Cryptocurrency

You can think of a cryptocurrency as a digital version of a typical fiat currency, one that a government has declared to be legal tender, but is not backed by a physical commodity. However, where fiat currency was once linked to precious mineral values, a cryptocurrency creates scarcity through the complexity of digitally mining or solving equations to create new tokens.

Cryptocoins News defines cryptocurrency as “a medium of exchange like normal currencies such as USD, but designed for the purpose of exchanging digital information through a process made possible by certain principles of cryptography. Cryptography is used to secure the transactions and to control the creation of new coins.” Put another way, cryptocurrency is electricity converted by solving equations in order to create digital units of value that can then be exchanged as a form of payment. In the simplest of forms, cryptocurrency is digital currency that is mined, rather than printed.

Bitcoin

Bitcoin is a specific type of cryptocurrency. It has its own community, rule system and market dynamics. While there are many different cryptocurrencies, bitcoin happens to be the most recognized name with the largest network and market float. Keep in mind though, that “large” is relative – compared to global money flows, this is hardly a blip.

Regionally, however, there is some evidence of heavy localized usage. For example, some Latin American economies are turning to bitcoin as a solution due to political and economic instabilities. While examples like this are certainly a consumer benefit, I don’t see today’s cryptocurrency going more mainstream because it lacks the wrapper of consumer services and protection that financial institutions provide. Sure, cryptocurrency is an open road, but when it comes to being the driver behind your money and finances, wouldn’t you at least want some guardrails?

So while cryptocurrencies have a long way to go before — or if — reaching mainstream, there is good reason to pay attention to its evolution, and the evolution of the design pattern behind all of it: blockchain.

Blockchain

The Wall Street Journal pointed out that over 40 top financial institutions and a growing number of companies across varying industries are currently exploring use cases of blockchain as a “secure and transparent way to digitally track the ownership of assets.”

While it is often referred to as a technology, blockchain is actually perhaps better described as a design pattern. A blockchain is essentially a construct wherein a cryptographically authentic record of events is distributed amongst participants in a network and permanently updated once a majority consensus of nodes ratifies the entry. This design pattern could be tweaked and applied to solving many different challenges, but has its real-world origins powering cryptocurrencies. Said simply, it is the design pattern that bitcoin, and other cryptocurrencies, run on.