by Nils Smith, Chief Strategist Social Media+Innovation
Innovation in technology is progressing fast… especially when it comes to money. In case you’ve been wondering, cryptocurrency is essentially digital money. And you might even say it’s the future of currency.
How it all began
Money has been around for thousands of years as a way to hold and store value. For instance, before the first coin was invented people would exchange goods that represented value. If you needed corn and I needed sheep, we would exchange those two things, agreeing on an equal value. The problem came if one had excess of a good but did not yet need to exchange it for another good. That is when the first coin was created. It was a way to “hold” value.
Currencies became a part of government systems to provide a set value representing what could be exchanged for that coin. Today, dollars, pounds, and pesos are all examples of different currencies. Although, it’s hard to fully grasp what our money is actually worth.
Sometimes the value of certain currencies increases or decreases. Do you remember when a Big Gulp from 7-Eleven was 99 cents? Today it’s $1.50. The value of a dollar has decreased. Without diving deeper into economics, suffice it to say that in our dollar is an agreed upon store of value. And in the same way, cryptocurrency is really just a digital coin with a store of value.
Of course, there’s more to it. The first cryptocurrency, Bitcoin, was created almost 10 years ago upon Blockchain technology. Blockchain is built on a ledger system and every time an exchange is made, the system tracks the transaction in the chain. Anyone who has a computer or phone connected to this Blockchain can see that this exchange took place. So it creates a level of security and governance that isn’t dependent on people, but rather on this technological system.
In essence, Blockchain takes the money out of a person’s hands and encrypts the data so the transaction can take place without anyone actually managing it. The Blockchain manages itself. And today, we’re seeing legal transactions and even real estate transactions taking place through Blockchain.
When you look at fiat currency managed by government, you’ll see that when more money is needed they simply print it. So who’s really managing it? Well, with cryptocurrencies everything is documented and nothing can be changed. And that’s why people are beginning to trust this form of digital currency that seems so secure. In fact, it’s even becoming a preferred use of exchange, especially for those who are comfortable with technology.
As mentioned previously, Bitcoin was the first cryptocurrency created. When people set up computers with Bitcoin, instead of existing on one system susceptible to hacking, it was what we call decentralized.
In other words, it was backed up on every computer that connected to the network. And every time there was an exchange, it sent that signal to every single network. So it was duplicating itself over and over again, creating a backup each time.
Not only that, but every person who connected to this system would receive a micro fraction of a Bitcoin each time an exchange took place. You would give the power of your computing systems and internet to the Blockchain and as a result, you would be compensated in cryptocurrency by helping to provide the horsepower essentially to run it.
So there was no need for a bank. It was a decentralized bank among all of these computers and systems. Each time an exchange took place, more Bitcoins were created. Today, Bitcoin remains the most popular form of cryptocurrency, although we’ve seen many others created since then.
Like it or not, cryptocurrency is a very significant technological advancement and we need to pay attention to it. While it’s still very early and less than 1 percent of transactions in the United States are made with cryptocurrency, it’s a system that will be integrating into our lives more and more in the years to come.
To understand more about cryptocurrency and its effect on your organization, be sure to check out my full Dunham Institute course Demystifying Cryptocurrencies for Nonprofits.
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