There's a new fad in the economic industry and I'll be danged if I can figure it out. This new form of money is called cryptocurrency. I think of it as imaginary money, kind of like our bank account. I did extensive (read a little on the internet) research on this new money trend and let's just say, I don't think I'll ever figure it out.
To try and understand cryptocurrency, I found an article entitled, "How Does Cryptocurrency Work?" After reading for a few minutes I decided it was over my head and, after a little more trolling, I found the same type of article targeted for people like me who haven't a clue called "How Does Cryptocurrency Work? for Beginners."
Figuring that this should help me, I delved right in. My head was spinning after a couple of minutes but I persevered.
According to the article, and I'm semi-quoting here, cryptocurrency is roughly the equivalent to using PayPal or a debit card, except the numbers on the screen represent cryptocurrency instead of real money. (Sounds a LOT like my bank account. Ha Ha.) All a new user needs to do is set up a Coinbase account or download the CashApp. These allow users to buy, sell, send, receive and store more kinds of money such as Bitcoin, Bitcoin Cash, Ethereum, and Litecoin.
To use this, you don't need to understand it, That's good because I don't. Cryptocurrency is a digital currency (that exists only on computers) where transactions are recorded on a public digital ledger called a blockchain (?). It works similar to bank credit on a debit card. The main difference between cryptocurrency and bank credit is that instead of banks and governments issuing the currency and keeping ledgers, an algorithm does. That's all well and good as long as someone can explain who 'algorithm' is and where's my money.
The good thing about cryptocurrency is it eliminates the need for a purse and can be sent straight to friends and family. No snoopy bankers getting all in your business. It can be traded online using exchanges similar to stock exchanges. You can choose between Bitcoin (BTC), Ethereum (ETH), Ripple (I thought that was cheap wine), (XRP), and Litecoin (LTC) among many others. There is also an alternative to Bitcoin called "altcoins."
To send someone money you'll need software call "cryptocurrency wallets." You use the wallet software to transfer balances from one account (aka a public address) to another. To transfer funds, you need to know the password (aka a private key) associated with the account. Transactions are encrypted then broadcasted to the cryptocurrency's network and queued up to be added to the public ledger. Transactions are then recorded on the public ledger via a process called "mining." All users of cryptocurrency have access to the ledger.
To see the ledger you have to have software called a "full node" wallet as opposed to a third-party wallet like Coinbase. The transaction amounts are public but who sent the transaction is not. Each transaction leads back to a unique set of keys. Whoever owns the keys, owns the amount of money associated with those keys much like whoever owns the bank account owns the money in it (unless the IRS gets involved).
A transaction is sent to all users hosting a copy of the blockchain which is a decentralized bank ledger. Some users referred to as 'miners', try to solve cryptographic puzzles (using software) which lets them add a "block" of transactions to the ledger. Whoever solves the puzzle first gets a few "newly minted" coins as a reward. They also get transaction fees paid by those who created the transactions. Sometimes miners pool computing power and share the new coins. Each block is connected to the data in the last block via one-way cryptographic codes called hashes which are designed to make tampering very difficult. (Huh?) The difficulty of cracking the cryptographic puzzles and the amount of effort it would take to add incorrect data to the blockchain by faking consensus or tampering with the blockchain helps to ensure against cheaters.
People who are running software and hardware aimed at confirming transactions to the digital ledger of cryptocurrency are referred to as miners. Solving cryptographic puzzles (via software) to add transactions to the ledger (the blockchain) in the hope of getting coins as a reward is cryptocurrency mining.
I've also learned about something called NFTs (nonfungible tokens). What the heck? NFTs are part of the Ethereum blockchain. It is like bitcoin or dogecoin, but its blockchain also supports NFTs, which store extra information that makes them work differently from an ETH coin. BIG SNORE!
I think I'll stick to piggy banks and trading cards. That's the type of currency I can understand.