(Feb. 23, 2019 – Source: Dia Dipasupil/Getty Images North America)
*Athletes like Odell Beckham Jr. in the NFL and politicians like Mayor Eric Adams in New York City have pledged to collect some of their paychecks in cryptocurrency this year. CNBC’s Sharon Epperson explains.
When you hear the word “cryptocurrency,” do you immediately think “bitcoin”? If so, you’re not alone.
The cryptocurrency or the crypto world has evolved dramatically since an anonymous author or authors, writing under the pseudonym Satoshi Nakamoto, published a brief white paper in 2008 detailing the mechanics of what would become known as bitcoin. While bitcoin is still the largest crypto by market capitalization, there are now some 6,000 cryptos in existence.
The Building Blocks of Crypto
The word blockchain did not appear in the original Bitcoin white paper. However, the blockchain concept soon formed the technological backbone of how digital assets work.
What is blockchain? It is a technology that consists of complex cryptography and software that creates an immutable, decentralized database for whatever its application may be. The data stored on the blockchain cannot be changed, and there is no central authority over the records.
The blockchain concept dates back to the early 1990s and the early days of Web 1.0, but it didn’t find a real-world use case until the invention of bitcoin as a peer-to-peer payment network.
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Why is blockchain technology essential to crypto? Because it eliminates what’s called the double-spend problem of digital assets. Though physical assets like currency or even an actual gift card can only be spent once, before Satoshi’s white paper, digital information could be duplicated and falsified, so it could potentially be used multiple times. Because blockchain cryptography supports a decentralized and unalterable ledger, once a cryptocurrency transaction is recorded, it cannot be erased. This provides a strong defense against potential double-spending.
These building blocks (pun intended) describe the what behind blockchain. But who keeps the decentralized network operational? Since no one is in charge per se, the decentralized system incentivizes users to self-regulate. In short, a crypto network’s security is supported by two critical user groups: miners and node operators. Without these cohorts working as a symbiotic, “trustless” community, a decentralized blockchain’s security could become vulnerable.
Read/Learn More at CFA Institute.
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