You might think you know what cryptocurrencies are and how they work. You might have read about the massive returns that early investors in Bitcoin and Ethereum have made (and the even bigger losses some have suffered). You might even have a vague sense of how blockchains work—distributed ledgers across many computers, with no one in control.
But underneath all these facts is a more fundamental question: What are cryptocurrencies? And why did they come into existence? To understand what they are, we need to go back to the beginning, and start with money itself.
Money is an idea, one that has evolved over time. It was once based on gold, then paper; now it’s increasingly digital. This evolution has been driven by technology, as new ways of storing and transmitting money were invented. The problem with each stage of this evolution is that there was too much friction involved in moving money around. Gold coins were heavy; paper checks could be lost or forged; electronic bank transfers could take days to clear. Cryptocurrencies such as Bitcoin were supposed to be a faster and cheaper way to make payments, but they had their own problems: slow transaction times and high fees.
Enter Ripple. This cryptocurrency doesn’t get as much attention as Bitcoin, Ethereum, or Litecoin
Cryptocurrencies, or virtual currencies, are digital means of exchange created and used by private individuals or groups. Because most cryptocurrencies aren’t regulated by national governments, they’re considered alternative currencies – mediums of financial exchange that exist outside the bounds of state monetary policy.
But while many have heard of cryptocurrencies, far fewer understand what they are or the concepts behind them. The following primer and explainer will walk you through the complex world of cryptocurrencies, so that you can understand exactly what they are, why they exist and how they could shape our future.
The history of money
In order to understand cryptocurrencies, it is helpful to understand the history of money. As long as people have been trading goods and services with one another, a medium of exchange has been necessary. One person may not value what another has to offer as much as he values his own goods or services – so he needs something else to make up for the difference. This is how money was born.
In early societies, precious metals like silver and gold were used as currency in order to make transactions easier. They were scarce resources (and still are), which gave them value – and because their value was more or less agreed upon by everyone in society based on these factors, it made
A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrencies use decentralized control as opposed to centralized electronic money and central banking systems.
The decentralized control of each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database.
Bitcoin, first released as open-source software in 2009, is generally considered the first decentralized cryptocurrency. Since the release of bitcoin, over 4,000 altcoins (alternative variants of bitcoin, or other cryptocurrencies) have been created.
Decentralized cryptocurrency is produced by the entire cryptocurrency system collectively, at a rate which is defined when the system is created and which is publicly known. In centralized banking and economic systems such as the Federal Reserve System, corporate boards or governments control the supply of currency by printing units of fiat money or demanding additions to digital banking ledgers. In case of decentralized cryptocurrency, companies or governments cannot produce new units, and have not so far provided backing for other firms, banks or corporate entities which hold asset value measured in
The idea of cryptocurrencies has been around for a long time. Developers and coders have been seeking the perfect way to implement cryptography into a digital asset since the birth of the internet. The idea is to use cryptography to secure all transactions of the specific digital asset, as well as control the creation of that same asset through the same means.
There are two major ways in which an investor can purchase Bitcoin. The first way is to buy them from an online cryptocurrency exchange which are similar to traditional stock trading platforms where investors can buy, sell and trade cryptocurrencies with each other. The second way is to purchase cryptocurrencies such as Bitcoin through a digital wallet, which stores your coins in its database.
Cryptocurrencies Are Virtual Currencies Secured By Cryptography
It is a decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.
Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto and started in 2009 when its source code was released as open-source software.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment. Bitcoin can also be held as an investment. According to research produced by Cambridge University in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.
Cryptocurrency Mining : Is A Process In Which Transactions For Various Forms Of Cryptocurrency Are Verified And Added To The Blockchain Digital Ledger. Also Known As Cryptomining, Cryptocoin Mining Or Altcoin Mining, Is The Process Of Adding Transactions To The Ledger In Blockchain, Using
In the 1990s and 2000s, the future of money was digital. The internet and digital technology created a new medium for financial transactions. But instead of creating entirely new currencies, this medium was used to facilitate transactions in government-backed money.
The introduction of digital currencies had a profound effect on money and banking, but not in the way that many expected. Digital currency didn’t replace government-backed money, it supported it.
Cryptocurrency is different. Cryptocurrencies are designed as a medium of exchange and use cryptography to secure the transactions and control the creation of additional units. In other words, cryptocurrency is an internet-based medium of exchange which uses cryptographical functions to conduct financial transactions. Cryptocurrencies leverage blockchain technology to gain decentralization, transparency, and immutability.
The most important feature of a cryptocurrency is that it is not controlled by any central authority: the decentralized nature of blockchain makes cryptocurrencies theoretically immune to the old ways of government control and interference. Cryptocurrencies can be sent directly between two parties via the use of private and public keys. These transfers can be done with minimal processing fees, allowing users to avoid the steep fees charged by traditional financial institutions.
The world of cryptocurrencies is about to get a lot more complicated. Until now, the digital currency space has been dominated by bitcoin, but that’s about to change with the launch of hundreds of new digital currencies, called altcoins.
What’s an altcoin?
The term altcoin refers to any digital currency that is not bitcoin. The name itself is short for alternative to bitcoin. Many altcoins have been created since the birth of bitcoin in 2009, and each one has its own unique characteristics and functions. Most altcoins are little more than Bitcoin clones and they do not survive for very long. They only change minor features such as its hashing algorithm (see below), distribution method, or transactions speed. One exception is Litecoin, which was one of the first altcoins. In addition to using a different hashing algorithm than Bitcoin, Litecoin has a much higher number of currency units. For this reason, Litecoin has branded itself as “silver to Bitcoin’s gold.”
There are hundreds of cryptocurrencies in active use today. Although some are clones or forks of Bitcoin, there are many others which are completely unique. A few popular altcoins include: