Crypto in Cryptocurrency

This post was originally shard on Medium, it discusses the nuance that I find personally interesting about cryptocurrency - which is the technology that it's built on.

This is a repost of the original:

I was at a networking event last night where everyone there was launching or working at an AI company, and when it came to introducing myself I mentioned blockchain, web3, and crypto.

This prompted the reaction of either interest, curiosity, or a sneer — and I completely understand these reactions. Because frankly when I hear people talk about crypto in public, I respond almost the same way.

Firstly, I find it really cheesy or bragadocious when I hear strangers in public talk about a coin, or their bags.

However, if they say something about zk, RWAs, on-chain credit, or something like EIP 1155 then I am interested and I want to learn more.

This is generally a reflection of the public perception of crypto which admittedly I am helping to perpetuate, whether I am consciously aware of it.

People outside of crypto who aren't ‘in the trenches’ see the periphery of what crypto is, which is largely price action, memecoins, and scandals.

This leads to the notion that crypto is speculative, a ponzi, and therefore something not innovative or worthy of further attention.

But for those who look deeper and for those who work in the space, there is a continuous flow of innovation that is often hard to keep pace with.

For simplicity, I will explain the rationale of what initially is interesting about cryptocurrency, and it starts with crypto itself:

The Crypto in Cryptocurrency is based on Cryptography

Cryptography — used everywhere but hardly recognized by anyone.

Remember Blackberry? If you ever used Blackberry Messenger, Enterprise version, you would have seen a prompt that said “signing message” when sending a text to a contact.

This is using a form of cryptography known as SHA 256.

Later when I had an iPhone 6 I would use a fingerprint to unlock my device.

This was Elliptic Curve Cryptography.

Today, I use it frequently with Face ID.

These two forms of cryptography, when separated, are used to secure data as it passes over the internet because the internet itself is like swiss cheese.

The Internet isn't secure and it never was designed to be that way, it was meant to send general information — not your banking details.

Which is why SHA 256 is used to create web certificates, you see it when you go to a website that uses SSL or HTTPS. This means that information here is encrypted between the website, you, the user, and the server it’s sent through.

This is the current form of internet security to make sure information isn't tampered with, and it’s also the best defense right now against hackers who would try to interrupt the data in transit and redirect it for their purposes. (Sort of like a credit card skimmer at the gas station, collecting your credit card information).

So with the internet like swiss cheese, information flowing everywhere in ways Tim Berners Lee could never have imagined, we have sensitive information like payments, bank transfers, and personal information that needs to be protected.

And even deeper then that, this information is just stored in a computer somewhere that needs protection from tampering because our entire modern system of economy is based on it.

We use SHA 256 everywhere, we just don’t even realize it.

So when Satoshi Nakamoto and others started combining SHA 256 and Elliptic Curve Cryptography signatures into something later called a blockchain, the idea was novel in itself.

Each transaction on Bitcoin, or Ethereum, or Solana — essentially any wallet that involves both a private and public key — is using Elliptic Curve Cryptography.

The signing of the transactions by the private key, secures the transaction. The nodes/validators on the network bundle all these up and broadcast it to miners, who resolve to add these to the latest block and sign it — creating what is now referred to as the blockchain. The trail of SHA signatures is what makes this tamper-proof.

So when someone asks, can it be hacked? The answer is, no

(at least not unless you have a quantum computer that can break ECDSA haha 😭).

This is why the blockchain is novel, it's a secure solution to an insecure environment.

It was released in 2009 and since then we have seen a lot of innovation come from it, billions of dollars are now secured using this method and governments around the world have taken notice and started their own tests of Central Bank Digital Currencies.

Because unlike paper money, cryptocurrency is easily traceable, it can be frozen at the push of a button, and at its gates, cryptocurrency is tied to an identity.

Where the real innovation lies though is Decentralized Finance.

This is a further iteration, where conditionality is added to transactions, and software programs can manage addresses and consequently billions of dollars.

Decentralized Finance is programmable money. At its most basic form, users earn interest on staking US dollars, then restake that to earn interest again. Some applications use the staked dollars to loan against others, or to provide liquidity for swaps.

But what this really opens up, is the possibility that money itself is now the contract. It can be divided up amongst a group of people when certain conditions are met, and it can also be the tool which is used to further test the boundaries of how we understand value.

Cryptography was the first step, cryptocurrency the second.

What comes after is a complete redesign of how money operates.