16. June 2022

What are cryptocurrencies?

Pétur Sigurðsson, ismynt ehf.

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Crypto currencies are digital asset, whos owners can control with a digital key. Every asset is connected to a specific key, and only with that key that asset can be moved. This key can be representes as a string of letters, and whoever knows this string of letters can move the funds that are connected to that key.

Crypto currencies are not a new phenomenon, but have been developed by countless enthusiasts for decades, but on the year 2009 the first decentralized cryptocurrency was created, Bitcoin. What makes Bitcoin special, is that it is the first decentralized currency that solves the double-spend problem without sacrificing decentralization. What that means is that Bitcoin is a system that allows owners of digital assets to spend those assets in a secure environment where transfers are secured, without relying on a centralized agency.

Bitcoin was created by a person who called himself Satoshi Nakamoto, but noone knows for sure who this person is, or if he was alone or the name is an alias for a group of people. But after bitcoin creationg, Satoshi Nakamoto disappeared and has not been heard from again.

After Bitcoin many crypto currencies have been created. Most of them are trying to solve percieved problems associated with Bitcoin, while other are adding functionality to the system through new features. Today there are thousands of crypto currencies, and growing daily, and their effect on commerce, finance and peoples lifes, will continue to grow.

Why cryptocurrencies?

But why cryptocurrencies? Why should anyone bother with these phenomenons that is called crypto and blockchain? What has this technology to offer, isnt this simply a fad that will fade away like the mullet? Or is this not simply a piramid scheme?

Inflation of national currencies

General currencies are issued by central banks where money printing is either centralized or controlled by private parties within the banking system in the form of loans. This inevitably leads to inflation, which is difficult to control and hurts the public the most. Inflation occurs when the value of a currency falls, which is the result of an increase in the amount of that currency in circulation. Since money printing is completely out of the hands of the public, but controlled by capitalists and central banks, it seems wrong to think that it is the public that has to bear the brunt, but that is the case. Deposits and salaries of the public are shrinking while the banks are flourishing and making record profits.

Inflation of cryptocurrencies

Cryptocurrencies are a possible substitute for traditional currencies and cryptocurrencies are built in such a way that it is possible to specify exactly what the amount of the coin will be at any given moment. Rules can be put in place when creating the blockchain that the cryptocurrency is based on that ensures that the amount in circulation is predetermined and not an arbitrary decisions by bankers or governments. This creates a level of predictability that cannot be had with traditional currencies. Some cryptocurrenices are even designed in such a way that their number decreases over time and therefore they have a negative inflation.

Development of virtual assets

Virtual assets are a development where the blockchain is used to secure the ownership of an individual, or the holder of a key, to something predetermined. This "pre-determined" thing can be a jpg image, a real estate, a domain name, or really anything, as long as there is an agreement that the ownership is controlled by the blockchain. These assets are transactions in the blockchain and can be transferred between "keys" or owners within the blockchain. People may know this phenomena under the name NFT or "non fungible tokens". NFTs have so far been primarily used to secure ownership of electronic works of art and images, but the possibilities do not stop there and can be used for ownership of anything that can be owned.

The possibilities of the blockchain

The possibilities of the blockchains are not fully explored, because now with the introduction of the 3rd generation of blockchains, where polkadot is at the forefront, democratic elections have been carried out and systems are being developed that guarantee the anonymity of elections better than any current computer system can guarantee. Individuals will also be able to prove their identity with the help of blockchains, medical records can be encrypted but also accessible, and the list goes on.

Where we are today

After the economic downturn of the last year, many people have lost faith in the future of blockchains and cryptocurrencies, especially those who invested in it with the intention of receiving a quick profit. Those who have invested in the last 12 months are probably in the red on their balancesheets as the world is going through the deepest financial meltdown since the banking collapse of 2007. However, history tells us that markets usually correct themselves thoroughly, and if you look at the fluctuations of Bitcoin over the last decade, you can assume that the last high will be the next low when considering the price of the electronic coin.

ismynt, on the other hand, is "in it for the tech", we don't care about the actual price of the electronic coins because we have looked through the window of the knowledge that lies behind blockchains and have seen a future that is inevitable and revolutionizes the current idea of what a currency should be. The old theory of supply and demand is of course in full effect and will make other currencies a thing of the past when electronic coins based on blockchains are in general use.