Over the last three or so years, cryptocurrencies have emerged as a global phenomenon recognized by a large number of people. Although it’s geeky and still remains some sort of mystery to a lot of people, many companies, banks, and even governments are currently aware of the great influence and importance it is carving for itself.
By 2016, you would’ve had a tough time trying to find a major accounting firm, bank, government or reputable software company that didn’t conduct any research on cryptocurrencies, start a blockchain-based project or publishes a research paper concerning it.
However, beyond all the press releases and noise, an overwhelming amount of people – including developers, bankers, scientists, and consultants – have a faint knowledge of cryptocurrencies. Most times, they even fail to grasp its fundamental concepts. So, what is cryptocurrency? This article will hopefully shed more light on the subject.
Cryptocurrency is an exchange value medium that operates in a digital world also relying on encryption that ensures that transactions are secure. It is an alternative method of payment to credit cards, checks or cash.
The technology responsible for it ensures that you can directly send this digital currency to other people without the need to pass through any kind of third-party (e.g. a bank). What this means is that there’s no need to use a credit score or social security as collateral and it allows users to be substantially pseudonymous. Cryptocurrencies are similar to virtual accounting models with the way they record all transactions. These transactions are clumped into blocks that are then signed cryptographically (hence the “crypto” currency). The client in charge of the signing will then get some units of the virtual currency (plus potential transaction fees) as the reward for calculating and solving the cryptographic signature.
There are also a lot of enthralling use cases for cryptocurrency as a whole. If you’re working in a foreign country, you are able to send money to your family back home while escaping the regularly costly international fees. Also, merchants don’t have to scratch their heads over invalid checks or payment fraud as people will only be able to spend what they actually have.
Blockchain is undoubtedly a huge part of everything that has ensured that cryptocurrency is a household name. Its versatile nature has been more than instrumental in the establishment of other cryptocurrencies that are poised to disrupt a lot of industries other than banks. The network’s decentralized nature is perceived as safer (rightly so) and businesses – mostly the ones with a lot of valuable assets – are very interested in it. A handful of companies have decided to just test the waters of blockchain while some other companies (e.g. Overstock) have decided to completely overhaul their respective business models so as to incorporate it.
Before the emergence of Bitcoin, a handful of attempts at functional digital currencies were recorded. However, they couldn’t reach the heights or attain the kind of popularity that Bitcoin has. Both Bit Gold and B-money were older cryptocurrency ideas that incorporated mathematical problems’ solution into a blockchain’s hashing. The proposal of Bit Gold – penned by Nick Szabo – also included decentralization.
However, the foremost iteration of an entity that became cryptocurrency is Bitcoin. This story began almost ten years ago when an individual or set of individuals referred to as Satoshi Nakamoto created and launched Bitcoin into the digital world and the world at large. The true identity of Nakamoto is unknown and that’s why some believe he’s one person or a group of people. In the same year it was released (2009), Bitcoin software was introduced to the public which allowed people to mine bitcoins and subsequently create the very first blockchain.
With the cryptocurrency needing to be mined, it was no wonder why a lot of people saw it as a novelty during its early days. For the very first time in 2010, bitcoin established itself as a digital currency that could become an actual currency when someone used 10,000 BTC to purchase two pizzas
. As of now, 10,000 BTC is worth in excess of $68 million – making those pizzas the most expensive pastries you’ll ever see! Unbelievable!
The value increase of Bitcoin was actually very slow in the beginning, but as the digital currency increased its relevance and value, others – referred to as altcoins – sprang up with the aim of following the cryptocurrency/blockchain trend. In 2011, Litecoin was released. Dogecoin – actually a meme-based cryptocurrency – was launched in 2013 and at the moment, it has a market cap in excess of $289 million.
With every passing year, bitcoin became more popular. However, there was a limitation as to the price height until a mighty surge occurred at the end of 2017. For currencies with a history of volatility, this was the most volatile year as regards price. On January, 1 BTC had a worth of up to $1,000. However, by December, 1 BTC was worth up to $20,000! It has reduced significantly in value since then, though.
After the emergence and soar in popularity of Bitcoin, other cryptocurrencies were created. Today, there are more than one thousand different cryptocurrencies. Here, I’ll mention some of the common ones.
- Ethereum — A programmable digital currency that allows developers create custom distributed apps that aren’t compatible with Bitcoin.
- Ripple — This cryptocurrency doesn’t make use of a blockchain when reaching a consensus concerning transactions. Instead of a blockchain, it makes use of an iterative process. This makes it a lot quicker than Bitcoin although this also means that it is more vulnerable to attacks by hackers.
- NEM — This cryptocurrency doesn’t use Proof of Work but instead Proof of Importance. This requires its users to have possession of a certain number of coins so as to be eligible to get more.
- Litecoin — This cryptocurrency – unlike Bitcoin – can be able to generate blocks faster. This faster transaction speed puts it in good stead when considering digital currencies that could become legitimate currencies.
Conclusively, cryptocurrency is a revolutionary alternative to fiat currency. All transactions here are secure and the decentralized nature of its blockchain technology ensures that third parties are not needed which will subsequently also reduce the commission fee. Cryptocurrency is the now and the future and if you have been confused by it all this while, I’m sure this article has helped in making things clear for you.
Boost your knowledge and read more about other cryptocurrencies.