What is Cryptocurrency?
Cryptocurrency offers an online platform to transfer money in the form of digital files. It’s a medium of exchange similar to normal day to day currency. Except that they are de-central and not in control of one person or organization. The first ever-successful cryptocurrency emerged from the invention of Bitcoin, by Satoshi Nakamoto
How Do They Work?
Satoshi was the first to be able to successfully create a decentralized cash system. What is a Decentralized Cash System? It means the network is run by its users without having any third party, central authority or middleman controlling it. Which means neither the bank nor the government has power over this system.
The problem with a de-central network in a payment system is the “Double Spending“. One entity spends the same amount twice.
Cryptocurrency originates from the word cryptography which refers to the consensus, keeping process secured by strong cryptography. Blockchain functions in managing and maintaining a growing set of data blocks and this is achieved by P2P, Decentralized Network.
Editing a piece of data once on record on the blockchain is not possible.
To put simply “it enables you to send a gold coin via email”.
A cryptocurrency like Bitcoin consists of a network of peers. Consequently, every peer holds a record of the complete history of all the transactions besides the balance of every account.
Confirmation is essential in the system, once confirmed, the transaction cant be hacked nor forged. It then becomes part of a permanent record of a historical transaction. Which comes to show that cryptocurrencies are not secured by people or trust, but by complex mathematical equations.
Only miners are able to confirm a transaction. They record transactions, verify them and disperse the transactional information in the network
Who are Miners?
Anyone can be a miner. Miners are necessary because of the nature of the decentralized network where they have no authority to delegate tasks. And, the cryptocurrency needs some kind of system to prevent any form of network abuse.
Miners solve a cryptographic puzzle which is a set of very complex mathematical questions set by, Satoshi, himself. If miners successfully solve the puzzle, build a block and add it to the blockchain. They forthwith gain permission to add a cryptocurrency transaction to the system which grants them bitcoins.
How are The Value Determined?
The value of cryptocurrency is dependent on the market. It is notoriously volatile, the price of various cryptocurrencies vary a lot and certainly its the most fluctuating market today.
Transactions Using Cryptocurrency
Bitcoin Trading: it can be very profitable for both professionals and beginners. The market is new, and arbitrage margin trading is widely available. It is highly volatile, attracting new investors to the market, in contrast to other financial currencies. Moreover, Bitcoin has little barrier to entry, unlike fiat currency, the price of a bitcoin isn’t related to the economy or policy of a specific country. Also, unlike the stock market, there are no bitcoin exchanges. Instead, 100s of bitcoin exchanges happen 24*7 around the world. Because of no official exchanges, there is no official Bitcoin price, where the currency is known for its rapid and frequent price movements.
Crowd Funding: It provides you with the chance to give back to society. Donating to a crypto crowd funding project makes you able to be someone’s success story. The perk of donating through this system is that there is no charge for your donation unless the project meets its criteria.
Personal Spending: Using Bitcoin to purchase almost anything from cars to travel the world. In Dec 2013, a purchase of a Tesla model cost 91.4 bitcoins. The dealer in CA continues to accept bitcoins as a means of currency/payment.
Why Invest in Cryptocurrency?
1. Transactional properties: the cryptocurrency transaction is fast and global transactions are propagated immediately in the network within minutes. Since a World-wide network of computers manages the transactions, they do not care about the location of the sender and receiver who could be neighbours or a world apart.
2. Monetary properties: since the currencies are in a controlled supply, there is a high chance that the value of the Currencies appreciates over time.
3. Revolutionary properties: you have more control over what is going on in your account and how the system works and operate.
Types of Cryptocurrency
There are over 800 cryptocurrencies we will only walk through the most prominent in the market, which are
1. Bitcoin
1st ever cryptocurrency invented and by far the most sort out, till date. It is also the 1st ever decentralized and P2P network which can work without any central authority across the globe. It’s known as the digital gold standard in the cryptocurrency network.
Bitcoin is the pioneer of blockchain technology that made digital money possible, and over the years of bitcoins existence, its value has fluctuated tremendously.
The current value of Bitcoin is 1 Bitcoin = 9,76,600.77 Indian Rupee, now that’s crazy.
One major advantage that Bitcoin has over other cryptocurrencies is that its impossible to counterfeit. Reason being there are only 21 Million Bitcoin created from mining no more no less.
A prediction says mining of all the bitcoins will be complete by the year 2140. Second, you have ultimate control over your money and transaction without having to go through a 3rd party. And third, It is impossible to reverse Bitcoin transactions. Therefore you should only deal with trusted parties as bitcoin is also used for cybercrime like darknet market.
Ethereum
Created by Vitalik Buterin it has scored itself the 2nd spot in the hierarchy of cryptocurrency. This digital currency launched in 2015 is predicted to surpass Bitcoin and may be the cryptocurrency of the future.
1 Ether = 30,082.07 Indian Rupee
Is Ethereum similar to bitcoin?
It is in a way, but not really. Bitcoin blockchain focuses on tracking ownership of the digital currency while Ethereum blockchain focuses on running programming code or network. Ethereum enables the development of 1000 of different applications in a single platform (miners earn ether).
Another use of the Ethereum blockchain is its ability to decentralize any services. It is also useful in building a Decentralized Autonomous Organization (DAO). Dao is a fully autonomous organization without a leader. They are run by programming codes run on smart contracts written in the Ethereum blockchain. Its design replaces the design of a structured organization and like bitcoin eliminating people and central control.
Most obvious benefits of Ethereum?
1st, a 3rd party cannot make any changes to the data. 2nd, just like Bitcoin it has secure cryptography.
Litecoin
Litecoin, when it was launched in 2011, it aspired to be the silver to Bitcoins gold. It also recorded the highest market cap of any other mined cryptocurrency, after its launch. Its main reason to be here is to make up what bitcoin lacked.
1 Litecoin = 4,273.22 Indian Rupee
Litecoin takes 2.5 minute time to generate a block for Litecoin, in contrast to bitcoins 10 minutes. Also, The speeding up of hashing power and system altogether is one of its significant advantages. It can handle a higher volume of transaction thanks to its algorithm. The faster block time also prevents the double-spending attack. Its a backup of bitcoin if it fails.
Monero
It was invented in 2014, and its goal is to create an algorithm to add the privacy features that are missing in bitcoin. It has a system known as the “Ring Signatures” to conceal the identity of its senders and recipients.
Ring signatures combine private, and public keys to create a ring of signers and not allow outsiders. While Monero users can keep their transactions private they are also able to share their information selectively.
It also improves its privacy settings by using “stealth addresses” which are random, one time addresses. Their generation is on behalf of the recipients. This way, the published address of the recipient transactions is hidden. Individuals may choose to join a mining pool or they may mine Monero by themselves, It uses proof of work. It has received the acceptance of multiple dark web marketplaces and has generated its fan base due to its privacy settings. Therefore, it is less speculative as compared to other digital currencies.
1 BTC = 97.08 XMR
Ripple
Ripple is a technology that has a dual function, as a digital currency as well as a digital payment network for financial transactions. It operates on an open-source and a P2P decentralized platform.
Hence, allowing a transfer of money in any form both fiat and cryptocurrency. It does use middleman in currency transactions and offers an exchange of any currency.
Its digital coin, XRP acts as a bridge for other currencies which includes both fiat and cryptocurrencies. Unlike Bitcoin, its Network does not run with a proof of work system. Additionally, the nature of its Network and its systems exposes its users to certain risks. Nonetheless, it does improve some features of traditional banks. Transactions are complete within seconds on a ripple network even though the system handles millions of transactions frequently.
1 Ripple (XRP) = $0.499 USD or 0.00007797 BTC
Conclusion
The Key reason for Cryptocurrency being very secure is, in fact, its run by a P2P network. Moreover, It potentially is an investment vehicle, which may garner massive returns. Erik Finman is a teenage Bitcoin millionaire who at just 12 years of age had bitcoin at only 12$ a piece back in May 2011. As in August 2019, he holds 446 bitcoins which are worth $4.5 million.
Please follow my next few blogs which will be on Cryptocurrency and Blockchain. Meanwhile, take a walkthrough:
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