Back in September JP Morgan Chase CEO Jamie Dimon lit up the internet after his comments on Bitcoin during a Barclays Banking conference, suggested that cryptocurrency is “a fraud” and that he would fire any employee
for trading Bitcoin for being “stupid.” Dimon continued “It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.”
Appearing at a CNBC/Institutional Investor Delivering Alpha conference in New York that same day, the executive reiterated his dark view on cryptocurrencies in general, saying that “It’s not a real thing.”
Understanding the Basics
The underlying problem with the whole cryptocurrency debate may stem in part from a general lack of the understanding of the basics of blockchain technology, digital currency and Bitcoin. So here are some of the basics:
By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet. Originally devised for digital currency and Bitcoin, the tech community is now finding other potential uses for the technology.
Bitcoin has been called “digital gold,” and for a good reason. To date, the total value of the crypto market is $150 billion. And block chains can make other types of digital value. Like the internet (or your car), you don’t need to know how the block chain works to use it. However, having a basic knowledge of this new technology shows why it’s considered revolutionary
What is block chain technology is a sentence? According to Don & Alex Tapscott (authors of Block Chain Revolution) “The block chain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
It’s a distributed database – think of it as a spread sheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet, and you have a basic understanding of the blockchain.
Blockgeeks has an excellent tutorial on blockchain for more information.
After you remove the noise around crypocurrencies and reduce them to a simple definition, you will find it just limited to entries in a database no one can change without fulfilling specific conditions – the exact way a traditional currency is defined. Money is all about a verified entry in a database of accounts, balances and transactions. Sounds lots like my own checking account.
As Blockgeeks explains: A cryptocurrency like Bitcoin consists of a network of peers. Every peer has a record of the complete history of all transactions and thus of the balance of every account.
A transaction is a file that says, “Bob gives X Bitcoin to Alice“ and is signed by Bob‘s private key. It‘s basic public key cryptography, nothing special at all. After signed, a transaction is broadcasted in the network, sent from one peer to every other peer. This is basic p2p-technology. Nothing special at all, again.
The transaction is known almost immediately by the whole network. But only after a specific amount of time it gets confirmed. Confirmation is a critical concept in cryptocurrencies. You could say that cryptocurrencies are all about confirmation.
As long as the transaction is unconfirmed, it is pending and can be forged. When a transaction is confirmed, it is set in stone. It is no longer forgeable, it can‘t be reversed, it is part of an immutable record of historical transactions: of the so-called blockchain.
Only miners can confirm transactions. This is their job in a cryptocurrency-network. They take transactions, stamp them as legit and spread them in the network. After a transaction is confirmed by a miner, every node must add it to its database. It has become part of the blockchain.
Are Crypocurrencies the Next Big Thing?
Maybe. Some think the markets are dirty, but this does not change the fact that cryptocurrencies are here to stay – and likely change the world in the process. People all over the world are buying Bitcoin to protect themselves against the devaluation of their national currency. Mostly in Asia, a vivid market for Bitcoin remittance has emerged, and Bitcoin is found on the darknets of cybercriminals.
On the other hand, more and more companies are discovering the power of Smart Contracts and tokens on Ethereum, the first real world applications of blockchain technologies are emerging.
Institutional investors are starting to buy cryptocurrencies. Banks and governments are realizing that this invention has the power to lessen their control, regulate and tax these transactions.
Cryptocurrencies are already changing the world every day. Think back on the broad skepticism many had about online banking in the late 1980s, the informational potential of the internet in the early 1990s, or the limitations of “flip-phones” in the early 2000s; and even the impossibility of online shopping volumes overtaking traditional brick-and-mortar retail in more recent years.
All these sectors encountered disruptive technology that changed the way most of us do things every day, including financial transactions. It is unlikely cryptocurrency will be any different.