Cryptocurrencies: A volatile misunderstood technology.

Crypto Currencies seem to be in the news every day. With a new one emerging almost as frequently. Many people are getting in the excitement of cryptocurrency without fully understanding what they’re getting into. So, what even is a cryptocurrency? Breaking down the two words we can extract some meaning of what it is. Crypto is short for Cryptography a way of securing information. Currency is defined by the Marriam Webster dictionary as something (such as coins, treasury notes, and banknotes) that is in circulation as a medium of exchange. Combining these two together we get securing something that is in circulation as a medium of exchange. In its most basic terms a crypto currency is a digital currency that is secured using cryptography. This should raise many questions like: where do they derive their value, is it secure, who controls it?

The answer to the first question is tricky because Crypto currencies don’t act like a currency, they act more like a precious metal or asset. The value of cryptocurrencies is prone to many aggressive spikes making it unpredictable and volatile. The currency isn’t really used as a currency at all a lot of the time. Many people speculate on it. Treating it almost like a stock anticipating appreciation after purchase only to sell it later. Cryptocurrencies share almost nothing in common with modern currencies today. Besides having a ledger and bargaining power the similarities between cryptocurrency and regular currency end.

Using bitcoin as an example cryptocurrency is not as secure as one might think. Bitcoin and its market places have been hacked numerous times, its been used for an unprecedented amount of illegal activity and fraud making it prone to government seizure, and because of its anonymity once currency is lost or stolen it is virtually impossible to retrieve them. Making reimbursement impossible. The underlying technology for bitcoin is called the blockchain. Due to how the block chain works it is prone to something called a 51% attack. A 51% attack is when one individual controls over half the computers on the network, with majority control of the network they have control over the ledger. Although a 51% attack has never happened it is speculated that if one were conducted it would destroy the whole currency.

No one controls the currency which is why a 51% attack would be so damaging. Without a central governing authority, there is no regulation. Continuing using bitcoin as an example it is very difficult to stabilize the currency as it depends on uncontrollable factors primarily its use as a medium of exchange. Another piece that makes it hard to price is there is a set number of bitcoin to exist, giving it a very limited finite number. Once that number is reached it could devalue the whole currency as it couldn’t be created anymore. Miners would have no incentive to continue verifying purchases.

Cryptocurrencies are a very volatile complex marketplace that does not work how normal currencies work. They are not as secure as many people think and have no central authority to regulate or provide legitimacy for. Cryptocurrencies do not provide us the future in payments that we want or need.