If you’ve been pretending (or not) to understand the blockchain technology conversation percolating around you the past few years but have no real idea how cryptocurrencies like Bitcoin, Etherium, and Litecoin actually work, you’re not alone. There’s a lot of nebulous verbiage of dubious value out there. Can you just tune out and hope the topic passes? Probably not. This technology has the capability of changing the game of how banks and retail payment processing works at a fundamental level. You should expect that blockchain cryptocurrencies will be part of the global conversation for a long time to come.
Understanding the Blockchain
You’ve probably noticed society is becoming more digital. Blockchain cryptocurrencies are a natural extension of that idea. The goal is provide the same old financial services we’ve always expected but do so in a decentralized digital manner that makes transactions efficient and secure. The idea of using a dispersed database that doesn’t require a third party as a way to authorize and log transactions arrived in 2009 via a mysterious person or group of people using the name Satoshi Nakamoto.
As applied to digital money like Bitcoin, think of blockchain as a database shared amongst millions of computer users around the world. In bygone days, banks kept paper ledgers to track the debits and credits of each client’s account. The computer age updated that ledger to a private database on each bank’s system. The blockchain has taken that database to the cloud and spread it amongst the processing power of anyone who chooses to participate and has the appropriate setup. Digital payments are logged to the blockchain in an almost unimaginably secure and efficient process that relies on a logical relationship to previous transactions. It’s as close as we get to “hack-proof” in today’s world.
The Rise of Cryptocurrencies
The really big idea that has come about through cryptocurrencies (another name for digital cash) is that it takes institutional bureaucracies out of the picture. Humanity’s entire financial history has been wrapped up in the idea that we must use “official” money provided by a national government and a system that involves a network of banks. Not any more. Cryptocurrency like Bitcoin exists independent of these institutions. No one owns it. No one controls it. There is no middle man. You don’t have to be a member of a financial institution and pay their transaction fees. You don’t even have to provide your real name. Any funds you acquire digitally are tied to a specific Bitcoin address (or other cryptocurrency) that only you can access.
What Can You do With Digital Cash?
The ultimate goal is to reach point where consumers can do anything with a digital currency that they can with its real world alternative. We’re not quite there yet. Cryptocurrencies are being adopted at a rapid rate but are still considered to be something of a novelty by a large part of the world. The good news is that a small business, either online or in the brick-and-mortar world, can choose to accept Bitcoin or its brethren as payment without the need to buy a new credit card machine for this kind of payment processing. A consumer’s cryptocurrency balance is stored in a digital “wallet” and can be accessed through QR codes or various apps that help smooth the way between vendors and spenders.
The Bottom Line
Retailers shouldn’t start bashing in their credit card machines just yet. The Cryptocurrency Revolution is still in its infancy and only time will tell if it results in the eventual overthrow of real world currency, but there is that possibility. We haven’t had any real advance in currency technology in a long time. You could still spend Middle Ages-minted pieces of eight in the United States up until nearly the end of the 19th century, so we can surmise that tradition is a hard thing to relinquish in the financial industry. Stay tuned. You haven’t heard the last of the blockchain.