What’s a blockchain? A primer on cryptocurrencies

A public blockchain is a massive, freely-available financial ledger, that is both global and impossible to forge because of the depth of its digital encryption.

For example, the digital currency Bitcoin is grounded in a peer-to-peer network that is not linked with a bank or a state currency in any way. At the same time, blockchains are, and can be, connected to other, non-digital financial assets such as stocks and bonds. This means that it can be used to move these assets in a more covert way than through other means.

This may seem complicated, but think of it this way: the value of money has always been based on a social belief in its worth rather than on the intrinsic value of its physical form. We don’t carry gold around in our pockets, we use paper or plastic representations of money.

While it is a type of money that has been created through a different approach than in the past, therefore, blockchains are still currencies. This does, nonetheless, make this kind of money hard to classify. The power in money is connected to the social contexts in which it is exchanged, and in the case of blockchains, this power is linked to their current popularity as investments. 

Does this mean that blockchains are the same as other forms of currency?

The reality is that they are not, simply because they do not have a policy framework behind them. Economies depend upon the monetary policies that shape the use of money and its value in terms of interest rates. A blockchain -- at the present time -- operates outside of these boundaries. This means that many states are concerned about the fact that these currencies lack their oversight and control. Blockchains could have deep impacts on the way in which interest rates proceed, and also the way in which the currencies in states are traded and valued internationally. This, in turn, can have an effect on states’ GDP, trade conditions, the ability of people to gain access to mortgages, and many other aspects of the financial world.

The fact that people do not know much about Bitcoin blockchains is likely a bit part of what they are so valuable at the present time: they present a mystery upon which some people are betting. The pseudo-anonymous nature of its use is attractive to people in some echelons of digital society, and this has led to the creation of even more blockchains. This new infrastructure is likely to become more complex, however, as competing digital currencies arise. In fact, the Canadian government is looking to create its own blockchain currency.

With the increase in the price and value of Bitcoin, it is evident that there will be new ways of working with digital currencies that will emerge as a part of a globalized social change, but we are only at the very beginning of that process.