Definition

Cryptocurrencies are currencies, sometimes referred to in a more broad definition as tokens or assets, which solely have a digital identity. This is contrary to fiduciary money (notes and coins) or deposit money (checks, letters of credit, etc.) in the context of our analogue currencies, such as the euro or the dollar. 

Digital currencies are always cryptographically protected, operate independently from a central bank and are distributed on a blockchain. The shortest definition of a blockchain is a distributed, cryptographically secure database. Now, let's look at each property individually to make sense out of this seemingly simplistic definition. 

Distributed

From Centralized...

The digital currencies 'live' on a blockchain, a distributed database. This database is in general public, anonymous, chronological, cryptographically protected and immutable. Because the database is distributed (vs. our current centralized systems), there is no 'single point of failure'. A central point where all the information gathers and inherently becomes a 'weak link' in our connectivity. 

Currently our digital information is centrally stored on 'servers', through which access to the most recent information is given to 'clients' (such as your personal computer). The control over who gets which access stays with the administrator of the server and not with the client. This is a highly relevant property.

It allows governments, banks, insurance companies and multinationals to stay in control. Clients, both in the technological as well as in the humanitarian sense, stay dependent on the knowledge, experience, safety and decisions of the administrator and therefore lose all sense of control. Once they have given up the control, it is very hard to gain back as our current societal and technological systems won't allow you too. This changes with the blockchain. 

Gedistribueerd systeem: blockchain vorm van informatie overdracht

Gecentraliseerd systeem: huidige vorm van informatie overdracht

....to distributed

Cryptocurrency, stored on a blockchain, works fundamentally different than our current systems. Its most distinguishing aspect is that it is not dependent on the workings of a single system, but on a distributed system. A blockchain (distributed) network consists of nodes, which independently process information and send it the other nodes. The most 'popular' conclusion is then chosen by a consensus mechanism as the 'official' version and placed in the blockchain. 

The control within this system is divided and the system is no longer dependent on a centralized party. If any part of the system fails, the network will recognize its failure (either by system error or trustworthiness) and carry on with the other nodes still intact.

Of course, as any system, it has limitations. The strength of a blockchain is dependent on the quality and quantity of the nodes. The larger and stronger the network, the stronger the blockchain. Because there can be thousands of nodes scattered across the globe, its strength and resistance to vulnerabilities can make it incredibly strong. Both the incentive and ability of certain networks to be exploited is far, far smaller than any current system we use today.

Cryptographically secure

Trust is a judgement between parties, which can be divided between identity verification (are you who you say you are) and process authorisation (doing what you are allowed to do). With the help of blockchain technology this verification and authorisation can be obtained by 'public-private key cryptography'. The possession of a 'private key' gives you the ability to own and verify identity. The application of a 'private key' on a distributed platform which recognises, acknowledges and provides access to its inherent applications, is what provides the authorisation. 

A cryptocurrency is nothing more or less than a 'private key', which in itself represents value or gives access to the use of applications of the system. The representation of value is the use of the network itself. Like fiat currencies (euro's, dollars, etc.) have no value in and of itself, but lends its value to the trust and the usage, cryptocurrencies are based on the same underlying trust and usage that people give to it. 

Only, this time, digital currencies are not dependent on a central, powerful, system but returns its power back to the owner in a safely, secury, distributed system.

Public-Private Key Encryption: alleen met de Private Key heb je toegang

Immutable

The 'Elliptic Curve Cryptography' (ECC) as used in many of the top 100 cryptocurrencies, is thus safe and secure that the blockchains can currently be seen as 'immutable' or 'unchangeable'. The consequence is that transactions are always stored on the blockchain, never to be changed again and can always be found back in retrospect. Also, you can be confident that the data is not tampered with by a third party in any way. Therefore, it is a 'trust machine', eliminating the risk of corruption or fraud. 

Potentially the greatest property of the blockchain is its trustworthiness. Despite all our societal advantages, fully proven and reliable trust has been hard to achieve as a result of legal, behavioural and sentimental perspectives only. Now, they don't stand alone any longer. Through the combination of immutability and distributed systems, Computer Science has added value that will truly change our society forever.