Since the advent of personal technology in the form of the PC, the internet and mobile devices, the average user has gotten used to the fact data can be copied pretty effortlessly. It was not until encryption was standardized that it became possible to create unique data that could not be easily copied. That advance paved the way for digital currency, or cryptocurrency.

Cryptocurrency is a piece of data that is unique and uncopyable. It is part of a distributed accounting system called the blockchain, which allows many computers to collaborate on a shared ledger of exchanges. This basic concept makes it possible to not only produce transparent record-keeping but to identify and follow each “coin” as it circulates through the system as well. Let us delve deeper into the topic of cryptocurrency and its functions.

The basics of encryption

At its most basic, encryption is simply replacing one set of data with another, while simultaneously producing a “key” that can be used to reveal the original data. The new set of data with the key is unintelligible, which essentially makes it a locked box from the standpoint of anyone without the key.

While encrypted data can be copied, it is useless without a means of obtaining the original information. Uncopyable data is what makes technologies like cryptocurrency practical.

Blockchain: not just one block

The blockchain’s inherent strengths are its distributed nature, and the fact that each transaction is not only encrypted, but is scrambled in such a way that unwinding the chain requires more computing power than any one attacker can practically wield. It is essentially the “weight that no man can lift” which makes it relatively theft-proof.

This, among other things, is one of the central innovations that made the blockchain into an adaptable and highly useful variation on the basic technology of encryption.

Cryptocurrency can be bought and sold

Once enough computers and users are participating, the blockchain experiences the network effect and can evolve into an economy. Cryptocurrency units can be exchanged from one party to the next, and all participants can be secure in the knowledge it is not possible to alter the records of which “coins” were exchanged, when they were exchanged, and which parties participated.

The next natural step for the distributed ledger will be to incorporate documents, billing statements and contracts, which will allow individual users to integrate their payments with a service provider’s receivables. From there, nearly anything is possible.