Ye Olde CIO Explains It All
This Week (week 2): Cryptocurrencies-what are they, and are they another dang thing CIOs should worry about?
So…What are Cryptocurrencies?
Cryptocurrencies are encrypted tokens with their transactions recorded on blockchain.
And these are worth money?
Because people agree that they are worth money and are willing to trade for them.
Umm…Isn’t that crazy?
Actually, that’s how all currencies work. They have value because people agree they have value and are willing to trade for them. They have no value themselves; you cannot, for example, eat them when you are hungry. The same is true for gold and silver coinage. But currencies are useful because things that have actual value – cattle, hats, sheep, wheat, goats – are confusing to trade. If one longhorn is worth three sheep and three bushels of wheat, how many hats and goats is that? Also, it’s annoying to grab armfuls of goats when you are headed out to the Piggly Wiggly.
We seem to be completely off topic. What does this have to do with IT? And what’s mining?
Cryptocurrencies (Such as Bitcoin and Dogecoin) are “mined” using a mathematical process. High-performance computers – often with racks of GPUs, which are built to plow through calculations – are used to find a block – a sequence of data - that produces a particular pattern when the cryptocurrency’s hash algorithm is applied to the data. It’s basically high-powered guess and check, often taking days, and using up large amounts of power. This last point is why you’re starting to hear concerns about the environmental impact of cryptocurrencies.
Speaking of points, what’s the point of cryptocurrencies? Is this just another shiny new nerd toy?
Yes and no. No, in that cryptocurrencies are designed to serve as currencies worldwide without having to pass through existing banks and economic systems. Such as taxes. Yes, in that the majority of activity in cryptocurrencies is in investing in them. There seems to be very little going on in terms of using them as, you know, currencies.
- Are cryptocurrencies and blockchain the same thing?
No. Blockchain is a system for permanently recording transactions, such as when cryptocurrencies are used to purchase Teslas. (Tesla has announced they have decided not to actually do this.)
Blockchains are Write Once, Read Many distributed ledgers. More on this next week in Blockchain-what is it, and is it another dang thing CIOs should worry about?
Christopher J Feola is a SIM DFW Fellow. He welcomes comments and questions at Chris (at) Feolayden.com
The Fellows Blog is posted every Monday except holidays by the SIM DFW Chapter Fellows.