So, in a few words, what is Cryptocurrency?
In its most simple form, Cryptocurrency is digital money. It’s currency that exists in the network only and it contains no physical form. Cryptocurrency is very much like regular currency, in that it’s a commodity that will allow you to buy and pay for things online. However, the way it was created and managed is revolutionary in the money and currency field. Nothing like dollars or euros, cryptocurrency backing is not provided by the government or banks. A central authority does not exist.
And if that both scares you and excites and you, then you are not alone. But that particular technology train has left the station. Or will it actually be a wreck? Or is it going to be the kind of disruptive tech that democratizes the exchange of currency for future generations to come?
Now, let’s take a closer look at what Cryptocurrency is, how it works, and what are the possible dangers and drawbacks.
How is Cryptocurrency different from regular money?
If you are able to take away all the techno-babble around Cryptocurrency, you can condense it down to a simple concept. Cryptocurrency is entries in a database that no one is able to alter or change without fulfilling specific conditions. This may seem overly simple-minded, but it’s actually how you are able to define all currency. Think about your own bank account and the manner in which transactions are managed. You can only approve or authorize transfers, withdrawals, and deposits under exact specific conditions. When you do so, the entries in the database will change.
Then, the only key difference between Cryptocurrency and “regular” money is how those entries within the database are changed. At a bank, it’s a central figure that will do the changing: it is the bank itself. With Cryptocurrency, a network of computers that belong to no one entity actually manage the entries. We will discuss this more later.
Outside of centralized versus decentralized management, the differences between Cryptocurrency and regular currency are relatively small. Unlike the dollar or the yen, Cryptocurrency possesses one global rate. And it is worth a lot. As of May 2018, one Bitcoin is equal to $8290. The value has increased exponentially this year, having exploded from about $800 in January 2017.
How does Cryptocurrency work?
Cryptocurrency wants and intends to be decentralized, secure, and anonymous. This is how their technologies will work all together in an attempt to make that happen.
So earlier we talked about describing Cryptocurrency as entries in a database? That particular database is called the Blockchain. Effectively, it’s a digital ledger that utilizes encryption to control the creation of money and confirm the transfer of funds. This will allow for users to make secure payments and store their money anonymously, without having to go through a bank.
Information on the Blockchain exists as a collective and continuously reconciled database. The Blockchain database isn’t stored in a specific single location, and its records are open, shared and easily verified. No centralized version or form of this information exists for a cybercriminal to corrupt. It is simultaneously hosted by millions of computers and its data is accessible to anyone on the Internet.
So, exactly how is Cryptocurrency created and maintained on the Blockchain? Units are created through a process called mining, which involves channeling computer power (CPU) to solve complex math problems. All Cryptocurrencies are maintained by a community of miners who are members of the general public. These miners have set up their machines to participate in validating and processing transactions.
And here is why a miner would choose to participate, there is a simple answer: If one manages the transactions, they can earn some digital currency for themselves. And those that don’t want to mine are able to purchase cryptocurrency through a broker and then store it in a cryptocurrency wallet.
When was Cryptocurrency developed?
On the heels of Occupy Wall Street and the economic crash of 2008, Satoshi Nakamoto originated Bitcoin, as a “peer-to-peer electronic cash system.” Bitcoin became a slap in the face to the “we’re too big to fail” banks because it functioned outside of a central authority, all with no server and no individual entity running the show. Bitcoin’s original developers had high hopes of getting rid of the middle man in order to eliminate interest fees, make transactions transparent, and to fight corruption.
And while Bitcoin was the first and still remains the most popular cryptocurrency, others were able to see its potential and very quickly jumped on the bandwagon. Litecoin was developed in 2011 and was followed by Ripple in 2012. In 2015, Ethereum entered the fray and has since become the second most-popular cryptocurrency. According to CoinMarketCap, there now are in excess of 1,000 Cryptocurrencies on the Internet.
Cryptocurrency’s overall popularity and acceptance on the Internet soon blended into other real-world applications. Japan has accepted Bitcoin as an official currency for commerce and trade. Banks located in India are utilizing Ripple as an alternative system for transactions. JP Morgan is building its own blockchain technology as a partnership with Quorum, which is an enterprise version of Ethereum.
Then again, as with any new and relatively untried and untested technology, the cybercriminals wanted to get involved. And it wasn’t very long before Bitcoin and other Cryptocurrencies became victim to their own democratic ideals.
How has Cryptocurrency been exploited and abused?
A Bitcoin address is very protected and secure but the application of its technology is still often mishandled. This is usually caused by unpracticed programmers looking to get in on the action and subsequently creating faulty code. Fundamentally, the system is far superior to the centralized database systems. But poor coding practices found among its thousands of practitioners have created a multitude of vulnerabilities. Like vultures circling its prey, cybercriminals have flocked to exploit the situation. According to Hacked, an estimated 10 to 20 percent of all Bitcoin in existence is held and controlled by criminals.
Cryptocurrency initially was acclaimed as the next big thing in money and a redeemer for people who had just lost everything in the steep recession of 2008-2009. Then a hack in 2011 showed everyone how insecure and easily stolen Cryptocurrency could be. Soon after that the criminal-minded quickly moved in, looking to take advantage of the cheap, fast, permission-less, and anonymous nature of the Cryptocurrency exchange. Over the last ten years, millions of Bitcoin, worth many billions of dollars, have been stolen. Some of those events were so major that they drove people to suicide.
And on a smaller but much more frequent scale, cryptocurrency is being used on the black market to buy and sell credit card numbers and bot installs, fund hacktivism or other illegal activity, and to launder money. It’s also become the payment method of choice for authors of ransomware, whose profits are made possible by amassing money that can’t be traced. It certainly makes getting caught even that much more difficult.
Ransom note asking for Bitcoin
And now if that isn’t enough to call this currency unstable and volatile, the process of mining itself is at risk and has already attracted some high-profile hacks. Services such as CoinHive will allow those that utilize it to mine the CPU of their website visitors, all this without the visitors’ knowledge or permission. This process, which is known as cryptojacking, is a “light” form of robbery. It’s possible that users may see an impact to their computer’s performance or a slight increase in their electric bill, but they are otherwise unaffected. Or, that is that they were, until cybercriminals were able to figure out how to hack CoinHive.
What are the future applications of Cryptocurrency?
So now where does that leave us with regards to cryptocurrency? Certainly, its popularity is skyrocketing and its value is spiking so hard it is causing a major concern in money markets. But then again, is it a viable and safe alternative to our current currencies? Cryptocurrency could democratize the future of money by making it accessible to everyone. Or it could possible end up in technology hell with floppy disks and pagers.
We can envision the technological applications for the future that make obvious the clear advantages of cryptocurrency over our current system. But right now, cryptocurrency can be good in theory and bad in actual practice. It is very volatile and highly hackable. We are going to have to quickly move to create security measures that can keep up with the development of the technology. Otherwise, cybercriminals are going to flood the market so heavily that it will never move beyond the dark web.
Thanks for taking the time to read my post on Cryptocurrency Basics / Why Do Cybercriminals Like It? I hope it provided interest and information for the reader and has been an enjoyable read. It is a subject that at times dominates the new cycles, especially in Business circles. If you have any Comments or Questions, please feel free to leave them below. Take care.