On Cryptocurrencies

I’ve heard the words “cryptocurrency” and “bitcoin” for many years now and had a very vague idea of what these meant. I mean, I “knew” what a cryptocurrency is and that a bitcoin is a type of cryptocurrency, but didn’t really “know”, “know” what these meant, if you “know” what I mean. A week ago, I started writing a short story which has as one of its characters a man who trades in bitcoins and suddenly there was a reason for me to really “know” what these words meant.

So, I turned to Wikipedia and other internet sources to tell me what cryptocurrencies are and found that cryptocurrencies are digital or virtual currencies that are not issued by governments or banks. They are decentralized and operate independently of any authority. Bitcoin is the first and most well-known cryptocurrency, but there are hundreds or possibly thousands of other cryptos, such as Ethereum, Ripple, and Litecoin. Transactions with cryptocurrencies are recorded on a public ledger called a blockchain.

Which begs the question, what is a blockchain?

A blockchain is a digital ledger of transactions that is duplicated and distributed across a network of computer systems. Such a network forms the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant's ledger. The decentralized database managed by multiple participants is designed to record transactions across a network of computers without the need for a central authority. This results in transparency and the recorded information can’t be tampered with. Blockchain technology is the backbone of cryptocurrencies, but it has potential uses in many other industries as well.

Bitcoin (BTC or XBC) was created in 2009 by an unknown individual using the pseudonym Satoshi Nakamoto. Bitcoins are created as a reward for a process known as mining, which consists of using computer power to solve complex mathematical problems. Transactions don’t involve banks or governments.

Ethereum (ETH) is currently the second most popular cryptocurrency, after Bitcoin. It was created in 2015 by Vitalik Buterin. Ethereum's popularity is mainly on account of its ability to support a wide range of decentralized applications and its use of smart contracts. Dodgecoin (DOGE) is yet another cryptocurrency. Dodgecoins were created as a joke in 2013 by software engineers Billy Markus and Jackson Palmer. Despite its origins, it has gained a large following and has become a widely traded digital asset.

Cryptocurrencies have become popular (though their value has come down recently) and can be used to buy things from folks who are willing to accept cryptos as a form of payment. However, cryptos are not legal tender. Which means, if you want to buy something from Ms. XYZ and you offer her bitcoins, but Ms. XYZ does not want to accept bitcoins as a form of payment, you cannot compel Ms. XYZ to accept bitcoins. However, if you are in the US and you offer Ms. XYZ dollars and she refuses, well, she cannot refuse to take dollars cos dollars are legal tender in the US of A. You see my point? When a seller agrees to accept any crypto as a form of payment, it is actually a barter, cos cryptos are just an asset and are being exchanged for the thing you want to buy.

The most negative aspect of cryptocurrencies is that, since these are outside the control of government, they are commonly used by criminals to fund their nefarious activities and to hide their ill-gotten wealth. And tax evaders use it to, well, you know the answer.