Everything you ever wanted to know about cryptocurrency but were afraid to ask
Cryptocurrency often is referred to as the future of money, even though it turned 10 years old this year.
Billions of dollars have changed hands around the world. However, many people still don't understand what it is or how it works, and they don't trust it.
Neha Narula, the director of the Digital Currency Initiative at the Massachusetts Institute of Technology, says trust is a strange thing when it comes to currency.
"You have to think about money and what money really is. Why do we trust the $20 bill in my wallet, for example?" she asked Michael Enright, host of The Sunday Edition.
"Most of us have this collective belief around fiat currency like the U.S. or Canadian dollar, but there's no reason why we couldn't have this collective belief around other things too."
Cryptocurrency is a form of payment that is secured through cryptography, the art of writing or solving codes. It is digital — bought, sold and exchanged on the internet — using strings of numbers and letters that represent the sender and the receiver. They are kept in a digital wallet. The ledger that keeps track of cryptocurrency transactions is called blockchain.
"All the ways we have of making payments on the internet require an institution to mediate that payment," said Nerula. "It's a company like PayPal or Visa or it's a bank sitting in the middle."
Cryptocurrency offers a way to process transactions quickly without an intermediary. Processing a bank transfer usually involves a fee and it can take a long time, sometimes days. It also can be expensive to send and receive money between countries, especially if it involves currency conversions.
Nerula also points out that billions of people around the world don't even have access to a bank account.
There are risks in the cryptocurrency market.
In December, a 30-year-old Canadian computer geek died suddenly and took the equivalent of tens of millions of dollars of other people's money with him to his grave.
Gerald Cotten was the founder of a company called QuadrigaQX, based at his home in Fall River, N.S. All the secret codes and passwords to access the funds of 115,000 investors were on his laptop computer — information he had shared with no one else. As a result, the money vanished.
"I think what we learned from that is that even people who appear to be experts in this space can have bad practices," said Nerula.
"Most people try to back up their keys or distribute them to a lot of different people. They try to have practices so if one person has a problem or loses access to something, the key can be reconstructed by other people. Unfortunately, it doesn't seem like this company was doing that and, as such, all of the money was lost."
Click 'listen' above to hear the full interview.