Cryptocurrencies and the Matrix

To Understand Cryptocurrencies, you have to understand Keanu Reeves from the Matrix. The creation of a decentralised currency to break away from the chains of a conventional monetary system, or the pursuit of the Oracle to free humanity from the chains of the Matrix. Both movements had one thing in common. Unfortunately not Keanu Reeves, but “Cyberpunks”.

The cyberpunk culture really began to kick off in the start of the 90s. The idea of advanced technology and the combination of breaking down the social order, was something that led to a group of cryptographers to create a society interested in anonymous digital cash. The society was, just so humorously, named “Cypherpunks”. Soon, an anonymous member of the group, came up with the idea of Bitcoin (BTC) — an anonymous digital currency that is powered by a decentralised ledger, through advanced mathematical cryptography.

Bitcoin was a revolution in itself; it set in motion the existential debate as to what constitutes the true value of anything, and do we really need central banks to uphold this concept of value? Heck! Do we even need banks at all? The idea of giving the power to control money back to the people. Just as these questions disrupted the fabric of society, the creator of Bitcoin vanished, with nothing behind but his pseudonym Satoshi Nakamoto remaining. But, this was not the end of BTC, it was only the beginning.

What revolutionized the idea behind cryptocurrencies or BTC was its system of having a decentralized ledger that processed transaction, while protecting the privacy of the executing buyer/seller. Its ability to be mined through the processing of those very transactions, which rewarded computers (miners) for using their processors to decode BTC transactions. The price of each bitcoin is relatively based on the basis of supply and demand in the market, with the cap on the number of coins in circulation being 21 million.

Bitcoin gave the freedom to its owner’s to make purchases and receipts without having to reveal their identity, as well as the convenience of making digital transactions. This created a market for a borderless flow of liquid assets without the world of regulatory tape around it.

The decentralized ledger that BTC is powered through is better known as “Blockchain”; a term that is used so often these days that its given as the solution to nearly every single first-world problem out there. But to be fair, blockchain can be classified as one of the greatest disruptive innovations. With every new startup being the new kid on the Blockchain (pun intended), what’s so revolutionary about the technology?

Blockchain, simply put, is made up of blocks of data that records timestamps, and transaction data. In an open ledger, the data cannot be modified without the simultaneous modification on all systems and computers that are connected to the blockchain. In the Matrix terminology, think of blockchain as Agent Smith. In order to defeat Agent Smith, Neo had to simultaneously destroy all of Smith’s clones using a massive power surge. The agents ensure that the Matrix operates without hinder, just as the blockchain ensures that cryptocurrency transactions and records are not tampered with. Essentially, no one can really alter the number of BTC they or someone else has without a true transaction taking place.

BTC did not exactly make a good rep for itself, and that’s the case even today. The currency was known to many as cash for criminals. The privacy aspects of each transaction allowed people to access sites such as “Silk Road”. Buyers and sellers could trade illegal substances, and even illegal arms without revealing their identities, by using BTC for transactions. The currency also had its name for being used as a means to launder money, and various other financial crimes. It also happens to be one of the most volatile asset classes out there, with no macroeconomic model being able to forecast trends related to the currency.

But that was not the end of it. The technology behind blockchain allowed for the creation of other Cryptocurrencies such as Ethereum and Litecoin. These currencies had their own tweaks that made them valuable. Ethereum was made without a cap on its total circulation, and has the ability to support smart contracts with its blockchain technology. Numerous other coins have been created by people all over the world. But as criminals in the past began to master the forgery of fake banknotes, cryptocurrencies were no exception. Soon came the influx of scam currencies, with quick money making ICOs (Initial coin offerings), with fake companies offering their own cryptocurrencies in exchange of cash, with the promise that those currencies will allow owners to execute the acquired cryptos at a higher price. Albeit most ICO’s don’t exactly operate as scams, but nevertheless it created a regulatory backlash on ICO’s and cryptocurrencies.

What the future looks like for Cryptos is still somewhat uncertain. The fact that any Tom, Dick, and Harry can create their own cryptocurrency, can we really give it any value at all, especially when there is there is no underlying asset or organization guaranteeing its value? Then, there is the question of privacy; of liberty in monetary authority, and most importantly the potential application of cryptocurrencies in everyday lives, and especially Fintech. Could there be a day that Central Banks themselves start issuing cryptocurrencies instead of continuing their present track of monetary policies? We are still in the early stages of understanding such currencies, and are still debating into how well can we accept them. Change is inevitable; the question is, when will it come?