How can cryptocurrencies be used to do so many different things?

When using the blockchain technology behind cryptocurrencies for a particular application, you will probably be justifying its use through being able to leverage some property of the technology. These properties are many, so we won’t go through them all. However, it’s worth having some idea about a few of the properties and why they make blockchain technology what it is.

  • Decentralization

Decentralization is one of the defining characteristics of a cryptocurrency. Being decentralized means there is no single point of vulnerability. Security is a big concern for many applications and utilising a public blockchain can provide huge confidence in the security of the application.

The decentralized nature of cryptocurrencies also allows them to achieve consensus without a central trusted authority, representing a breakthrough in distributed computing. It can be used to achieve consensus on decentralized networks to prove the fairness of elections, lotteries, asset registries, digital notarization, and more.

Moreover, the nodes which constitute a blockchain network can do more than just verify transactions. We can give them the ability to run software which is deployed onto the blockchain (a smart contract), endow them with voting rights (like a DAO) or allow them to commit information (besides the transactions) to the ledger which can never be erased.

  • Transparency

The blockchain is public. Anyone can examine a blockchain and view the complete history of the cryptocurrency. The information that they find cannot be changed and cannot be fraudulent in retrospect. There are applications for which this transparency is very valuable. It’s not hard to find instances in history where it’s difficult to know whether the outcome of a vote is genuine. If the vote had been done using cryptocurrency technology then anyone would be able to verify the truth of the outcome. It would be virtually impossible to cheat the system after the fact.

Another way in which cryptocurrencies are transparent is that the software is open source. This means that the code can be audited by anyone or any party. It also opens up the cryptocurrency to contributions from any developer around the world.

  • Immutability

Once information is committed to a blockchain, it is there for good. This property of the technology plays into all of the others. When viewing some piece of information that was committed to the blockchain, we know that this piece of information is the same now as it was when it was committed. You cannot change it after the fact without an impossibly large amount of computing power. With the voting example under Transparency, when we look at the votes committed to the blockchain we know that these are the votes that were cast. There is no practically possible way to alter the votes once cast.