Polachecks Holiday 2021 Magazine

currency concern

WH A T , E X A C T L Y , I S


If you keep up with technology or investment trends, you’ve probably been seeing a lot about cryptocurrencies such as Bitcoin lately. Every day it seems like some famous person is endorsing it, a government is looking into regulating it, somebody is getting rich of off it, or an influencer is labeling it as a big bubble. It can be tough to come to an informed opinion with all of the noise, especially if you aren’t sure what crypto even is. Don’t worry if that describes you, because this article is here to help. It will present a brief tutorial on what crypto is, what it does, and why its price fluctuates so much. Most importantly, it won’t have the bias of opinion pieces, enabling you to make your own decision about it. WHAT IS THE BLOCKCHAIN? Any discussion of what crypto is has to begin with the blockchain technology on which it is built. The blockchain is the public ledger that records every crypto transaction for a given token. The Bitcoin blockchain records every Bitcoin transaction, for example, while Ethereum has its own blockchain. Information is stored on a “block” that can be “chained” to other blocks when they run out of memory, making the blockchain capable of permanently

recording an infinite number of transactions. The blockchain also offers several built-in security features to keep digital assets secure. First, tokens can be traced through every account that they have ever been in, making it possible to identify the source of any unscrupulous activity. Second, all blockchain transactions are processed by volunteer miners, who use powerful computers to ensure that every token is coming out of the account that it’s supposed to be in. Any effort to hack the blockchain would require every block to be hacked simultaneously to ensure that they agree with each other at all times. Otherwise miners would flag the transaction immediately. Some blockchains even offer unique functionality. For example, the Ethereum blockchain supports smart contracts, or arrangements where funds are distributed automatically once the prescribed conditions are met. Likewise, hard forks can transform one cryptocurrency into two distinct crypto tokens that share the same history before the fork. For instance, a hard fork split Bitcoin Cash from the original Bitcoin in 2017. TRANSACTION INFORMATION IS PUBLIC? CAN OTHER PEOPLE SEE WHAT I’M DOING? Yes and no. Crypto accounts (commonly called wallets or addresses) consist of two

random strings of characters. One of them is like a public username that shows up on the blockchain whenever you make a transaction, but there is no way to link that username to any specific individual. The other is a private key that acts as the password you need to complete every transaction. So long as your private key is secure, nobody can access your account, except you. Transactions are also recorded in a somewhat unique manner. Each one is represented by three data points on the blockchain: input, amount, and output. The latter pair are intuitive. Amount signifies how much crypto was transferred. Every blockchain has a different minimum, but it’s generally infinitesimally small. For example, the Ethereum blockchain supports the Gwei, or one-billionth of an ether token. The output is the address receiving funds. You might think that the input is the address transferring funds, but it isn’t. Instead, the input of any blockchain transaction is the source of the coins that are going to the output address. For example, if Carly gave Freddie 10 BTC that he is now transferring to Spencer, Carly’s wallet is the input of the transaction because she gave those coins to Freddie in the first place. It’s strange, but it’s what allows tokens to be traced through accounts.

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