John Doe: What is a cryptocurrency?
Me: It’s a currency that uses cryptography.
John Doe: Yeah smartass I figured that out already!
Me: Ok it’s a digital currency, but the problem with digital stuff such as ebooks, for example, is that it’s easy to duplicate not something you want when it comes to money for obvious reasons. If everyone would be able to copy money it would become worthless in no time and inflation would set in.
John Doe: Alright bucko, so how can you guarantee it can’t be duplicated? Anything digital can be hacked and duplicated as we have seen happening multiple times.
Me: It does so using cryptography and something called the blockchain. An immutable record of transactions that validates the authenticity and integrity of data. It’s also a fully decentralized payment network. There’s no central point that can be forced into cooperation to seize your assets as there’s no central authority.
If any record or block would be changed the whole “chain” would become invalid as every subsequent record includes a “hash” value of the previous record. A hash is a cryptographically created unique ID of the data. If the underlying data changes the hash would no longer match the data it’s based upon. Changing a single digit, comma or anything for that matter of the data would render the hash or unique id invalid as both are related in through cryptography.
John Doe: Ok, so you’re saying every transaction made is stored in some sort of database with a unique code that relates to the transaction made?
Me: Yes that’s the simplified explanation, there’s more to it, there are protocols used to validate the block by using cryptography as explained before in case of Bitcoin it is done by miners, computers that solve the cryptographical riddles so to speak. Once these computers calculate the necessary cryptographical requirements and it’s verified by others…
