Hello reader… yes, you. Come closer and I’ll tell you the story of one of the most captivating inventions of the 21st century… crypto currency.
In the simplest terms, crypto currency can be thought of as digital money. That is, money which is generated and governed by computers over the internet.
In reality however, the story is far more interesting and complex than can be conveyed in a single sentence. Indeed the topic will be the focus of the majority of the posts on this site.
This post is the first of an introductory series which will take a look into the origin and mechanics of crypto currency.
Crypto currency basics
It relies on cryptography
The art of solving or writing codes
The word originates from the Greek, Kryptos, which translates as Hidden or Secret. The story of cryptography dates back thousands of years and is predominantly concerned with the practice of securing communication between two parties. It works through the use of protocols designed to hide or disguise the true meaning of a message.
The methods employed by cryptographers have continuously evolved throughout the centuries. Modern cryptography generally relies on principles of mathematics and computer science to ensure that it is infeasible to break encryption by any known practical means.
Cryptography in the context of crypto currency is used to secure ownership of digital currency addresses via a cryptographic technique known as public key cryptography. This topic is a foundational principle of crypto currency and the subject of its own post. This method involves the generation of both a public and a private key. The public key is used to encrypt data and can be freely shared. This becomes an address which funds can be sent to, akin to a bank account. The private key is used to decrypt the public key and allows funds to be spent from the public key by anyone that knows the private key. As such the private key should be protected and secured as it it represents the keys to the kingdom.
It uses a digital ledger
A digital record of economic transactions stored on computers
The ledger is a chain of all the transactions which have ever occurred in the crypto currency. It is effectively a record of all of the transfers from one public address to another and so on. These are recorded in blocks of transactions in a giant long chain, colloquially known as the blockchain. The blockchain is the second foundational principle which you can read about in more detail here.
It is decentralised
No central authority or power
Decentralisation is the third foundational principle of crypto currency. It refers to the fact that no central authority controls or issues the digital currency. The importance of this is paramount as it means that there is no central entity which can be attacked or shutdown. Equally there is no central entity which can be corrupted or manipulated. Crypto currencies are instead controlled by math and computer code, pure and incorruptible. Each node in the network maintains a copy of the complete blockchain which is distributed via peer-to-peer networking.
In summary, a crypto currency is a decentralised digital currency secured by cryptography. They are accessible by anyone, anywhere in the world and operate independently of central banks. The goal is to provide an outlet for personal wealth storage and transfer that can not be restricted or confiscated.
The first fully realised implementation of crypto currency quietly appeared on an internet mailing list in 2008, posted by the anonymous pseudonym, Satoshi Nakamoto.
And thus, Bitcoin was born.
In the next few posts we will take a look at the specific mechanics and concepts under pinning Bitcoin. This begins with a look at the inspirations that made it all possible.
If you’ve enjoyed this article, it would be my honour to have you as a regular reader. My intention is to provide regular high quality articles. These will range from introductions to crypto currency and Bitcoin, to guides on how to buy and the impact of all it on tax. Subscribe and you won’t miss any future posts ?