What in God’s name is Crypto currency and why do I keep hearing about it? With a growing resentment of centralized banking, it may well be the future of e-commerce, so I thought I would take the time to look into, and explain it in the medium of a story, least of all for my own benefit.
With centralized banking, the bank acts as a middleman, verifying transactions and taking a cut. If I, for example, pass through the duty free shop and buy a few cartons of cigarettes, and pay buy card, I thereby instruct my bank to transfer the money in my account to that of the duty free shop.
But let’s say I have health insurance, I take a turn for the worse, I give my insurance company the bill for my heart transplant when they point to the fact that I’ve been buying cigarettes despite telling them I was non-smoker.
I’m in crippling pain, and unable to go to work I sit around all day watching Breaking Bad. I’m inspired by Walter White, and decide I’m going to start selling drugs to pay for my operation.
I go down to the nearest club to do some market research and ascertain that all the kids are taking MDMA. Subsequent research shows that individually all the ingredients are legal, yet their combination is not. I want to buy the ingredients on the Silk Road (a website where I can get hold of pretty much anything. The original was shut down by the FBI, but similar websites continue to pop up), but I don’t want my dear wife asking why we’ve been billed for industrial amounts of Palladium and the like.
This is where crypto-currencies like BitCoin come in (there are many different currencies, yet BitCoin is by far the most widely recognized and accepted). Unlike with traditional banking where my name address and dental records are all on file, the only thing that connects me to BitCoin is my ‘Public Key’ (username). If I have a public key and I want to transfer, let’s say, two BitCoins in exchange for a commodity, I do what is known as a ‘shout out’ whereby decentralized intermediaries within the BitCoin community validate my transaction and update the ‘block chain’ (ledger). With centralized banking my money never actually leaves the domain of the banks, yet with peer-to-peer banking the BitCoins exist in file on my hard drive.
So I have a method, and a supplier, but I can’t buy any BitCoin currency because I don’t have any money. The price is still pretty volatile, but at the time of writing a single BitCoin would set me back 490 U.S Dollars. It seems as though all is lost until I realize that I can become a ‘miner’. Miners are like bank clerks. They are the people who monitor and validate each transaction, and in exchange for their hard work they are given BitCoin currency.
Mining requires a lot of equipment, and at least 50,000 dollars of investment, but hey, my heart ain’t gonna fix itself, so I go through with it, and decide to try my hand at speculating on the day markets, as well as mining the currency.
Huzzah! I sell the gear, pay for the heart transplant and go back to work. And the moral of the story is: Don’t privatize health.