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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Looking to Downsize? You Can Buy a 5-Room DIY Cabin on Amazon for Less Than $33,000

Five rooms of one's own.
Five rooms of one's own.
Allwood/Amazon

If you’ve already mastered DIY houses for birds and dogs, maybe it’s time you built one for yourself.

As Simplemost reports, there are a number of house kits that you can order on Amazon, and the Allwood Avalon Cabin Kit is one of the quaintest—and, at $32,990, most affordable—options. The 540-square-foot structure has enough space for a kitchen, a bathroom, a bedroom, and a sitting room—and there’s an additional 218-square-foot loft with the potential to be the coziest reading nook of all time.

You can opt for three larger rooms if you're willing to skip the kitchen and bathroom.Allwood/Amazon

The construction process might not be a great idea for someone who’s never picked up a hammer, but you don’t need an architectural degree to tackle it. Step-by-step instructions and all materials are included, so it’s a little like a high-level IKEA project. According to the Amazon listing, it takes two adults about a week to complete. Since the Nordic wood walls are reinforced with steel rods, the house can withstand winds up to 120 mph, and you can pay an extra $1000 to upgrade from double-glass windows and doors to triple-glass for added fortification.

Sadly, the cool ceiling lamp is not included.Allwood/Amazon

Though everything you need for the shell of the house comes in the kit, you will need to purchase whatever goes inside it: toilet, shower, sink, stove, insulation, and all other furnishings. You can also customize the blueprint to fit your own plans for the space; maybe, for example, you’re going to use the house as a small event venue, and you’d rather have two or three large, airy rooms and no kitchen or bedroom.

Intrigued? Find out more here.

[h/t Simplemost]

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Who Were the Actual Brooks Brothers?

Phillip Pessar, Flickr // CC BY 2.0
Phillip Pessar, Flickr // CC BY 2.0

Brooks Brothers has been a mainstay of American formal wear for more than 200 years. The company’s suits have been worn by 40 U.S. presidents. They have supplied uniforms to the American armed forces and suits to regular people for their most important life events: going to the prom, attending their first job interview, getting married.

But in July 2020, the firm filed for bankruptcy, likely a victim of the working-from-home trend and the move towards more casual clothing. The Brooks Brothers’s name has been woven into the fabric of American fashion, yet a certain mystery surrounds the people behind the business. Who were the original Brooks Brothers, anyway?

The firm that would go on to be known as Brooks Brothers was established on April 7, 1818, by 45-year-old Henry Sands Brooks and his younger brother, David, as H & D. H. Brooks and Co. Before setting up the store, Henry Sands Brooks had been a provisioner for traders and seafarers, and likely did brisk business in New York City’s seaport. Their shop was situated on the corner of Catherine and Cherry streets in Lower Manhattan, a major shopping district that supported a number of clothing stores. It was said Brooks was something of a dandy with an eye for fashion.

Brooks Brothers ran a full-page ad celebrating its centenary in 1918.New York Evening Post // Public Domain

Henry Sands Brooks died in 1833, and the store passed to his eldest son, Henry Jr. When he died in 1850, Brooks Sr.’s four younger sons Daniel, John, Elisha, and Edward inherited the firm and renamed it Brooks Brothers. At this point, the store began to stand out from the crowd. The brothers adopted their familiar logo of a sheep suspended by a ribbon representing the Golden Fleece. This ancient symbol hearkened back to the Greek legend of Jason and the Argonauts, and was used by tailors and wool merchants across Europe as a sign of quality. By embracing this symbol, the brothers were announcing the caliber of their goods and aligning themselves with the prestige of European fashion.

While building a brand on traditional quality, the brothers also saw an opportunity to modernize. Brooks Brothers began specializing in ready-to-wear suits—an innovation that made “gentlemen’s clothing” accessible and affordable to ordinary Americans. An advertisement in New York’s Evening Post in June 1850 stated that Brooks Brothers ‘have on hand a large stock of ready-made clothing, suited to the tastes and wants of purchasers.’ Brooks Brothers also capitalized on the California Gold Rush by selling their ready-made suits to gold-seekers who didn’t have time to wait for a tailor to construct bespoke suits.

Business boomed in the years leading up to the Civil War, a time when the company benefited from slavery. Much of the cotton used by Brooks Brothers was picked by enslaved laborers in the South. The company also manufactured the types of uniforms worn by enslaved people forced to work as house servants.

Perhaps as a result of their experience making such clothing, Brooks Brothers was given a large contract by the Union government at the start of the Civil War to provide tens of thousands of uniforms for enlisted soldiers. A scandal blew up when the garments were delivered: it was obvious that the uniforms were of low quality, missing buttons or buttonholes, and made from cheap scraps of cloth glued instead of sewn together. When the outfits were exposed to wind and rain, they fell apart. In the rush to manufacture them for the war effort, Brooks Brothers had, in fact, substituted cheap and flimsy material instead of the usual grade of cloth—they were allowed to, according to the provisions written into their contract.

The New York state legislature launched an investigation, accusing the company of profiteering. When asked how much money the company had made by downgrading the cloth, Elisha Brooks prevaricated. “I think that I cannot ascertain the difference without spending more time than I can now devote to that purpose,” Brooks told lawmakers. Ultimately, Brooks Brothers agreed to replace 2350 of the substandard uniforms at a cost of $45,000.

An illustration of looters throwing trousers and other garments out of the Brooks Brothers store during New York City's draft riots appeared on the front page of Frank Leslie's Illustrated Newspaper on August 1, 1863.Frank Leslie's Illustrated Newspaper, 19th Century American Newspapers, Gale Primary Sources // Public Domain

The company’s association with outfitting the Union Army got them into trouble again in July 1863. The casualties among members of New York regiments were increasing as the war showed no signs of resolution. In New York City, working class people protested against the draft, and the protests quickly turned into a riot of racist violence and looting. Brooks Brothers’s Cherry Street store was one of the establishments it targeted. Harper’s Weekly reported that “a large number of marauders paid a visit to the extensive clothing-store of Messrs. Brooks Brothers … there they helped themselves to such articles as they wanted, after which they might be seen dispersing in all directions, laden with their ill-gotten booty.”

Brooks Brothers’s reputation didn’t suffer for long, however. At his second presidential inauguration in March 1865, Abraham Lincoln wore a greatcoat made by the company. It featured an eagle embroidered into its lining with the motto “One Country, One Destiny.” Lincoln was wearing the same coat when, just two weeks later, he was assassinated at Ford’s Theatre in Washington, D.C. After his death, Mary Todd Lincoln gave the coat to Alphonse Donn, a doorman at the White House, who kept it for the rest of his life. Donn’s family eventually sold the coat to the United States Capitol Historical Society, and it is now in the Ford’s Theatre museum's collection.

Brooks Brothers continued to grow and expand. The company introduced enduring fashions such as the button-down polo shirt in 1896, the sack suit in 1901, and their own version of a British regimental tie, the striped rep tie, in 1902.

For more than 200 years, the company has outfitted presidents, Wall Street traders, and businesspeople, becoming an iconic American brand with worldwide appeal. But today, their future may be less certain.