Crypto Currencies Pt. II
Key Take-Aways
- The blockchain — the technology on which cryptocurrencies are based — is comparable to a public ledger.
- Bitcoin miners (“prospectors”) verify transactions and are remunerated for their activities with cryptocoins.
- In Initial Coin Offerings (ICOs), companies issue blockchain-based tokens to finance themselves.
Cryptocurrencies like Bitcoin are based on a technology called blockchain. Its invention is also attributed to Satoshi Nakamoto. The blockchain is a globally distributed decentralized database that can be viewed by everyone and cannot be changed in retrospect. It was developed because digital transactions can be easily copied. Early forms of digital payment systems, such as eCash, had a central location for account balances for this reason.
The old system did a lot of damage, destroyed many people’s savings, and redistributed a lot of money from the industrious to the powerful.
With blockchain technology, this is no longer necessary: All transactions are recorded in the blockchain, which is comparable to a cash book that can be viewed by the public, and all connected computers download the latest version of the blockchain at any given time. Incidentally, blockchain technology can be used not only in payment transactions, but everywhere where information needs to be publicly accessible and not changed retrospectively, such as in the creation of land registers or the notarization of documents.
Bitcoin’s creator Satoshi Nakamoto triggered a revolution with his invention that will profoundly change the economy and society.
The so-called keys are also important for understanding cryptocurrencies. They are needed to prove ownership of digital currencies or for transmission. The principle of asymmetric encryption applies: the sender and receiver each need two matching keys, a private and a public one. The public key can be used to send money, while the private key is used to access the money. The public key is comparable to an account number, the private key to the PIN.
In addition to blockchain and key, the terms miner and mining are often used in connection with digital currencies. They are easily misleading, because miners are not money creators. Rather, mining is a process that updates the blockchain and checks whether transfers are compliant with the rules. Thus, the term auditor would be more appropriate. For the audit, a miner writes the transfer into a block, a digital list of transfers, where each block refers to the previous block. This creates a chain of blocks, hence the name blockchain. Miners are paid cryptocoins for this task. In addition, miners receive transfer fees. In principle, anyone can become a miner, but in practice this now requires very special, very fast, and correspondingly expensive computers. In addition, miners often no longer work alone, but join together to form mining pools.
With the price increase, we are not dealing with a short-lived bubble.
Finally, a major topic in connection with cryptocoins is Initial Coin Offerings (ICOs). These are a new type of financing for companies or projects, comparable to initial public offerings (IPOs). In an ICO, blockchain-based tokens are sold to investors, which can later be used to buy software solutions developed by the company, for example. Some tokens are also sold on crypto exchanges.
Remarks
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M.Sc. Ehsan Allahyar Parsa is head of marketing at the Blockchain Founders Group — a venture capitalist and company builder backing Basenode.io.
In 2020, he was ranked as one of the “Top 100 Shapers” in the DACH region. Further, he speaks 10 languages and has traveled to 30+ countries, of which he has already worked in 9 spread over 3 continents. He has already been honored by the Chancellor for his social & political commitment at the tender age of 23.
As a sought-after international speaker, the serial entrepreneur is renowned for his speeches on numerous stages like the German Shark Tank Primetime TV Show (DHDL) and the United Nations General Assembly in New York City.
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