There's a category of cryptographic algorithms called "asymmetric encryption." Basically the way these work is you generate a keypair which consists of a public key and a private key. Anybody can use your public key to encrypt a message which can only be decrypted by your private key. Conversely, only you, using your private key, can create a signature for a message which will verify by your public key.
Bitcoin works due to two aspects. The primary aspect is the ledger. The ledger uses cryptographic signatures to create a distributed public ledger of transactions that anyone could independently verify. This is used to determine the balance of a bitcoin "wallet" (technically a cryptographic keypair, functionally an account). The second aspect is the "mining" process which balances artificial scarcity and inflation. If people can be the first to provide a solution for some arbitrarily complex computational problem, they get to submit their solution to the blockchain (ledger) and take ownership of one coin. From there, that coin can be subdivided and traded on the ledger.
The key problem with bitcoin is that scarcity and inflation are tied directly to energy consumption for solving these arbitrary, useless problems. This isn't a problem inherit to blockchain currencies themselves, but it is an inevitable problem when you decide that using the entropy of the universe to settle inflation is superior to just having good communists govern (and quietly abolish) monetary policy.
That's actually a good explanation, thanks! Another question if you don't mind — how (and by whom) are those complex computational problems generated, and why does it get progressively harder to mine cryptocurrency?
There's a category of cryptographic algorithms called "asymmetric encryption." Basically the way these work is you generate a keypair which consists of a public key and a private key. Anybody can use your public key to encrypt a message which can only be decrypted by your private key. Conversely, only you, using your private key, can create a signature for a message which will verify by your public key.
Bitcoin works due to two aspects. The primary aspect is the ledger. The ledger uses cryptographic signatures to create a distributed public ledger of transactions that anyone could independently verify. This is used to determine the balance of a bitcoin "wallet" (technically a cryptographic keypair, functionally an account). The second aspect is the "mining" process which balances artificial scarcity and inflation. If people can be the first to provide a solution for some arbitrarily complex computational problem, they get to submit their solution to the blockchain (ledger) and take ownership of one coin. From there, that coin can be subdivided and traded on the ledger.
The key problem with bitcoin is that scarcity and inflation are tied directly to energy consumption for solving these arbitrary, useless problems. This isn't a problem inherit to blockchain currencies themselves, but it is an inevitable problem when you decide that using the entropy of the universe to settle inflation is superior to just having good communists govern (and quietly abolish) monetary policy.
That's actually a good explanation, thanks! Another question if you don't mind — how (and by whom) are those complex computational problems generated, and why does it get progressively harder to mine cryptocurrency?