WHAT IS CRYPTOCURRENCY?
What is cryptocurrency? I’m sure many of you’re curious about this so-called “21st-century money of the long run and thanks to its increasing recognition and security, the cryptocurrency market looks bright ahead.
This is one of the foremost commonly asked questions out there. what’s cryptocurrency? to create it simply, cryptocurrency may be a digital version of cash where the transactions are done online. A cryptocurrency could be a medium of exchange similar to your everyday currency like the USD but designed for the aim of exchanging digital information through a process called cryptography.
Cryptocurrency is a digital payment system, but unlike PayPal, Skrill, or the other digital payment systems, it’s also a currency similar to our fiat monetary systems.
The currency itself holds value based on supply, demand, and trust, so no different from our currency we use. Some however may be backed by company assets such a dollars, gold, or loans.
Cryptocurrencies use a system of encryption to regulate the movement of the currency, control and verify transactions, and in some cases generate new crypto coins.
In most cases it’s anonymous so can be hard to trace transactions to a single user.
They mostly run without the need of a centralized bank and payments are sent through the network of users on the system.
Cryptocurrencies cannot be reversed, once payment is made through the cryptocurrency network the funds cannot be recovered or reversed, this can be problematic for people buying goods or services from unknown or untrusted sources. However, as a seller, you are immune from the scammers and untrustworthy buys who charge back and reverse payments to get goods and services for free.
Due to the anonymity and irreversible payments, criminal activities have adopted using cryptocurrencies, but as cryptocurrencies are now more mainstream it is not just used by criminals and many big companies and genuine businesses are accepting this new form of payment.
The first-ever successful cryptocurrency emerged from the invention of Bitcoin, by Satoshi Nakamoto. This was then followed by the birth of other kinds of cryptocurrencies competing against Bitcoin.
Recently PayPal has announced they will be getting involved in Cryptocurrency, Facebook is creating their own. Large Investment firms are holding positions and even some countries are creating their own or adopting coins to use.
How Do Cryptocurrencies Work?
The reason why cryptocurrencies are in such demand immediately is that Satoshi Nakamoto successfully found the simplest way to create a decentralized digital cash system. what’s a decentralized cash system?
A decentralized system means the network is powered by its users without having any third party, central authority, or middleman controlling it. Not the financial institution or the govt has power over this technique.
The problem with a centralized network during a payment system is that the so-called “double spending”. Double spending happens when one entity spends the identical amount twice. as an example, once you purchase things online, you have got to incur unnecessary and expensive transaction fees. Usually, this is often done by a central server that keeps track of your balances.
This is most typically referred to as Blockchain Technology. Cryptocurrency springs from the word “Cryptography”, which refers to the consensus-keeping process secured by strong cryptography.
Blockchain technology functions in managing and maintaining a growing set of information blocks and this are often by using the decentralized or referred to as the P2P (Peer to Peer) network. In the blockchain, once a chunk of knowledge is recorded it can’t be edited or changed.
To put it in simpler terms, it enables you to send a gold coin via email. The P2P network could be a consensus network, which allows a brand new payment system and also the transactions of the latest digital money.
Let’s illustrate an example. Cryptocurrency like Bitcoin consists of its network of peers. Every peer includes a record of the entire history of all transactions furthermore because of the balance of each account.
By the top of each transaction and upon confirmation, the transaction is understood quickly by the entire network. A transaction includes a process where A gives X amount of Bitcoins to B and is signed by A’s private key. After signed, a transaction is broadcasted within the network. the knowledge is shipped from one peer to each other peer on the network.
Confirmation could be a critical stage within the cryptocurrency system. Confirmation is everything. When the transaction isn’t confirmed, it’s the chance of being hacked and forged.
When a transaction is confirmed, it’s set in stone. It can’t be reversed, it’s impossible to be hacked, it’s not forgeable because it is a component of a permanent record of the historical transaction: The Blockchain.
The blockchain will be likened to an internet ledger, where all transactions are recorded and made visible to the full network.
This involves showing that cryptocurrencies don’t seem to be secured by people or trust, but by complex mathematical equations. it’s very secure and it’s highly unlikely that the address of a currency is compromised.
Only miners are ready to confirm a transaction. this can be their role within the cryptocurrency network. They record transactions, verify them, and disperse the transactional information within the network.
For every completed transaction monitored and facilitated by the miners, they’re rewarded with a token of the cryptocurrency, as an example with Bitcoins.
Since miners play a significant role within the cryptocurrency system, let’s examine their role in additional detail.
WHAT IS BITCOIN?
Bitcoin is the most well-known and popular currency of all the cryptocurrencies and is accepted as being the first.
Officially Bitcoin started in January 2009 but was not very popular at the start, and it was not worth a lot in the beginning. It was created by an unknown group of programmers under the name of Satoshi Nakamoto, and the smallest value of Bitcoin is named after this.
One Satoshi is one hundred millionth of a Bitcoin (0.00000001 BTC). However, sometimes you will see it with more than 8 decimal places, examples of this are CryptoTab, this is so you can see it’s working.
Since the creation of Bitcoin, it has risen to a massive value of $35,000 per Bitcoin, but the value of Bitcoin is still volatile and does fluctuate, news can have a big impact on the value of Bitcoin in the same way that media can affect trading stock prices. Some have predicted it will peek at $100,000 and others at $1,000,000.
Bitcoin was the first cryptocurrency to use what is known as a “blockchain”. The blockchain is a public ledger storing all of the transaction records, so when a new transaction happens it is recorded on the public blockchain.
Each block in the Bitcoin blockchain happens approximately every 10 minutes and contains several transactions. The block is created by a network of computers called “miners”, and when each block is created a reward of newly created Bitcoins is given to the miners, this encourages miners to mine and keep the network of transactions running smoothly.
There is something that happens to the reward, and that is that it halves meaning the reward for solving a block gets halved and the difficulty to solve a block increases.
WHAT IS AN ALT-COIN?
Since the original Bitcoin cryptocurrency there has been many other cryptocurrencies that have been created, these are collectively know as “Alt Coins” meaning alternative coins.
So, any crypto coin that in not Bitcoin is known as an Alt Coin. Most of the Alt Coins are basically copies of the original Bitcoin and use the same “blockchain technology”.
But not all of the coins are versions of Bitcoin, some of the currencies have copied the technology and tweaked it or changed parts of it to make new different features available in the new
currency.
Most alt coins use a different encryption algorithm. Bitcoin being SHA-256. One such as Litecoin uses scrypt.
Also some of the Alt Coins have been built from scratch and each Alt Coin has its own merits, so before trading, mining, buying or selling in a new coin it is worth doing some research first. There are new coins being created all the time and are too many to write about in depth.
WHAT IS CRYPTO MINING?
Most mining today runs on specially adapted machines called ASICs or FPGA although some coins are mined on mining rigs.
The process is slightly different per cryptocurrency, and not all of the cryptocurrencies can be mined.
Miners generally get a reward for mining, either by transaction fees or blockchain rewards or even both.
Trying to not get too complex; Miners are essentially solving a complex mathematical task to produce the transaction records this is also known as “Hashing”, this hashing occurs millions of times a second and most of the hashes are incorrect, only the correct hashes get added to the block.
What Are Miners Doing?
First and foremost, principally anyone will be a miner. Miners are needed thanks to the character of the decentralized network where they need no authority to delegate tasks and therefore the cryptocurrency needs some reasonable system to stop any type of network abuse. for example, an individual may create thousands of peers and spread forged transactions. it’ll disrupt the system immediately.
For you to be a miner, you’d solve a cryptologic puzzle which could be a set of very complex mathematical questions set by Satoshi Nakamato himself. If you successfully solved the puzzle, as a miner you’ll be able to build a block and add it to the blockchain.
The miner is additionally permitted to feature a cryptocurrency transaction to the system which automatically grants him a selected number of bitcoins. this can be the sole thanks to creating valid bitcoins. Bitcoins can only be generated if a miner can solve a cryptographic puzzle. the extent of difficulty increases with the number of computer power the miners invest.
How Are The Cryptocurrencies Value Determined?
The value of cryptocurrencies is obsessed with the market, where the costs of varied cryptocurrencies vary lots and are one amongst the foremost fluctuating and volatile markets thus far.
The price of cryptocurrencies like several other products relies on demand and provide. If more people demand a specific currency and it’s short in supply, then the worth increases. More units are mined by miners to balance the flow. However, most currencies limit the availability of their tokens.
For instance, the whole amount of Bitcoin issued is simply 21 million. Therefore Bitcoin’s supply will decrease in time and can reach its final number by 2140. It also explains why Bitcoin’s value is higher as compared to other cryptocurrencies.
Now you want to be wondering, what’s the cryptocurrency used for?
Cryptocurrencies may be spent for various purposes and therefore the better part is, all transactions are completed online! 3 different transactions may be performed when using cryptocurrency:
- Bitcoin Trading
- Personal Spending
- Crowd Funding
Firstly is Bitcoin trading.
Bitcoin trading is very profitable for both professionals and beginners. The market is new, where arbitrage and margin trading is widely available. The currency’s high volatility has also played a serious role in bringing new investors to the trading market.
Compared to other financial currencies, Bitcoin has little or no barrier to entry. If you already own Bitcoin, no verification is required and you’ll be able to start trading almost instantly. Moreover, Bitcoin isn’t fiat currency. This simply means the value isn’t associated with the economy or policies of any single country.
And unlike stock markets, there aren’t any official Bitcoin exchanges. Instead, many Bitcoin exchanges operate 24/7 round the world. thanks to no official exchanges, this ends up in no official Bitcoin price where the currency is thought for its rapid and frequent price movements.
Secondly is personal spending.
You’ll use Bitcoin to get almost anything! From buying cars to traveling the planet.
In December 2013, a Tesla Model S was purchased for a reported 91.4bitcoins. The dealer, located in California continues to just accept Bitcoin as a method of payment. they need since managed to sell a Lamborghini Gallardo for 216.8 Bitcoin.
You can also travel the planet using Bitcoins! Just head to www.cheapair.com. On 22nd November 2013, they announced that they’d be the primary online traveling agency accepting Bitcoin. you’re able to purchase flights, hotels, car rentals, and cruises. you’ll even book the entire package.
Third is Crowd Funding
Cryptocurrency also provides the prospect for you to give back to society. How? By crowdfunding. you’re able to be a part of someone’s success story by donating to a crypto crowdfunding project. Companies like Lighthouse have built their crowdfunding platform using Bitcoin.
The perks of donating through this method are you may not be charged for your donation and funds won’t be released unless the project meets its criteria. you’re also able to withdraw from the campaign before its completion.
You have complete control over the donation! samples of successful funding campaigns are from Dogecoin, which incorporates campaigns run by Nascar driver Josh Wise.
The question is, Why Cryptocurrency?
Apart from cryptocurrency being very secure and is run through a decentralized network, other properties project why cryptocurrencies are also the foremost talked about topic in town. it’s also been considered as potentially an investment vehicle, which can garner massive returns.
Have you heard of Erik Finman? The teenage Bitcoin millionaire who started discovering Bitcoin at only $12 a bit back in May 2011, when he was just 12 years old. He received the Bitcoin as a tip from his brother and a $1000 gift from his grandmother.
He now reportedly owns 403 Bitcoins, which holds a price of roughly $2,600 where it’s accumulated to a stash of $1.08 million and alter.
There are various concrete reasons why you ought to invest in cryptocurrency. this can be elaborated further in chapter 6, but let me offer you a summary of the perks of shopping for cryptocurrency.
Firstly are its transactional properties. Cryptocurrency transaction is fast and global. Transactions are propagated immediately within the network and are confirmed within minutes. Since the transactions are managed by a worldwide network of computers, they are doing not take into consideration your physical location. you can send your cryptocurrency to someone in your vicinity, or perhaps if they’re living on the opposite side of the planet.
Secondly are their monetary properties. The currencies are in controlled supply thus there’s a high chance that the worth of the currencies appreciates over time. As mentioned earlier, Bitcoin will somehow reach its final number somewhere in 2140.
The third is their revolutionary property. you have got more control of what’s happening in your account and the way the system works and operates. this can be because of the decentralized network of peers which keeps a consensus on account balances and therefore the transactions made. As compared to your physical checking account, which might be changed and controlled by people you don’t see and governed by rules you don’t even know?
DISCLAIMER: THIS IS A GUIDE BASED ON MY EXPERIENCES WITH BITCOIN AND OTHER CRYPTOCURRENCIES AND IS NOT AN ENDORSEMENT OF THE GOODS OR SERVICES MENTIONED IN THIS GUIDE. THIS IS NOT LEGAL ADVICE OR FINANCIAL ADVICE AND ANY INVESTMENTS YOU MAKE IN CRYPTOCURRENCIES ARE AT YOUR OWN RISK AND YOU SHOULD SEEK ADVICE FROM A PROFESSIONAL FINANCIAL OR LEGAL ADVISOR. THE AUTHOR HAS TRIED TO MAKE THE GUIDE AS ACCURATELY AS POSSIBLE AT THE TIME OF WRITING, AND TAKES NO RESPONSIBILITY FOR THE INFORMATION GIVEN IN THIS GUIDE.