cryptocurrencies
Using cryptography and distributed databases, cryptocurrencies try to emulate fiat currencies, but without being managed by a central government.
The biggest one currently is Bitcoin (BTC), followed closely by Ethereum (ETH). So far this has enabled the creation of software-defined agreements called "Smart Contracts" as well as spawn and entirely new species of malware, in which subverted computers are used to mine coins backed by Proof of Work. This has allowed the commodification of the internet (beyond that of advertising, of course) and possibly of all social interaction via the Metaverse project.
- Wallet
- A cryptographic keypair that is used to send and receive tokens on a blockchain.
- Block
- This is a batch of transactions, normally stored as a hash tree.
- Blockchain
- A data structure that serves as a distributed ledger recording transfers between wallets.
- Each link in the chain contains a block and the cryptographic hash of the previous block. These hashes allow validators to prove that the data being sent (transactions, or in the case of smart contracts, program execution) has not been tampered with.
- Validator / Miner
- These are machines connected to the cryptocurrency's network that perform the work of ensuring that there are no invalid or malicious transactions (double-spends) and come to an agreement as to which blocks belong in the chain via the cryptocurrency's Consensus Algorithm.
- Validators or Miners receive transactions from wallet-operating software, and process these transactions into blocks for approval via the coin's consensus algorithm.
- Consensus Algorithm
- A method for getting all the validators or miners to agree on which block gets to be added next to the blockchain, and how to compensate validators for their computational power keeping the network secure.
- The two main methods are Proof of Work (PoW) and Proof of Stake (PoS)
- Block Time
- Estimated time between block validations, which would be when a given transaction is considered as "final" or "cleared". Because of the time it takes to achieve consensus on the status of the chain, this may delay the clearing of transactions. The sender of a transaction may choose to add a transaction fee to expedite their transaction.
- Block Reward
- Newly minted coins that are added into the network in order to compensate the work done by validators, plus any transaction fees that a sender has added to expedite their transaction.
- Proof of Work
- Each machine validating transactions, called miners, perform some arbitrary computation, normally a hash functions, until they get a result that satisfies a certain set of requirements that set the difficulty. In the case of Bitcoin, it is the number of zeroes in the resulting hash. The first one to provide a hash that satisfies the requirements wins the reward for that block. The longest chain of blocks is then considered to be the "legitimate" chain, in the case of simultaneous solutions.
- This effectively turns computational power (specifically, to hash transaction records quickly) into money, directly. And computing power into voting power, indirectly. Miners can choose to not accept certain changes into the blockchain by rejecting blocks from opposing miners, and so on. And because the longest chain has the most legitimacy, those that can solve the most blocks will have the most say as to what changes are made in the blockchain protocol of their respective cryptocurrency.
- Proof of Stake
- Validators hold a certain amount of their own tokens, or of other wallets' tokens in the case of "Delegated Proof of Stake", and the next validator to be chosen to add a block to the chain is chosen randomly based on the total amount of tokens held, or "staked".
- This merely reproduces the existing capitalist system, but in the digital realm. There are some ways to directly disincentivize stakeholders from holding more than 51% of the available tokens, but in most cases, according to the principles of mutually-assured-destruction, if the network is compromised, as demonstrated by the control of 51%+ by a single entity, the trustworthiness of the coin goes down. If it goes down, those who control it, for holding the most coins, stands to have the most to lose.
Proof of Work and Climate Change
Fast forward to 2009, which saw proof of work (along with another technology called the blockchain, a kind of public ledger) used for a very different purpose; making the digital currency Bitcoin. This is a simplified explanation, but to make a bitcoin, Bitcoin “miners” task their specialized computers to solve those proof of work puzzles, competing with one another to validate blocks on the blockchain. A successful solution- which is somewhat rare- rewards the miner with the new coin. The more a computer “works” (the more energy is expended) the more competitive it is. You can think of it as a lottery, with every kilowatt-hour a ticket. This process is called mining.
... After a decade+ of a growing cryptocurrency market, what we’ve been left with is a financial network that uses more energy than Argentina , with no regulatory structure or federal oversight whatsoever... ~
Misc.
Chivo download numbers have been negligible in 2022, suggesting that the push has run out of steam. Some of those who have stuck with the application are using it for transactions unrelated to Bitcoin. The median active user does not send or receive a single Bitcoin payment a month nor make any Chivo ATM withdrawals, the survey found.