We’re already comfortable with the idea of a virtual digital currency. Most of the $16.1 Trillion dollars of the US 2013 Gross National Product was not paid out in greenbacks. And we expect that the virtual currency we do own will be well protected and properly accounted for.
Such measures include encryption of the information banks store about our accounts (and the secured transmission of such information) and the keeping of a reliable ledger of our transactions.
The leap from digital currency to cryptocurrency is not so great.
A cryptocurrency is quite simply a “digital medium of exchange” that “incorporate(s) principles of cryptography to implement a distributed, decentralized and secure information economy”. The best known manifestation of a cryptocurrency is Bitcoin.
It offers anonymity, accountability, an audit trail (can any government truly say when and how each unit of its currency has been spent?) and an open market. It’s an extremely volatile currency whose value is shaped only by market forces (and the occasional scandal or political grumblings).
The best way, currently, to make money from Bitcoin is either through speculation or by running an exchange, with both having shown just how risky this platform is right now.
One interesting thing about Bitcoin is that its value, like the salary you have deposited directly into your bank account, is backed by work. Unfortunately this is useless and wasted work and, for a time, the amount of electricity consumed in the mining of one Bitcoin was more than the value of the Bitcoin mined.
Bitcoin may not prove to be a successful experiment but it certainly will have indirect consequences. The distributed public ledger – the blockchain – is an innovation that is already being incorporated in other fields. So too is the idea of forking Bitcoin into more vertically defined crowdfunding uses.
While I don’t agree with the operative suggestion of the above article (“appcoin” for apps and “torcoin” to use the Tor network is akin to “applecoins” for buying apples and “pizzacoin” for buying pizzas), the theoretical part of layering different transaction protocols on top of the Bitcoin protocol – or its better implemented descendents – makes quite a bit of sense.