What is a cryptocurrency? Why should you care?
Let’s start by looking at the word in parts. The second part, currency, means a medium of exchange. (It’s important to note that we’re not talking about money here, but currency. Only two things are money – gold and silver. Everything else is currency.) The first part, crypto, refers to the underlying technology of public/private key cryptography. It means that a cryptocurrency is a form of electronic currency.
There are two popular cryptocurrencies – the first is Bitcoin, and the second is Litecoin. There are a number of other “altcoins” as the rest are called, but we’ll deal only with Bitcoin and Litecoin for now.
How are they useful? Well, they’re useful in the same way that any other currency is useful – you can trade them for non-currency items, or for other currencies. In that respect, they function very similar to the pound, dollar, or euro. If you have a Bitcoin, you can trade it in such a fashion as you would with five hundred pounds (that’s the approximate worth of 1 BTC as of this writing). Alternatively, you can sell that Bitcoin to someone who has five hundred pounds, or pay five hundred pounds to buy a Bitcoin. (You can buy smaller units as well – Bitcoins are divisible to eight decimal places currently, so .01 BTC would be five pounds.) Litecoins and the other altcoins work similarly, but have different values to other currencies. (Right now, 1 LTC is worth about twelve pounds.)
Cryptocurrencies are starting to gain widespread acceptance for a number of reasons, but the biggest are related to them being “frictionless”. The transactions occur very quickly (seconds), are global in nature (you can buy and sell things anywhere with anyone), and have very low fees. (Typically you pay a transaction confirmation fee that is about 1% or less of the transaction in question.)
There are disadvantages with cryptocurrencies – but these are similar to using any other currency – you must guard yours. If you improperly secure your electronic wallet then you can become the victim of theft. This is of course exactly analogous to improperly securing your ‘real life’ wallet, as you could also be a victim of theft with that. As with any currency, if you lose it, you’re not very likely to get it back.
In the Deep Web, cryptocurrencies are useful because they are pseudonymous. What that means is that when you use them, it’s difficult to track them back to you. Many people thing they are anonymous – this is not entirely true. In order to prevent double spending (spending the same Bitcoin or Litecoin twice), all transactions are published publicly, and each transaction is checked against the public ledger. If your BTC, LTC, or other altcoin has been (or could be) associated with your identity in some way in the past, present, or future, it is just a matter of “following the money” with the public ledger to trace your activities.
However, it is possible to minimise these possibilities. The first way is to mine your own cryptocurrency units. With Bitcoin, this requires specialised (expensive!) hardware. With Litecoin, you can do it with standard computer hardware. (If you’re interested in starting to acquire either of these types of currency, feel free to email me (cryptocurrency [at] thomasquinlan [dot] com) and I can help you get started.) There is also what’s known as “shared sending” where your coins are intermediate addresses repeatedly, which makes things take longer but also makes them more difficult to trace.
The second way to get closer to anonymity is to purchase cryptocurrency from another person through a site like localbitcoins.com. This allows interested parties to meet and exchange currencies. Obviously, if you’re meeting, you have to do this in a place where you’re comfortable, and you never know who you’re meeting. However, if you’re meeting a stranger in a public place that isn’t highly surveilled, you can purchase (or sell) cryptocurrency units without having to identify yourself with your real name. (As with any in-person meeting where value is exchanged, please take sensible precautions.)
Once you’ve acquired cryptocurrency, you can then use them to make purchases. There are web sites that take them now (places like overstock.com and others) and then there are of course the Deep Web sites that do as well. The most famous of these, The Silk Road, was shut down in its original incarnation, but has since come back in a new format. Not everything on the Silk Road is drugs or porn, but a lot of it is, so be careful. (Governments don’t like to see free markets actually work; agorists and free market types do find their ways to set up free markets though, and The Silk Road is one of those ways. In the glorious agorist future, markets will be truly free and such sites wouldn’t need to exist underground.)
The most difficult part with cryptocurrencies is getting started. (I may be offering both a report on cryptocurrencies soon, as well as a unique opportunity to obtain some Bitcoin – if you’re interested in either or both, please leave a comment.) A really good resource for getting started is CoinDesk.com – they have the latest in cryptocurrency news and links to getting started with Bitcoin and Bitcoin mining. You can also check out weusecoins.com which is another good place to start, as is bitcoin.org. Please feel free to email with questions or leave a comment if you need help!