryptocurrencies are globally accessible and operate 24/7
