So what are Alternative Electronic Currencies, and WHY?
The original Alternative Electronic Currency, or Cryptocurrency, was Bitcoin, from here on referred to as BTC. BTC was designed to be a pier to pier, electronic, no-trust currency protected by cryptography, implemented to compete with the current banking system and fight corruption. In simple terms, it is a new form of digital currency that is native to the internet and controlled by its users instead of a central authority.
BTC’s programming can best be understood by splitting it into 4 key interconnected aspects: Proof of work, pier to pier decentralization, immutable blockchain of records and cryptography. Though all 4 key components are interconnected within the coding of BTC, it helps to understand each component individually.
The structure of the BTC network is based on a pier to pier decentralized model, this means that much like Napster in the past, BTC does not exist in any one central location. This pier to pier BTC network supports the entire system, and every person involved in this network has a ‘wallet’ in one form or another that allows for the storage or direct transfer of BTC. This network also consists of miners, which use a "proof of work" system to verify transactions, prevent double spending and slowly release new BTC to the network. These miners also share any fees acquired from the last "block" of transactions.
Proof of work is the key to the mechanism by which individuals compete to solve the next block of BTC transactions. Proof of work is based on Adam Back’s Hashcash, a system designed to compete with spam and denial-of-service attacks by forcing an individual to use CPU power during the email process in a fashion similar to a brute force computer hack. Through this mechanism, tied to an algorithm more complex than worthy of explanation here, miners compete to solve the next block of BTC transactions in the blockchain therefore preventing double spending.
Blockchain is the immutable record of all transactions that have ever occured on the BTC network. Every time their is a new BTC transaction, or change across the BTC network, all nodes which comprise the network have to come to a general agreed consensus about the changes being made. This consensus is not handled manually, but electronically and automatically across the network, and once that consensus is reached a record of that consensus becomes a part of the very code the drives BTC. This immutable record of transactions locked into the blocks of BTC code is then 100% secure, because tampering with this code in any way would make an individual node fall out of consensus with other nodes and be overridden, this blockchain can be viewed as a permanent record forever tied into the BTC programming. This blockchain holds many possibilities that have yet to be utilized to a fraction of their potential. One example is adding historical records to the blocks thus creating an immutable record of history. A record of history agreed upon without borders, religions or any other cultural influence. This immutable record also means that any major crime or act of corruption with a financial component has a permanent record of evidence that can be used for the courts if it is worth the time and resources to decipher the associated cryptography.
Cryptography is an important aspect of BTC; The cryptography associated with BTC comes from the SHA 2 family tree, a US GOVT secure hashing algorithm standard, and exists as an ‘unhackable’ hashing algorithm. This algorithm is used both as a part of the miners proof of work mechanism and to create individual wallet addresses. BTC has some drawbacks, one example being that making a wallet adress public now makes that wallet vulnerable to tracking, which can become dangerous in the wrong hands. Also transaction times and fees can leave something to be desired for the business owner. However, BTC has it's place as a store of value, and other cryptocurrencies fill the gaps BTC has left.
So why is this something your business wants to get involved with? Imagine being the last business on the block to accept credit card payments, not taking the simple steps required to involve your business with cryptocurrency would be similar to that blunder, and soon will have the same devestating effect. Simply put, many cryptocurrencies offer rapid transactions at a fraction of the fees credit card processing companies charge, the change over is inevitable.