Cryptocurrency

What is cryptocurrency

Note, I may sub in the word "crypto" in this article.

Technically, “crypto” is shorthand related to cryptography, as in terms like cryptocurrency and cryptographic systems. But in everyday use, including this article, people usually just say “crypto". The particular meaning is provided by the context.

For our example, we'll discuss Bitcoin, the most well-known cryptocurrency of all.

Bitcoin is basically digital, non-physical money. It exists only as entries on a distributed ledger called the blockchain and is controlled using cryptographic keys associated with Bitcoin digital wallet addresses. The blockchain records the history of Bitcoin transactions, creating a public ledger that is designed to be extremely difficult to alter.

A given party (person, company, etc.) could have one or more of these digital wallets. The aptly-named wallet contains the cryptographic keys needed to control and spend Bitcoin. Since the blockchain is, for all practical purposes, impossible to forge or retroactively modify, then the recorded ownership and balances are generally considered trustworthy to all other users.

Anonymity

There are hundreds, if not thousands, of cryptocurrencies in existence. Most fall under the uncomplimentary umbrella of alt-coins or meme-coins, created by also-rans or pump and dump scammers trying to score a few bucks. But there are a small number of better-known coins as well, such as Ethereum, Tether, Monero, and a few others.

Most of these, including Bitcoin, are not anonymous within their realm.

Now then, let's discuss what anonymous really means in the crypto world and why people for so long wrongly believed that Bitcoin was anonymous.

The blockchain, where all transactions for a particular cryptocoin are recorded, is very much a public record. The mistake that people made in thinking that Bitcoin was anonymous is because real names don't usually appear anywhere in the blockchain. The only potentially identifying information is a wallet address which is just a long string of cryptographic characters. It looks random and anonymous.

To the extent the wallet owner never interacts with crypto exchanges, then, yes, they may be (pretty much) anonymous. But converting (buy or sell) crypto to/from fiat* currency generally requires a crypto exchange. And most crypto exchanges today, like other financial institutions, must follow various KYC (Know Your Customer) laws.

Once a wallet address is tied to you, your anonymity permanently vaporizes, at least for that wallet address. In fact, that's likely to happen anyway. Today there are many sophisticated ways to trace seemingly anonymous Bitcoin to their real world owners. You'd have to have some pretty amazing OpSec to evade detection.

* "Fiat", in crypto-speak, means real, old-school, physical money, backed by one or more governments.

About that blockchain

The blockchain is the magic that makes crypto work. What keeps the blockchain truthful and pure (and unadulterated) is because everyone has a copy of the blockchain that is cryptographically signed.

The gritty technical aspects are beyond the scope of this primer but let me describe it by drawing an analogy.

Think of a public accounting ledger recorded in individual and identical notebooks belonging to each citizen of a country. So, many millions of them.

Every day at midnight, all the transactions of the previous 24 hours are recorded in every copy of those notebooks with the same new entries. Because so many copies exist, nobody could quietly erase or rewrite history in just one place. If someone tampers with their copy, it won’t match everyone else’s.

You would have to alter more than half of those individual notebooks in order to convince everyone that your changes are legitimate because the majority of those individual ledgers would then say so. And you'd have to do that before the next midnight rolls around. That's pretty much impossible.

That is roughly analogous to attacking a blockchain network. The security comes less from secrecy and more from massive distributed agreement.

Is Crypto Good or Bad?

¿por que no los dos

• Crypto democratizes the cheap and easy transfer of money, especially across borders or currencies.
• Depending on which cryptocurrency is used, it can serve as a hedge against high inflation or the unstable monetary policy of a country.
• People without formal banking or ties with traditional financial institutions can still have a method to park their money. This could be convenient for highly mobile people, especially international mobility.
• Crypto scams abound. Best stay away unless you completely understand that world.
• Makes it easier for cybercriminals to get ransom payments in order to undo encrypting malware or for a promise not to leak data.
• Generally unreversible. Once you send the money, it's gone. That can be be good or bad, depending on which side of the transaction you are on.
• Not traditionally insured. Having crypto is like holding cash. If you lose control of your digital wallet or if your crypto exchange bellies up, you're screwed.

But on balance, crypto has been an overall negative on society, in my opinion.

Many people have been harmed by crypto scams. But to the extent that people who dabble with crypto are doing so willingly and clear-eyed, e.g. not suffering from cognitive decline or coercion, then their losses are born of their own doing so I'm not too concerned about that.

But that's not an absolute opinion defending crypto.

People are always logical and many are easily manipulated.

e.g. Sports gambling brought on by non-stop advertising in the US is absolutely rampant. Due to these online sport books and now via prediction markets, many people are losing a lot of money, sometimes generational wealth, from gambling, creating a trail of collateral carnage in the form families made destitute by the addicted gambler.

This addiction, while different in mechanics, is no less strong than alcohol, nicotine, or narcotics. The fabric of society is weakened due to this gambling pandemic, all for the benefit of large tech companies that run these platforms.

It's disgusting. But enough about that, let's get back on-topic.

Crypto has turbocharged cyber criminals. Just a few days ago, at the time of this writing, Canvas, a learning management system (LMS) used by thousands of colleges and universities and tens of millions of students in the US and abroad, suffered a data breach. The attackers demanded, and received, an undisclosed amount of money via crypto in exchange for not leaking the stolen data.

Unlike you and I, advanced hacking groups are better equipped to handle the crypto laundering necessary to obfuscate who they are in real life.

Canvas isn't the only one, either. Over the past 10 years, there have been dozens of large scale data breaches in the US and abroad and likely hundreds or even thousands of smaller ones that didn't make the headlines.

A handful of these breaches might have been due to "hacktivists" making a political statement. But to the extent these breaches are done in order to extract a ransom, that ransom would only be payable via crypto. That's because crypto significantly reduces friction and risk of getting caught.

Banning Crypto?

There’s currently no serious mainstream movement to outright ban crypto itself. And because most major cryptocurrencies are decentralized, fully eliminating them would be technically very difficult. Criminal use would likely continue regardless as would any use that remaining inside the cryptoverse.

What governments could realistically restrict, however, is the legal periphery around crypto which includes exchanges, banking access, fiat conversion, and accepting crypto payments. Limiting those on- and off-ramps would likely reduce both the usability and market value of crypto substantially by making it harder to buy, sell, or spend.

Illegal exchanges and underground markets could still exist, of course, but they would likely be smaller, riskier, and significantly harder to access, with participants facing greater legal exposure.

I generally hold a negative view of crypto because it has contributed to and facilitated considerably more detriment than benefit to society as a whole. If for no other reason, crypto's role in the explosion of data breach-related extortion is a pretty good argument for banning it. Well, to the extent that a legislative ban could even work.

Even though there are limited niche utility* applications for crypto, I'm not convinced they outweigh the harms caused.

* By utility, I mean using crypto to accomplish something else, like in the examples I included above. Not just for the purpose of trading and arbitrage.

I'm not necessarily advocating for a ban. But the wild west nature of crypto and the new harms its facilitating need to be addressed.

Crypto Today

Barring a few niche but legit use cases, like those discussed above, most normies* have no practical need for crypto in daily life. The early hype that crypto would replace traditional money on a broad scale was always highly unrealistic.

Thankfully, some of the speculative frenzy surrounding crypto has cooled since the hype-heavy days of the early 2020s. Crypto is still very much around, but it no longer dominates tech or daily conversation the way it once did.

A.I. is the shiny new thing now. Unlike crypto, though, A.I. is already having a direct impact on the lives of ordinary people, for better and worse. And unlike most crypto projects, many A.I. tools provide obvious practical utility even to nontechnical users.

* Normies: Regular people, not tech geeks.