Read an interesting article today about crypto-currencies. Apparently the appetite for them in certain circles is such these days that the power being planned to be used by massive data-centres feeding off of the (relatively) cheap geothermal energy supplies in Iceland exceeds that needed to heat the houses of the population (and it's not usually warm in Iceland - the clue is in the name). Many people I talk to about Bitcoin and other digital currencies based on blockchain technology don't seem to have the first clue about them, but in reality the principal of something simply being worth what someone is willing to pay for it is as old as the hills, digital or otherwise (think the fiver in your pocket, which isn't intrinsically worth anything either!)
It's all about trust. The point about the blockchain is simply that this new technology provides a mechanism for everyone to maintain a digital ledger of all (yes all!) transactions world-wide and therefore balances that isn't "owned" by any single organisation or Government (i.e. like a central-bank) meaning that punters avoid having to pay a transaction-fee to anyone when you buy things, and, it's also possible to remain much more anonymous than if you had to open a normal bank account with your utility bills and passport etc. This aspect of anonymity makes digital currencies attractive to criminals but then again, what's new, criminals are inherently attracted to things that make it easy to cover your tracks they still can't fiddle with the details of their transactions, like they can in the old-economy. The idea that everyone in the crypto-world has a copy of all the transactions that can easily be compared to each other in order to validate a buy/sell event is really clever and ensures that transaction fraud is really, really hard.
The problem (and I think weakness) with crypto is the instantiation process. Since no one person or organisation "owns" the currency, how it gets created is somewhat problematic. The way this works for things like bitcoin is that you simply need lot's of computing power, thousands of servers crunching lots of numbers trying to find solutions to mathematically difficult problems that when solved are rewarded with new bitcoins. The problems are specifically design to ensure a smooth and predictable flow of solving. This relative openness in the instantiation process means that all kinds of crafty ways have been invented to hijack unused processing power, sometimes without the consent of the owners of those resources and sometimes by organisations that are distinctly shady. The solution of course is also ages old, figure out a way to tax bitcoin mining!
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