How Does Cryptocurrency Work?

iStock/Marc Bruxelle
iStock/Marc Bruxelle

In September 2018, the Official Scrabble Players Dictionary added hundreds of new words—one of which was “bitcoin.” Sure, you can get a double letter score for it, but how does cryptocurrency work? And what about the other equally mysterious cryptocurrencies, which have been called everything from the future of money to a pyramid scheme? What is all this fuss about?

THE ISLAND OF YAP

One of the most popular metaphors for how cryptocurrencies work involves the Pacific island of Yap. According to NPR, the residents long ago learned of a distant island with large limestone deposits. The islanders brought back large discs of rock which they eventually turned into a form of currency—not for every day purchases, but for major outlays.

That may sound simple, but it’s not quite that easy. These rocks could weigh as much as a car, so when they changed hands they were rarely actually moved. The society just recognized that “this rock now belongs to person B.”

There’s even a story in which a giant rock brought back to Yap was lost when the boat it was on sank. The islanders dealt with this conundrum by having an oral transaction history, so everyone knew that the rock was not lost. It did have a new owner. In fact, you could argue that they had a kind of public ledger, because everyone knew how many rocks everyone had. Disagreements rarely arose because of the distributed nature of that information. This is akin to one of the most important elements of cryptocurrency: the blockchain.

At its core, the blockchain is just a ledger distributed across a network of computers, which are called nodes. Every time any transaction occurs, the network checks to make sure that it’s a valid transaction and the blockchain gets updated with a new "block," which serves as a permanent record of the transaction. This gets sent to all of the relevant computers—like the Yap islanders telling everyone about the change of ownership of a rock. The block is added to the blockchain alongside a code called a hash.

SECURITY

The hash is essentially a digital fingerprint generated by complex mathematics. This is part of the system’s security, as it takes time and energy to generate these hashes. As Reuters explains, any change to the input creates a new hash. By way of example, they explained that the extremely long novel War and Peace might have a hash like:

a948904f2f0f479b8f8197694b30184b0d2ed1c1cd2a1ec0fb85d299a192a447

While just deleting one comma from the text changes it to:

40115cc2aecc43ea86a7e54be6f7257abff7b43959cd728f06c0c7423039166r

By itself, this is not necessarily secure. But every new block also contains the previous hash as a kind of error check. If someone goes in to retroactively change a transaction (say, by deleting that comma in War and Peace), that block's hash gets updated to a new code. But the next block will have a different hash code on record from the previous block (it will be looking for the old hash, the one beginning with a948—but seeing the new hash, the one starting with 4011), so in theory the nefarious action will be discovered. There are potential ways to cheat this system. A computer faster than the other nodes combined may be able to rewrite blocks fast enough to work, but MIT Technology Review cautioned that even then “success isn’t guaranteed.”

CRYPTOCURRENCY

But cryptocurrencies and blockchains are not synonymous. Similarly to how the internet and world wide web are not synonymous, blockchain is a technology chiefly used for cryptocurrencies, though this may not always be the case. It’s increasingly being examined for use in other fields—and some even argue cryptocurrency is one of the least promising fields.

The crypto in cryptocurrency is a reference to the cryptography used to ensure that the transactions are secure. Up until this stage, it’s not particularly different from any other digital currency—when you send U.S. dollars over the internet, physical dollars are not changing hands. That’s true for any digital currency, of which cryptocurrencies are one.

But there are key differences—including that, traditionally, money is issued by the government or some powerful institution. Cryptocurrencies are created by algorithms. Another important distinction is how ownership is traced. Because there’s nothing physical to a cryptocurrency, the blockchain ledger is used to determine ownership.

There are also more nuanced differences. Because the blockchain ledger has to be transparent, all transactions are public, leading to many suggestions for how to best manage privacy expectations. As another distinction, many cryptocurrencies are limited to a set number—only 21 million bitcoins will ever exist, and it remains unclear what will happen when the final bitcoin is "mined." Contrast that with traditional currency, which can be produced in limitless quantities.

Not everyone is convinced that cryptocurrencies are the future. Speaking to Vox, Nicholas Weaver of the International Computer Science Institute at UC Berkeley explained that miners—the people who create the blocks and get paid for their efforts—are disproportionately powerful and serve as the central agency that cryptocurrencies are trying to avoid. Also, he argues that outside of nefarious purchases (like assassins or illegal drugs), there isn’t a point to cryptocurrencies. Due to price volatility, they don’t fundamentally work as a currency. There’s a famous story about a programmer buying two pizzas for 10,000 bitcoin—a sum that would be worth more than $80 million just a few years later. This volatility, according to Weaver, means that most companies claiming they accept bitcoin aren’t actually accepting bitcoin per se, they just instantly sell it for conventional currency.

Cryptocurrency fans immediately pounced on these comments, arguing that it’s an oversimplification and could be used to argue against other forms of currency as well. No matter what, the debates will continue.

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What’s the Difference Between a Pirate and a Buccaneer?

geniebird/iStock via Getty Images
geniebird/iStock via Getty Images

Talk Like a Pirate Day is returning to port on September 19th and you can bet your boots that a few celebrants will be using the terms pirate and buccaneer interchangeably. Most people do. Nevertheless, these two words aren’t actually synonymous.  

Four hundred years ago, if you were a seafaring thief, the label that you received said a great deal—mainly about whoever it was doing the labeling. Anyone who called you a "pirate" probably hated your guts. But those who cited you as a “buccaneer” might have had a very different attitude. Within certain contexts, the latter group may have even embraced you as a national hero.

Time for a swashbuckling semantics lesson. In article 101 of the United Nations Convention on the Law of the Sea (UNCLOS), piracy is defined as "any illegal acts of violence or detention ... committed for private ends by the crew or the passengers of a private ship." UNCLOS also states that, to be considered piracy, a crime must occur within international waters. If the event in question takes place within a particular country’s territorial waters, the aggressors will be deemed armed robbers rather than pirates.

Historical definitions tended to be a lot broader. During the 17th and 18th centuries, England regarded piracy as any criminal act committed on the high seas or below the low tide mark around shores, rivers, and estuaries. Hundreds of years earlier, in the year 100 CE, Plutarch—a noteworthy Greek scholar— talked about pirates as anybody who attacked a ship or maritime city without legal authority.

Just what did he mean by “legal authority?” Plutarch was probably alluding to warships. Nowadays, these are generally owned by national governments, but this wasn’t always the case. From medieval times through the early 20th century, it was common practice for a nation at war to recruit private vessels to assault its enemy’s ships, steal their goods, and plunder their ports. Mariners who engaged in such state-approved mischief were called “privateers.”

Usually, a privateer vessel was allowed to operate under a license that was granted by the country it served. Dubbed the Letter of Marque, this document laid out a code of conduct and payment policy for the crew. (Privateers almost always got to keep a percentage of whatever they took.)

Essentially, privateers were independent contractors, acting as hostile, government-commissioned, seafaring mercenaries. Therefore, they technically weren’t pirates because real pirates didn’t behave in accordance with any national laws or regulations. But the dividing line here was pretty blurry. Many privateers eventually became pirates and vice versa. Also, a captured privateer would sometimes be tried as a pirate by the country he or she was victimizing.

This brings us back to buccaneers: Throughout the 16th through 18th centuries, Spain more or less controlled the Caribbean. However, in the 1600s, she started to get some not-so-friendly competition. By the middle of that century, settlers from various other European countries—including England, France, and the Netherlands—had colonized parts of the Leeward Islands and Hispaniola. Among these newcomers, transplanted Frenchmen were especially common. The Gallic colonists would frequently smoke their meat over a wooden platform that they called a boucan. Thanks to this cooking technique, the frontiersmen were given the nickname “buccaneers.”

Before long, many turned to piracy. Because of Spain’s huge colonial presence in the Caribbean, buccaneers more or less exclusively targeted Spanish ports and ships. This turned plenty of heads across the Atlantic. In an attempt to cripple Spain’s empire, the English, French, and Dutch began issuing Letters of Marque to buccaneer vessels.

Eventually, the word buccaneer came to possess its current—and very specific—definition, which is: “any of the piratical adventurers who raided Spanish colonies and ships along the American coast in the second half of the 17th century.” (Told you it was specific.)

The most famous buccaneer of them all was undoubtedly Sir Henry Morgan. Little is known about his early life, although most historians believe that he was born in Wales at some point in 1635. Nearly 20 years later, he set sail for Barbados as a member of an expedition that saw England seize Jamaica from the Spanish.

Morgan quickly emerged as a leading buccaneer, and as England’s most ruthlessly effective privateer. In 1668, he seized the heavily guarded city of Porto Bello, Panama, holding it for ransom until the Spanish coughed up an amazing 250,000 pesos. Three years later, Morgan raided and sacked Panama City, which promptly burned to the ground. Such exploits did not endear him to the Spanish, but in England, Morgan was a widely beloved figure. Knighted by King Charles II, he was made Lieutenant Governor of Jamaica in 1674. Following his death on August 25, 1688, Morgan received a grandiose state funeral, complete with a 22-gun salute.

And, yes, that rum was named after him. Clearly, buccaneering had its perks. 

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Why is Friday the 13th Considered Unlucky?

iStock
iStock

Today, people around the globe will feel uneasy about getting out of bed, leaving their homes, or going about their normal daily routines, all because of a superstition. These unfortunate folks suffer from paraskavedekatriaphobia, a common neurosis familiar to us all: the fear of Friday the 13th. But just where did this superstitious association come from, and how did it catch on?

The truth is that no one is absolutely sure where the idea that Friday the 13th is unlucky originated. Donald Dossey, the founder of the Stress Management Center and Phobia Institute in Asheville, North Carolina, suspects the fear can be traced back to a Norse myth about 12 gods who had a dinner at Valhalla—the fabled hall where legendary Norse heroes feasted for eternity after they died—that was interrupted by a 13th guest, the evil and mischievous god Loki.

According to legend, Loki tricked Höðr (the blind god of winter and son of Odin, the supreme god in Norse mythology) into shooting his brother Baldr (the benevolent god of summer who was also a son of Odin) with a magical spear tipped with mistletoe—the only substance that could defeat him. Thus the number 13 was branded as unlucky because of the ominous period of mourning following the loss of such powerful gods by this unwanted 13th guest.

For whatever reason, among many cultures, the number 12 emerged throughout history as a "complete" number: There are 12 months in a year, 12 signs of the zodiac, 12 Gods of Olympus, 12 sons of Odin, 12 labors of Hercules, 12 Jyotirlingas or Hindu shrines where Shiva is worshipped, 12 successors of Muhammad in Shia Islam, and 12 tribes of Israel. In Christianity, Jesus was betrayed by one of his 12 Apostles—Judas—who was the 13th guest to arrive for the Last Supper. Surpassing the number 12 ostensibly unbalances the ideal nature of things; because it is seen as irregular and disrespectful of a sense of perfection, the number 13 bears the stigma of misfortune and bad luck we know today.

WHY FRIDAY?

Friday joins in the mix mostly because all of the early accounts of Jesus’s crucifixion agree that it took place on Friday—the standard day for crucifixions in Rome. As Chaucer noted in The Canterbury Tales, "And on a Friday fell all this mischance." Yet perpetuating Friday as an unlucky day in America came from the late 19th-century American tradition of holding all executions on Fridays; Friday the 13th became the unluckiest of days simply because it combined two distinct superstitions into one. According to the Oxford University Press Dictionary of Superstitions, the first reference to Friday the 13th itself wasn’t until 1913. (So despite actually occurring on Friday, October 13, 1307, the popular notion that the Friday the 13th stigma comes from the date on which the famed order of the Knights Templar were wiped out by King Philip of France is just a coincidence.)

The repercussions of these phobias reverberated through American culture, particularly in the 20th century. Most skyscrapers and hotels lack a 13th floor, which specifically comes from the tendency in the early 1900s for buildings in New York City to omit the unlucky number (though the Empire State Building has a 13th floor). Some street addresses also skip from 12 to 14, while airports may skip the 13th gate. Allegedly, the popular Friday the 13th films were so-named just to cash in on this menacing date recognition, not because the filmmakers actually believed the date to be unlucky.

So, is Friday the 13th actually unlucky? Despite centuries of superstitious behavior, it largely seems like psychological mumbo jumbo. One 1993 study seemed to reveal that, statistically speaking, Friday the 13th is unlucky, but the study's authors told LiveScience that though the data was accurate, "the paper was just a bit of fun and not to be taken seriously." Other studies have shown no correlation between things like increased accidents or injuries and Friday the 13th.

And Friday the 13th isn't a big deal in other cultures, which have their own unlucky days: Greeks and Spanish-speaking countries consider Tuesday the 13th to be the unluckiest day, while Italians steer clear of Friday the 17th. So today, try to rest a little easy—Friday the 13th may not be so unlucky after all.

Additional Source: 13: The Story of the World’s Most Popular Superstition.

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