A Complete Guide on Everything You Need to Know about Cryptocurrency
Cryptocurrency is an enigma to beginners and amateurs who find themselves just as fascinated as they are lost in the vast world of this digital currency. Laymen find it even more impossible to enter this mysterious world of quick cash. Yet, all around the world, government, banks, companies and investors are engaged in the cryptocurrency market.
As a beginner, you might be confused, overwhelmed and perhaps even slightly frightened of the wealth cryptocurrencies promise. Sheer reason behind such hesitance in investing into digital coins- for most people or beginners- is the lack of knowledge about even the most basic principles of cryptocurrency.
If you’re someone who would like to learn more about Cryptocurrency, then this guide will walk you through every detail of these virtual coins for better understanding.
Let’s address the most basic questions:
- What is the origin of Cryptocurrency?
- Why is Cryptocurrency important?
- What are the important factors to know about cryptocurrencies?
What is the Origin of Cryptocurrency?
Surprisingly, cryptocurrency was never an intended invention. In an attempt to create a ‘peer-to-peer’ digital cash system, Satoshi Nakamoto ended up inventing Bitcoin that has remained one of the largest and most important Cryptocurrency.
In his report of Bitcoin’s introduction and launch, he said, “Announcing the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority.”
The success of this invention lies behind its single, most valued aspect- decentralization. This digital cash is not accountable to any authorities to be monitored, making it the first digital cash system to not have any centralization. In simple words, Cryptocurrency is not regulated by any authorities; this fact makes it the first virtual currency to authentically follow the principles of the free market economy.
To monetize the cash you send or receive online, you need a payment channel connected to your bank account, to process the transaction. Simple, right? However, a common problem of most payment networks is the risk of double spending. When making a payment through payment networks, you might end up double-spending i.e., paying the same amount of money twice. Central servers are used to avoid this problem.
So the question arises, how can this problem of double-spending be solved without a central server?
Digital cash systems that are decentralized have no authorities to keep records of transactions or balances. Ultimately, every entity of the network has to take the responsibility of carrying out the correct transactions to prevent double-spending.
In such cases, chances of disagreements are high so how can each of the party consent about the right record?
One single error or disagreement can break down the whole chain of network balance. As no trusted authority is keeping a check, disputes are likely to cause problems.
The solution to this problem was invented by Satoshi, who introduced the idea of decentralized digital systems- Cryptocurrency- where each of the networking parties reaches an agreement without a monitoring figure.
Cryptocurrency- What Is It?
Cryptocurrency is a digital currency, developed to allow an easy exchange of value. In simple words, it is the same as having money in your bank account but in an intangible form. This virtual currency supports the transfer of capital, without the regulations of a governing authority. In essence, these are limited entries in some kind of a database that can only be altered under some particular conditions, just like money in your bank account- except, in a virtual form.
How Do Cryptocurrencies Work?
Crypocurrencies are channeled by miner who create the coins and verify the transactions. Every cryptocurrency has a large network of peers. All the peers keep records of all the transactions that have taken place in the past, and the carried forward balance of the accounts.
The records of the transactions are kept in a file, for example, stating “Mike Gave XYZ Bitcoin to Henry” and are then sealed with Mike’s private key signature. This transaction is then forwarded to all the network peers of the cryptocurrency for record keeping.
Even though all the peers have the record for the Cryptocurrency transaction, it gets confirmed after much time has passed. Confirmation is the most crucial part of virtual currencies. Once confirmed, the transaction is unchangeable and irreversible- it is now a part of the blockchain.
Who Are Cryptocurrency Miners?
Miners are responsible for the confirmation of a transaction. For this service, they are remunerated with a cryptocurrency token.
Miners act as the third party that secures the cryptography of a virtual currency in order to prevent misuse by any peer of the network. Based on mathematical calculations, miners create a Proof-of-Work algorithm. This is a puzzle which the miners have to solve in order to design a block for the blockchain. As a result, cryptocurrencies are created.
Properties of Cryptocurrencies
Majority of the cryptocurrencies have properties in common with one another apart from some changes. On a massive scale, these properties are divided into two categories; transactional and monetary properties.
- Irrevocable: Once confirmed, the transaction of a cryptocurrency cannot be changed or reversed under any circumstances. This is why, investors are advised to be careful because once the payment has been sent, there is no way to undo it.
- Quick and worldwide: Cryptocurrency network spreads throughout the world. Since this network is accessed by so many people, the transactions are confirmed within minutes.
- Decentralized: This property is perhaps the dominant reason behind the success of Cryptocurrencies. These virtual medium of exchange are decentralized (without any authority regulations) which can be accessed and used by anybody around the world.
- Pseudonymous: Cryptocurrency keeps real identities undercover. Whether you’re on the sending or the receiving end of the network, your identity will remain concealed by a random address of 30 characters. In this way, you and your peers will be unaware of each other’s real identities.
- Safe: Cryptocurrency can only be accessed by the crypto public key. Every peer of the network has a private public key that allows entrance to the cryptographic database. Your cryptocurrency will remain protected from security breaches, intrusions, theft and hacking.
- Limited Tokens: Cryptocurrencies only channel a supply of limited tokens. For each cryptocurrency, there is a token supply schedule which indicates the number of tokens to be supplied in a code. Bitcoin reduces its token supply annually and in 2140, it will reach its final number of tokens.
- No debt, only money: The money you use for exchange of value from your credit card is anything but the amount of funds you owe to your bank. None of it is real money that you own. However, it is different with cryptocurrencies. The numbers represented by your virtual coin is not a debt or illusion, they are real-life money in an intangible form.
What Are the Effects of Cryptocurrencies?
Cryptocurrencies have emerged as strong medium of value exchange. Its far-reaching effects can only be acknowledged if both, transactional and monetary properties are taken into account. For example, Bitcoin, which is a pseudonymous, irrevocable and decentralized mode of funds exchange, is a stringent opposition to the cartels established by banks and monopolies of governments, regulating the financial transactions of their users. There are no barriers to entry or exit on Bitcoins, no forbiddance to or from anyone on receiving funds, and no reversibility on the confirmed transactions.
Since cryptocurrency is a supply of virtual funds in restricted amounts, without the intervention of banks, governments or any other external party, it has the ability to attack the monetary policies of countries. As a result, cryptocurrency threatens the stronghold of central banks have on inflation or disinflation by challenging the financial supply in a country.
Top Cryptocurrencies in the Market
The concept of cryptocurrency has attracted the attention perhaps even the inventor, Satoshi Nakamoto may not have imagined. While to this date, Bitcoin retains the largest hold in the digital currency system, several other cryptocurrencies have emerged that investors must keep a track of for present or future investments.
Below are some of the most popular cryptocurrencies of our time that have shown remarkable progress:
Being the pioneer of the digital monetary system, Bitcoin needs not an extravagant introduction; this virtual currency has established an unrivalled name for itself. Bitcoin has become the gold or petrol merit in the world of virtual currencies and is used as a worldwide method of value exchange. Having crossed 8 years since its invention, today, Bitcoin’s per token rate has risen from zero to over $640 (US). The number of Bitcoin transactions confirmed on a daily basis, globally, is more than 250.000 transactions.
According to speculations, Bitcoin’s rate and transactional volume is only going to increase. It is fair to suggest that this cryptocurrency is only going to be more lucrative in the future.
While Bitcoin retains the gold value in the digital currency industry, Litecoin, being the second cryptocurrency ever introduced, serves as the silver value in the market. Litecoin has attracted much of the speculators’ and investors’ attention with its new algorithm that has proven the currency to be quicker in exchange. It can be said that Litecoin is known as the younger sibling of Bitcoin in the virtual currency industry.
Litecoin’s creation was intended to be a more flexible virtual currency that would serve as a medium of daily exchange as the creator, Charlie Lee said, “My vision is people would use Litecoin every day to buy things. It would just be the payment method of choice.”
Presently, Litecoin is not the most successful amongst cryptocurrencies but it definitely serves as a backup investment, in case the Bitcoin market collapses.
Novelty of the new generation mastermind Vitalik Buterin, Ethereum has emerged as the second most sought after cryptocurrency amongst investors and speculators. It acts like a typical virtual currency, serving as the medium of virtual value exchange. However, what makes it different and all the more striking is its ability to verify states. This allows Ethereum to process intricate programs and contracts.
However, there are numerous duplications of Ethereum seuch as Augur and DigixDAO. This makes Ethereum more like a hub of cryptocurrencies, rather than a single coin.
One of the most advanced and highly secured cryptocurrencies, Monero is based on one of a kind cryptonite algorithm. This mathematical coding was developed to boost the security system that many find lacking in Bitcoins.
While still being one of the most popular and in-demand cryptocurrency, Bitcoin left a trail of filed transactions that could be followed through the blockchain. Monero’s invention reinforces the security system with the introduction of the idea of ring-signatures. Ring-signatures basically annihilate the trail in the blockchain, allowing each of the peers in the network system to remain unidentifiable.
How to Invest?
As mentioned earlier that new cryptocurrencies are introduced in the market that are available for purchase almost on a daily basis. However, most of the buyers and investors are interested in Bitcoins. Just for Bitcoins, there are several ways to buy. The Bitcoin industry is active in around 58 countries, with a total of 1,800 Bitcoin ATMs where tokens can be purchased from. In addition, options such as cryptocurrency exchanges, in-person tradeoffs, using gift cards, and investment pooling also exist.
However, Bitcoins are extremely expensive and unaffordable to most. This is why, many people resort to buying the lesser known cryptocurrencies instead. For such virtual currencies, the purchasing options are not as diverse as they are for Bitcoins. While in-person tradeoffs are the most common ways of buying these currencies, your purchasing methods depend on the type of coin you’re interested in, your location and other specifics.
Cryptocurrencies are already en-route to revolutionizing the world’s exchange system. While banks, governments and financial institutions are heavily threatened, and day by day, losing control of the monetary chain of supply, virtual currencies are gaining more and more power every day.
Originally published on www.anthonyvallonejr.com