The term cryptocurrency has been bandied about recently, with the RBZ banning finance houses from trading cryptocurrency in Zimbabwe and the governor John Mangudya calling the Zimbabwean RTGS balances a form of cryptocurrency. It is easy to assume that any digital currency is cryptocurrency, but is it?
A combining form meaning “hidden,” “secret,” used in the formation of compound words
If crypto means secret and currency is money, does that mean cryptocurrency is secret money? Not really, here are some of the key elements of cryptocurrency:
This is a technique used to send secure messages back and forth, it encodes data in a way that is almost impossible to crack and makes cryptocurrency transactions secure. It is used to secure transactions, control the creation of new units, and verify the transfer of assets and tokens. Cryptography is used to emulate signatures as used in the banking sector.
Cryptocurrencies are strictly digital. There is no real-world cash corresponding to a cryptocurrency. Bitcoin has not actual coins minted in a factory somewhere, it is just stored and exchanged digitally. So, if a currency has note and coin versions it cannot be considered a cryptocurrency.
The technology used to make cryptocurrencies cannot be fully controlled by anyone. The supply and creation of the cryptocurrency is not controlled by a single individual or organization.
Cryptocurrency transactions cannot be undone. Transaction history is very difficult to rewrite. Once a transaction is done the records of that transaction are very difficult to retrieve. This can make it hard to tell when someone steals your cryptocurrency but, cryptocurrency also makes it impossible for anyone who doesn’t have the right private key (a crypto version of a signature) to initiate a transaction.
What about bitcoin?
Bitcoin is the first modern cryptocurrency to be developed but there are so many other cryptocurrencies (alt-coins) available now. The world is still trying to figure out what cryptocurrency is and how to use it. Is cryptocurrency a commodity or a security? And if you remove the bank that handles the currency, the mint that makes the money and the central bank that determines how and when the money is produced, how do you sustain the currency?
The first question is a bit hard to answer. The most accurate response would be “it depends”. The answer to the second question is blockchain technology.
Now you know what defines a cryptocurrency so next time someone mentions it you’ll be able to keep up with the conversation; unless is you’re talking to blockchain lovers. We’ll save that topic for later.