Crypto’s madcap, meme-crazed online culture can make it seem frivolous and shallow. But if you look past the carnival barkers and parse through the convoluted jargon, you’ll find a rich, multidisciplinary movement with the potential to transform our economic system.
At its core, crypto is a record-keeping technology that uses digital cryptography to confirm the ownership of assets and transactions. It’s similar to a spreadsheet but with one key difference: instead of being hosted on Google’s servers, a blockchain is maintained by computers all over the world, using complex algorithms to verify records and secure against hackers. This decentralized design is what gives crypto its value, proponents argue, because it means that centralized intermediaries like banks or monetary authorities aren’t necessary to enforce trust and police transactions between two parties.
In other words, if you want to buy something on a blockchain, all you need is a computer that can access the ledger and verify that the seller really does own what he or she claims to own. The more computers that participate in the network, the more difficult it is to tamper with the blockchain’s records. The system also prevents fraud by ensuring that no one can change or erase existing transactions without altering all subsequent ones at the same time.
Some of the more popular cryptocurrencies also offer their owners the opportunity to earn passive income by “staking” their coins, which means they’re used to help verify other transactions on the blockchain. This has its risks, but it can be a good way to grow your holdings without buying more coins.
The most controversial aspect of crypto is its price volatility, which can be a real pain for investors who are accustomed to the steady, reliable returns on more traditional investments. It’s also important to remember that most blockchain-based cryptocurrencies are not backed by any physical asset and are therefore highly speculative.
What’s more, the lack of clear regulation can make it easy to get duped into investing in a cryptocurrency that ends up being a scam. There have been numerous cases of fraudulent exchanges and deceptive management practices, leading to significant losses for investors.
Still, for many people, crypto remains a compelling opportunity. As more companies move their business to blockchain-based platforms, the demand for the underlying tech is growing. That’s why so many people are pouring billions into start-ups that develop and support blockchain infrastructure, which will allow those businesses to store and track a variety of data and assets. For example, blockchains could eventually be used to manage health care records, track streaming music rights and even host new social media platforms.