Welcome to brain stuff from how Stuff Works. Hey, their brain stuff, Lauren Vogel bomb here in sevente loan. The price of a bitcoin exploded from under one thousand dollars in January to more than ten thousand dollars in early December, earning the top cryptocurrency a market capitalization of more than one hundred and sixty seven billion dollars. Surprise success of bitcoin has opened the floodgates to a torrent of new
cryptocurrencies competing for investor dollars. Bitcoin is a strictly digital currency with no physical backing, that can be sent from one Internet user to another. It runs on blockchain technology. The blockchain works by recording financial transactions on a shared digital ledger that's encrypted on a peer to peer network, instead of relying on a large financial institution or centralized servers to process payments. The blockchain runs on thousands of
computers or nodes worldwide. Advanced cryptography keeps financial information secure and largely anonymous, so to breaches are impossible. The blockchain is being heralded as a world changing technology that will permanently disrupt the highly centralized and fee based financial system. Investors eager to get in on the ground floor of this potentially revolutionary technology. Are throwing money not only at Bitcoin, but at the more than one thousand crypto competitors known
collectively as alt coins. Skeptics are comparing this to the dot com bubble. Bitcoin was first released in two thousand nine by anonymous coders under the pseudonym Satoshi Nakamoto. Critics initially dismissed Bitcoin as a futurist pipe dream or worse, a boon to black market criminals, but now Bitcoin's underlying technology is being hailed by some as the future of finance.
We spoke with Andrew Miller, an assistant professor of electrical and Computer engineering at the University of Illinois at urbanash Champaigne and the associate director for the Initiative for Cryptocurrencies and Contracts. He thinks the bubble talk is irrelevant. What's more important, he says, is that investors speculation is fostering rapid innovation, creating hundreds of really exciting experiments in the
form of new cryptocurrencies, each with unique functionalities. He said, anyone investing in technology understands that there will be many failures. It seems to be the case with cryptocurrencies that the speculation is funding what is hopefully a really important infrastructure
development infrastructure. I thought we were talking about nonphysical currency. Well, you can't have cryptocurrencies without the blockchain, and the impact of the distributed blockchain infrastructure will likely be far bigger than any individual cryptocurrency, and that's why so many blockchain enthusiasts are big on a Bitcoin alternative called Etherium. Ethereum isn't just a cryptocurrency, it's a platform for building applications
that run on the blockchain. Like bitcoin, Ethereum has its own programming language, but it's more powerful and versatile than bitcoins, and unlike Bitcoin, Ethereum isn't out to replace conventional money, but simply to enable more secure transactions on the blockchain. Ethereum has its own to currency called Ether, but it's only useful within the Ethereum platform. You'll never use Ether, for example, to buy Xbox games like you can with bitcoin.
We also spoke with Vople Goyle, who teaches a graduate course on blockchain and cryptocurrencies at Carnegie Mellon University. He thinks that the surge in new cryptocurrencies will soon stabilize,
leaving only a few dozen in circulation. He also thinks that Bitcoin's position at the top may not be permanent, and predicts that Ethereum will wind up becoming the biggest His reasoning is that Ethereum's programming language and platform make it easy for startups and developers to create decentralized apps that empower individuals and businesses in new ways. One of the biggest, says Goyle, is the idea of smart contracts. Instead of paying lawyers to write and enforce a contract,
the deal can be programmed on the blockchain. Smart contracts enforce themselves, even imposing penalties for a breach. Before coming to Carnegie Melon, Goyle worked for Microsoft India, where he says the company was moving contracts for real world properties like office buildings onto the blockchain to avoid it'd costly legal disputes. Ethereum also makes it easier to use what
Miller at the University of Illinois calls programmable money. He uses the example of a college student's bank account that's programmed with certain parental controls. The student can withdraw up to a one dollars a week for expenses, but anything beyond that requires an authorization by the parents. Unique cryptography. Key Miller thinks that programmable money is one of those
ideas that will quickly spread into mainstream banking. Besides Ethereum, some of the other alt coins gaining traction promised greater security and anonymity than Bitcoin. Miller says that the initial media buzz over bitcoin's unbreakable privacy was only partially true, and that the original version of blockchain still leaves users
vulnerable to hackers. He says that some next generation cryptocurrencies, like z cash, for which he is an advisor, by the way, Manaro and Dash, employ much more advanced cryptography that completely hides the identity of users and the value of transactions. There are still plenty of obstacles that may delay or potentially do rail the widespread adoption of cryptocurrencies.
Transaction speed is a big one. With Bitcoin, transactions need to be verified by half of all active nodes on the network, which Goyles says takes thirty minutes on average. Ethereum can only handle thirteen transactions per second, which is still way too slow like two D and fifty times too slow to serve a user base of ten million, which means we won't be using it to buy our groceries anytime soon. Another potential monkey wrench is government regulation.
One of the benefits of cryptocurrencies is that they operate outside of highly regulated financial systems and government control. But some companies are getting ready to offer bitcoin futures contracts, which will encourage mainstream investors to get involved, as well as spur federal regulation via the Commodity Futures Trading Commission. Whether all this means you should invest in cryptocurrencies, well, that one's up to you. Today's episode was written by
Dave Ruse and produced by Tristan McNeil. For more on this and lots of other technological topics, visit our home planet, past off Works dot com m