The History of Cryptocurrency
There is a lot of debate right now as to whether or not cryptocurrencies are a modern-day Leprechaun – or the digital store of value for the future. This will be an easy to follow, simple guide on cryptocurrencies. Once you’ve read this guide, you’ll have a deeper understanding on cryptocurrencies than most other people in the world.
Cryptocurrencies are a phenomenon on a worldwide scale. They’ve changed the lives of millions of people around the world. Yet somehow, as simple as they are, they are a bit hard to comprehend for many people. It’s not just people who have a hard time understanding cryptocurrencies, it’s also most banks, companies and even governments. They are only starting to truly understand the importance of these new digital currencies.
In 2016, you would be hard-pressed to find a bank or major institution that wasn’t investigating cryptocurrencies. Even software companies and governments were taking a serious look at bitcoin and blockchain technologies.
But far beyond the hype, the noise, and the constant press releases, most people – even those with a deep understanding of numbers, metrics and technology had a very hard time understanding cryptocurrencies. Bankers, accountants, developers, all had a difficult time comprehending the basics of digital currencies like Bitcoin, Litecoin, and Ethereum.
There’s probably one man who understands cryptocurrencies better than any other man alive, Satoshi Nakamoto. He is the “unknown” creator of Bitcoin, easily being seen as the number one resource for cryptocurrency knowledge. Back in 2008, Nakamoto announced he was releasing Bitcoin to the world. It would be “A peer-2-peer electronic cash system.”
He had one goal in mind, to invent a platform that almost no one could before the release of digital currency. The most important piece of the puzzle that Satoshi unveiled was a way to decentralise money completely. In the 1990s there were several attempts to do this, all them failing without any success whatsoever.
Once Nakamoto saw the constant failures when people attempted to create centralized platforms, he decided a decentralised system based on peer-2-peer sharing would work best. Not only that, but he then made the decision that he would create it. That single decision has changed how we see the world today and will have huge impacts on our future.
Nakamoto realised the major issue was there was no form of digital money. It’s because, digital money is a very complex concept that is not entirely easy to create. You need multiple accounts, balances, and transactions – all operating on a payment network. It’s easy to understand in theory, but hard to create in reality.
One of the biggest issues previous attempts came up against, was solving the issue of double spending. Preventing the entities using any system from spending the same numbers twice – sending their money to two people at the same time. Typically, this would be accomplished on a centralized network, where the balances and transaction records would be stored.
Nakamoto solved this issue on a decentralised network, where there is no server or centralized network to store information. He left it to the entities using the platform. They would check all transactions to further validate transactions in the future, guaranteeing that no double spending would occur. It sounds easier then it is. If even one minor transaction wasn’t confirmed and validated by multiple peers, the entire system would crash. Nakamoto, had effectively fixed a problem no one thought could be solved.
How Do Cryptocurrencies Work?
Cryptocurrencies were first developed to be a simple application to work on a breakthrough platform known as a blockchain, a cryptographic technology. This is where the name cryptocurrency came from. Blockchain technology is now being used across the board for multiple technologies. And cryptocurrencies like Bitcoin are just one of the avenues. But what is a blockchain?
A blockchain is essentially a complex mathematical equation that runs on a cryptographic technology known as a hash. Computers attempt to solve these equations, and once they are solved, the block is completed. This is important because if any data inside a block is changed, like data in relation to the data – it is rendered invalid and broken. There is no way to fix it, except by entering the right data or original data that is complete and accurate.
Once a block is made, it takes data from the block before it and makes a new link – this is why it is called blockchain. If any data is tampered with inside a block, it is broken from there on out. It’s like a wooden block tower if you break one of the middle blocks, the entire tower tips.
There is only one way to fix it, by fixing the data that has been altered. And the only way to do that is to reload it with the right data. Blockchains are usually measured by height or the total number of blocks in a tower. The older the data in the block, the more secure the chain comes. The block will then be made valid when more blocks are added. It’s a way to store a transaction ledger that is 100% accurate, safe and secure.
There are other aspects of cryptocurrency as well. Mining is another part of the cryptocurrency world. This is where people build machines to to solve the mathematical equations and as a reward they get some of the coin in return. They then collect transactions and place them together in a type of puzzle. It is a difficult process that needs powerful, highly-specialized computers to operate the mining operations. They also help ensure that all transactions are valid. Anyone who wants one can have a copy of a blockchain.
Are Cryptocurrencies Secure?
Cryptocurrencies have a multitude of security measures in place to help people stay safe and secure while trading. They are designed to keep the individual secure as well as the entire network. On an individual level, each wallet is secure, thanks to a digital wallet. There is only one key to each wallet, each wallet has its own unique address that only the owner of the wallet has. To complete a transaction, you must sign it digitally with your own unique key.
It means that even if someone else gets your unique key to your wallet, they wouldn’t be able to use it to complete transactions. If you were to give someone your private key though, or they found it from you, they could make transactions, based on your behalf. This is why it is so important to keep your key private.
As stated before, thanks to the blockchain technology, it is impossible to edit any transactions once they’ve been completed. And since they can be reviewed, cryptocurrencies are completely secure against the old “double spending” that made old digital currencies obsolete. If one person tries to pay two separate parties with the same money, it simply won’t work. There is an increased safety over the network, that makes cryptocurrencies safe and affordable.
They are often much cheaper than other merchant services, that charge a fee of 3% or more on credit cards. Since cryptocurrency is protected against fraud and chargebacks, the extra fees are not necessary. It makes for very low costs to make exchanges and complete transactions. Often with cryptocurrencies, you can pay pennies in costs to make transactions for thousands of dollars.
What Type Of Cryptocurrencies Are There?
There is a multitude of cryptocurrencies – Bitcoin is, of course, the first of them. It is considered the leader of the cryptocurrencies. Bitcoin has accelerated in growth like no one expected. In just one year from 2016-2017 it increased in value by more than ten times. But it is not the only cryptocurrency available for use. Let’s take a look at some of the most popular cryptocurrencies on the market.
- Bitcoin – Bitcoin or BTC for short is the first cryptocurrency. It is the original cryptocurrency created by Nakamoto Satoshimi. It is the current market leader, having one of the most popular global reputations of any currency to date. The security base behind Bitcoin is huge, there is a massive community and operation behind it that powers it twenty-four hours a day, seven days a week, 365 days a year. BTC has the most significant value of all the different cryptocurrencies, has the most coverage by the media all over the world, and is the one that the governments and financial institutions are most likely to accept as a real currency. Popular retail sites allow Bitcoin as a currency, you can use it on Overstock.com. Even Amazon, one of the largest companies in history, accepts Bitcoin as a medium to purchase gift cards. It is the by far the most valuable cryptocurrency, accounting for over 55% of the entire market.
- Ethereum – Bitcoin was originally designed as a digital currency system. Ethereum, on the other hand, was designed to be used by companies for the distribution of applications through blockchain technology. They are known as Ether, the underlying currency of the platform. Ether, essentially acts as a fuel that powers the applications traded on the system. Ethereum, commonly called by many ‘Swiss Army Knife’ has multiple uses. It can support numerous uses such as escrowing for real-estate agents, ticket sales, online betting and gaming and much more. Ethereum is the second largest of the cryptocurrencies, and takes up about a quarter as much of the market as Bitcoin does.
- Ripple – This is another of the digital assets that has a primary use of allowing financial institutions to make payments on a worldwide scale in a much cheaper way. To meet the demands of these massive institutions, their technology is capable of handling much more transactions than most other cryptocurrencies. It works because the technology works by focusing on a throughput, it can handle more than 200 times the transactions per second than that of BTC. They already have a huge customer list, that includes Santander, IBC, CIBC, RBC and UBS. There is more than dozen other financial institutions and banks that use Ripple as well. Ripple is the third largest cryptocurrency based company.
- Litecoin – In 2012, this Bitcoin alternate was released. It’s deemed lite as it supposed to be a lite version of Bitcoin. It was developed using a lot of the same Bitcoin programming code. The main benefits of using Litecoin, you can complete transactions at a much quicker rate then Bitcoin and for a much lower price. There is also more transaction throughput then Bitcoin has, it is capable of carrying worldwide payments in fractions of a second. The lightning-fast cryptocurrency is called by many, the ‘test bed’ for Bitcoin due to its ability to take on a multitude of technological advances faster than bitcoin. It is the fourth largest of the cryptocurrency companies.
What is the Future of Cryptocurrency?
It is likely, that Bitcoin will continue to hold the industry standard. It is the first decentralised, peer-2-peer-based currency that has given people a safe, private and secure way to trade money worldwide or pay for goods and services. All cryptocurrency is fundamentally different then Fiat Currency (Real Money) which is only backed by faith in the government. However, many believe that Bitcoin will crash long term as it’s technology has been far surpassed by other cryptocurrencies.
Cryptocurrency will continue to be scrutinised because of is decentralised operation. Not only that but it operates with total anonymity and is being used for many different activities like money laundering, drug trafficking, and prostitution. Even weapons can be purchased online with cryptocurrencies like Bitcoin. The illegal uses of Bitcoin are causing several governments and agencies like the FBI and DHS to take action against the currency.
They are going to either attempt to regulate cryptocurrencies or shut them down entirely. DHS has even frozen accounts entirely when a large Bitcoin exchange is made. Despite their actions against Bitcoin, there are many other cryptocurrencies on the market, some of those mentioned in this article. Even if Bitcoin were completely shut down, which is next to impossible because of how it is set up, there would be the continual usage of the other cryptocurrencies and new ones would surely spark up as well. As long as there are coders, programmers and people like Nakamoto, there will likely always be cryptocurrencies on the market.