Cryptocurrency is a complicated technological development that’s only come into existence in the last decade. The gist of it is that a crypto coin is a string of data that is entirely unique, and any exchanges of that coin that happen are documented by an airtight digital authenticator called “the blockchain.”
While the original idea behind cryptocurrency was to create a universal, decentralized monetary unit, free from the oversight of international banks (or authorities), several governments have created their own digital units of currency. China, Cambodia, and the Bahamas have all created their own forms of digital currency, essentially a nationalized version of cryptocurrency.
Now, the UK is set to become the fourth country to create its own national digital currency standard. The proposed “Britcoin,” (a pun on “Bitcoin,” the most well-known crypto standard) would be controlled by the UK’s national banks. A blockchain specialist with PwC UK, Haydn Jones, explains “If you look at your (bank) notes, they’re backed by gilts. Digital currency will also be backed by an instrument that will be held at the central bank.”
Jones is likely referring to the blockchain. Since the creation and exchange of cryptocurrency are held by the always-online blockchain, it’s virtually impossible to falsify the credentials of any given unit of currency. Essentially, without rewriting terabytes of data held on secure servers, you couldn’t misplace a single coin without it being glaringly obvious when compared to the existing blockchain.
Jones goes on to explain why a digital standard of currency could be a big deal for the UK. “The difference is that with a note, with a physical £5 note, you can’t do anything digitally with it. A digital version of sterling, because it’s written in code, we can attach conditions to payments: I can send something to you, but I can make it conditional on you doing something for me,” Jones elaborated.
So, what makes a centralized unit of currency any different from the digital banking that is already used in the country? The biggest change is the blockchain. Blockchains are essentially impossible to spoof: the way they encode information works using a complicated, interlocking chain of “blocks” of data. Once a new block is entered, it is “chained” onto the end of the ledger. In this way, it’s a perfect fingerprint of when the block was encoded.
As such, cryptocurrency is extremely secure, even for very large sums of money. By switching digital transactions to a blockchain-encoded currency, the UK government would be greatly shoring up the security of online transactions.