A cryptogram, as an analogy, is used by people involved in the buying and selling of securities and commodities. A Cryptocurrency, as an example, is a digital commodity designed to operate as a medium of global exchange whereby private coin ownership information is recorded in a publicly accessible ledger in a highly secure and controlled manner. The concept of a Cryptocurrency goes back to the earliest days of the internet when currencies such as the US Dollar and the Euro were used as payment options. These early systems were not immune from the threat of hackers who violated copyright law and stole intellectual property by way of encrypting sensitive data. Today, more robust security systems are put into place to prevent these types of attacks from occurring.
Distributed Ledger Technology (DLT), which uses the ledger technology of cryptosystems such as the UTX or distributed ledger network, is one method that uses the decentralized aspect of cryptography in its encryption process. There are two major benefits of this approach. First, it offers users greater privacy and their transaction records cannot be hacked into. Second, because users control the distribution of transactions through the use of a central database, there is no possibility for abuse and censorship. In fact, a healthy and vibrant ecosystem is created where users can build on the strengths of the system while enjoying greater freedom of choice and privacy.
One other approach to using the distributed ledger technology of the UTX is through Shape Shifting, also known as Coin Tipping. Shape shifting enables certain currencies to be purchased and sold in the same system that tracks the changes in the valued asset, such as gold. This concept applies well to precious metals like gold and silver, but it does not have the same appeal with precious gems. For this reason, the UTX and Shape Shifting are not quite implemented on the same platform. However, the potentials for both of these methods are great and can help provide a healthy ecosystem for those who are interested in using the cryptography behind UTX as a backbone for safe and reliable international money transfer.
A third approach to UTX and its cryptography is through off-chain cryptography, which is not actually a type of Cryptography per se, but rather a certain style of behavior. The supporters of this style of cryptography believe that it is much more practical and efficient than the centralized systems of the UTX, especially for highly monetized societies where trust is not an issue. Off-chain cryptography operates by allowing participants in the system to transact without necessarily broadcasting sensitive information, thus greatly reducing the chance for abuse and corruption. Transactions are therefore kept confidential and fast, especially when performed between multiple parties. For example, if someone is selling gold in the United States, off-chain transactions would allow them to sell their gold to a buyer within the jurisdiction of the United States rather than having ittransmitted through a centralized authority in Switzerland.
There are several different methods by which Cryptocurrencies can be used. For instance, there are currencies that are backed by actual commodities, such as gold or oil. Or there are commodities-backed currencies such as the US Dollar that is usually used as an ATM by people who don’t want to use actual currency. Or, there are pseudo-currencies, which are simply private keys that give users access to make off-chain transactions, like their regular private key but under the table. The difference is that the user only knows the key’s password, not the value of the private key itself.
Regardless of which direction you go with Cryptocurrencies, it is important to understand that there are several different forms and technologies available for users to decide upon. Which form is the most practical and effective? That depends largely on how much you want to optimize privacy and security features. The choice will ultimately be up to the individual user. However, one thing is clear: if you’re thinking about participating in the future of the decentralized economy, then it’s time to get started!