The cryptocurrency world is a weird and wonderful place that can sometimes feel like it’s gone insane. There’s crypto memes, Bitcoin millionaires and Lamborghinis in the wild, cryptographers talking about zorliaths (zorro-shaped numbers), and people spending millions of dollars on virtual pet toys called “NFTs.” All of this can make it easy to wonder what the fuss is all about. The short answer is that crypto, or at least the blockchains that power them, are transforming how we do business and exchange value. But there’s a lot more to it than that.
The word “crypto” comes from the term cryptography, which is the science of encoding and decoding information. But these days, the term is almost always used to refer to cryptocurrencies and the technologies that underlie them, including blockchains, NFTs, Web3 applications and DeFi trading protocols.
Blockchains are shared databases that store and verify information in a secure way. Proponents say they’re more secure than traditional record-keeping systems because they don’t rely on a single company to oversee them. Instead, they let hundreds of computers compete to add new records by solving complex algorithms. Anyone who tries to corrupt the record-keeping would have to break into lots of different computers at once, a near impossible feat.
Critics worry that the blockchains themselves require a huge amount of energy to operate. That’s because most of them use a process known as “proof-of-work,” which is a global guessing game that requires powerful computers to compete for a reward. And that takes a lot of electricity, which in turn is bad for the environment.
Many governments have taken a hands-off approach to cryptocurrencies, but they’re starting to craft rules for the industry as it grows and evolves. This is a tricky task, as it’s hard for regulators to create rules that limit traditional financial risks without stifling innovation.
Some people use cryptocurrencies to speculate, buying them in hopes that they’ll be worth more in the future. But the value of most cryptocurrencies isn’t tied to any real-world assets, and it’s possible for them to lose value entirely. In addition, crypto users face security and privacy concerns.
There are also legitimate uses for cryptocurrencies, most of which involve buying goods or services with them. The list of things you can buy with Bitcoin or other popular cryptocurrencies grows daily, and more retailers and payment processors are getting comfortable accepting them. You can even get a debit card that lets you spend your cryptos in stores and online, just like any other plastic card.