Last month we focused on whether Bitcoin should be considered an investment, and we agreed with those who concluded it should not be considered a traditional one.
This month, we continue the conversation by making the important distinction between Bitcoin and other cryptocurrencies on the one hand, and the underlying technology for these currencies, known as blockchain.
Note: The following paragraphs continue our high-level introduction of the subject for you.
Cryptocurrency is widely acknowledged as a potential way to store, send, and receive value without third parties, making transactions cheaper, faster, and more secure. However, buying any cryptocurrency amounts to betting on one specific application, of which there are over 1,500 different variations.
The fact that anyone with some technical skill can create his or her own cryptocurrency, paired with significant volatility, makes guessing which cryptocurrency will thrive and adapt to widespread use purely speculative.
The current boom, and its accompanying price volatility, is making Bitcoin in particular difficult to use as a currency, which inherently requires price stability.
The frenzy of cryptocurrency is in some ways obscuring the underlying technology, called blockchain, which appears to have the potential to innovate much more than just the financial world.
In essence, a blockchain is a ledger technology designed to record the transfer of digital property.
An apt comparison is a group of strangers each with a notebook (representing the blockchain) used to record any exchange of information or transactions between one another. Each time a transaction takes place, it is recorded and the notebooks are compared to one another to ensure they match.
Cryptocurrency is only one way blockchain technology can be of use.
Blockchain technology has also helped make advances in software, cryptography, and other distributed systems. Any process that can be improved by removing a middleman and adding a network of distributed trust stands to benefit from blockchain technology.