Cryptocurrencies are getting a lot of publicity these days. They're often portrayed as easy money, which obviously ignites the imagination of would-be millionaires, further blown out by statements from people such as Elon Musk or recently deceased John McAffee. However, let's look at them in a slightly more analytical way than Twitter does. What do cryptocurrencies change? Does mining crypto actually use more power globally than Argentina? Is paying by credit card hundreds of thousands of times more environment-friendly than using bitcoin?
Cryptocurrencies – what are they?
The most well-known cryptocurrency is undoubtedly Bitcoin (aka BTC). However, this market is diverse, and in recent years we have seen the emergence of many other currencies that have been more or less successful.
However, most of them are based on a similar premise as BTC, namely blockchain architecture and the Proof-of-Work (PoW) algorithm. This requires complex calculations to create (extract) a new unit of a currency. Such activities require powerful hardware (primarily graphics cards these days) and a lot of electricity.
However, what's a cryptocurrency? Jan Lansky, a researcher from the Czech Republic, proposes six conditions that must be met before a product can be called a cryptocurrency:
- The system must be completely decentralized (without a single institution at the top).
- The system monitors individuals and their property.
- The system defines whether new units can be created. If so, the system defines conditions for their creation and conditions for assigning their property.
- Ownership of cryptocurrency units is confirmed cryptographically.
- The system allows for transactions in which ownership of cryptocurrency units is changed. Confirmation of the transaction can only be issued by the new owner.
- When two different instructions to change the ownership of the same unit are entered simultaneously, the system executes only one of them.
There are at least a dozen large systems in operation today, and some of them gained forks (have branched out). Within these forks, side projects are created, and then develop independently from the core currency, such as Bitcoin and Bitcoin Cash (BCH). The most popular are:
- Bitcoin (BTC) – it's already a classic. Created in 2009, BTC holds the title of being the first, largest and most widely recognized cryptocurrency. For many people, it's even synonymous with the concept itself. The value of all bitcoin, in July 2021 more than $800B, although you have to take into account that the price can change quite dramatically.
- Dogecoin (DOGE, XDG) – a cryptocurrency derived from the Doge meme featuring a Shiba-inu dog. Sound like a joke? Sounds like post-modernism? Does 27 billion dollars sound like a joke?
- Ethereum (ETH) – the second largest cryptocurrency after BTC.
- Chia (XCH) – a relatively new player in the market, using disk space instead of complex calculations. Computer disks getting more expensive through cryptocurrencies? You've got Chia to thank.
It all seems simple in theory, but ultimately, cryptocurrencies have changed our reality in ways that no one expected at the very beginning of their existence. In what ways? Let's see.