Cryptocurrencies And The Internet Of Money
September 4, 2017

Bitcoin, Ethereum, Litecoin, Ripple…the list is long and full of possibility. But what exactly are they? Cryptocurrencies, or ‘The Internet of Money’, that’s what and some of the biggest buzzwords of today. Here we take a brief look at what cryptocurrencies are, where they came from and why. 

This quick guide assumes you already have a basic understanding of what Blockchain technology is and how it works. If you’re not yet up to speed on the basics check out our blog on Blockchain here.

Where did Bitcoin Cryptocurrencies come from?

First things first, let’s just clear one thing up. Bitcoin is not the same thing as ‘cryptocurrency’. It is not another word for the online cash phenomenon, rather it is one of many different currencies available. In grave danger of becoming the new ‘hoover’[1], Bitcoin is better understood and thought of as the Dollar (USD) to your Pound (GBP), or your Euro (EUR) to your Yen (JPY).

So where and when did the ‘smart money’ movement start? Believe it or not it’s not a recent invention. We’re talking 25 years old already – before we even had debit cards for point-of-sale (POS) payment facilities. It’s a complex history to say the least but worth mentioning is how one of the first instances of smart currency in operation stems from truckers in the Netherlands needing a secure way to pay for fuel. With truck stops regularly hit by the highway men or bandits of the era, frustrated with constantly being robbed, the gas stations start accepting smartcards from drivers instead of cash. Ok, so not quite a cryptocurrency, but events like this sowed the seeds for what we’re seeing grow today.

Fast forward to 2008 and an article written by Satoshi Nakamoto proposes a peer-to-peer electronic cash system. Shock waves rolled through the financial word, not least felt in 2009 when the ‘big crash’ had the world asking how we could have avoided it…or better yet, safeguard our money from foolhardy bankers in the future. In May 2010 a bitcoin forum users known as Laszlo claims to have ‘successfully traded 10,000 bitcoin’ for a pizza [2] (bet he’s crying in to his mozzarella now). At the time of writing this article (9.30am, 31st August 2017) one bitcoin was trading for over £3699.
 
Why did altcoin currency start trending?

Through a combination of distrust and destabilisation in banking and governmental institutions worldwide (a need to ‘decentralise’ currency), though it may surprise you to know that some crytpocurrencies are controlled by these very establishments; and a general need to secure online cash flows in such a way so as to prevent complex interceptions.

With the rise in connectivity and the internet of things (IoT), wanting a way to secure cash in the event of a bank folding, or a government collapsing, and a need to keep those assets out of malicious hands; naturally cryptocurrency has become a hot topic. What’s interesting about altcoin is how much it has permeated everyday conversation and not remained the reserve of technophiles and city traders. If this tells us anything it’s got to be that this isn’t just a flash in the pan and something worth doing your research on…and maybe even investing.
 
But if cryptocurrencies are ‘decentralised’ who is backing them? How is the money made?
 

As you know, traditional banking is funded and set according to gold reserves, with individual currency markets fluctuating according to the corporations or governments request or demand for more notes to go in to production. Each note being a promise to ‘pay the bearer on demand’, or equivalent.

In a decentralised model, corporate boards and governments can make no such demands and hold no such sway.

As of March 2015, hundreds of cryptocurrency specifications exist; most are similar to and derived from the first fully implemented decentralized cryptocurrency, bitcoin. Within cryptocurrency systems the safety, integrity and balance of ledgers is maintained by a community of mutually distrustful parties referred to as miners: members of the general public using their computers to help validate and timestamp transactions adding them to the ledger in accordance with a particular timestamping scheme.[3]

The security of any cryptocurrency is thus based on the premise that all the miners are working in tandem to honestly maintain these infinite ledgers – financially incentivised of course.

To cut a long story short, these miners and their software solves complex mathematical problems and annotate ledgers with blocks of information, each one connected to the last and to the next, hence forming the chain.
 
What are altcoins used for?

The answer to this is simple. Everything. Just not yet. That said, there are altcoins out there that are seen to be closely affiliated with exchange for commodities in particular industries.

Take DogeCoin for example. Yes, you read that right. We’re talking Doge, as in the popular dog meme. Introduced at the tail end of 2013 (excuse the pun), this altcoin was initially launched to parody the rise in cryptocurreny but quickly gathered steam and by 2017 the Dogecoin industry is worth in excess of $340 million! And yes…Dogecoin is associated with a number of pet related endeavors, petfood outlets and animal charities.

Can we expect there to be a dedicated currency for the healthcare industry? Perhaps. Blockchain technology certainly has a bright future in this field and is even thought to be (part of) the answer to the NHS and American Healthcare system woes. Watch this space.

The basic premise is that these altcoins or currencies were created as a new way for companies, predominantly software based, to raise funds for development of new products. So in a round about way you're buying company shares, or currency from that company to be used to purchase their services. Of course it doesnt really work that way, or atleast it doesn't have to. What's actually happening, is the familiar 'buy low, sell high' strategy used in investment markets for decades. And so 'currencies' are born.

What about altcoins becoming our primary means of payment? It’s no secret that many establishments already accept bitcoin as payment. Primarily high-end items like luxury cars, technology and legal services. But what about the little everyday items like a trip to the supermarket, or a night on the town? That’s where the likes of Litecoin come in. Widely considered to be the silver currency to Bicoin’s gold, Litecoin can be exchanged for a range of services from clothing and games to jewellery, and of course for other cryptocurrencies via ‘shapeshifter’ technologies.

Still very much in it’s infancy, we can expect payment facilities to become widespread across the globe, making it as easy to purchase items using smart money as it is with contactless payment; slowly but surely replacing the traditional money-for-goods-and-services exchange we all know.
 
Where can I get some cryptocurrency?

Like stocks and shares, gold and oil, cryptocurrencies are now widely available on a range of markets. Some exclusive to these currencies, and others more diverse to include the traditional investment elements listed above. It’s fairly easy to get set up and manage your own portfolio with mobile apps and desktop interfaces that allow you to buy and sell altcoins at the touch of a button. Better yet, there are Bitcoin ATM devices springing up in corner shops as we speak. Seriously, Google it.
 
Are cryptocurrencies safe?

With global, enterprise-familiar names, and Blockchain technology at the fore of the cryptocurrency boom, your asset exchanges are verified and tracked to an unprecedented level. Microsoft Azure for example, now offers Blockchain as a Service (BaaS) providing a secure environment not only to develop, test but to deploy blockchain applications.  

The result is a more open, transparent and publicly verifiable system that will fundamentally change the way we think about exchanging value and assets, enforcing contracts and sharing data across industries…

Blockchain is an emerging way for businesses, industries and public organisations to almost instantaneously make and verify transactions – streamlining business processes, saving money and reducing the potential for fraud.[4]


Instead of the traditional method of one single record of where your money was, and potentially where it went, Blockchain technology ensures multiple records of your exchanged assets are distributed across a wide range of devices, thus providing a more transparent record in a openly verifiable state. In this sense cryptocurrencies are very safe.

​Add to that Microsoft's recent announcment that they will join IC3 (Initiative for Cryptocurrencies and Contracts​), demonstrating their committment to transforming the future of financial systems, ensuring they are transparent, secure, flexible and efficient. The future of fintech is definitely looking very bright...or should that be 'smart'?

On another note, Enterprise aside, where it perhaps gets a little confusing to the man on the ground is the need to have a ‘wallet’. These can be offline (paper kind, storing printed out QR-Codes), memory sticks keeping your investments ‘cold’ and away from potential hackers, and online ‘hot’ wallets that are connected to the internet and thus more vulnerable to attack. On top of that, not all wallets are created equal.

Some wallets only accommodate Bitcoin, while some will store Bitcoin and Ethereum, and others will host considerably more. Unfortunately, as yet there is no universal wallet allowing you store all cryptocurrencies, so depending on your investment strategy you may find yourself in possession of a number of wallets. In this case we strongly recommend you look in to purchasing an offline hardware wallet to keep your coins safe, only using online wallets as a means to take delivery of your coins after you have paid for them, then transferring straight to cold storage.

Business evolving? Ready to embark on a digital transformation? If you'd like to discuss how leveraging Microsoft Azure can help you keep your systems secure call us on 028 9087 2222 or drop us an email below.

 

 Security code

 
 
 
[1] https://www.quora.com/Why-do-the-British-use-the-word-hoover-instead-of-vacuum
[2] https://bitcointalk.org/index.php?topic=137.msg1195#msg1195
[3] https://en.wikipedia.org/wiki/Cryptocurrency
[4] https://azure.microsoft.com/en-gb/solutions/blockchain/

Return to blog

We're Hiring

Interested and want to know more?Send us an email