Let us first understand what Cryptocurrency means
Cryptocurrency is a digital or virtual currency that is protected by cryptography, rendering it virtually difficult to clone or replicate. Many cryptocurrencies are decentralized networks focused on blockchain technology—a global database reinforced by a disparate network of computers. The distinguishing characteristic of cryptocurrencies is that they are usually not distributed by any central entity, making them potentially immune to political intervention or exploitation. Cryptocurrencies are mechanisms that enable encrypted online payments that are denominated in terms of virtual “tokens,” which are defined by the system’s internal leads. “Crypto” refers to the various encryption algorithms and cryptographic methods that secure certain entries, such as elliptical curve encryption, public-private key pairs, and hashing functions. Any of the cryptography used in today’s blockchain was initially designed for military purposes. At one time, the government tried to impose cryptography regulations equivalent to the legal constraints on weapons, but the right of people to use cryptography was protected on grounds of freedom of expression.
The cryptocurrencies story began in 2008 when a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was written by a single or group of pseudonymous developers called Satoshi Nakamoto. The real network took some time to start the first transfers in January 2009 alone. The first real selling of an item using Bitcoin took place a year later with a customer trading 10,000 Bitcoin for two pizzas in 2010, which for the first time added a cash value to the blockchain. By 2011, other cryptocurrencies started to appear, including Litecoin, Namecoin, and Swiftcoin making their appearance. Meanwhile, the cryptocurrency bitcoin that began it all started getting criticized after reports appeared that it was being used on the so-called “dark web,” especially on sites such as Silk Road as a means of payment for illicit transactions. Over the next five years cryptocurrencies slowly gained momentum with a spike in the number of transactions and the price of Bitcoin, the most common cryptocurrency in the world rose from about $5 at the beginning of 2012 to about $1,000 at the end of 2017.
Let us now dive into the types of Cryptocurrencies
The first blockchain-based cryptocurrency was Bitcoin, which is the most common and valuable. Today, there are thousands of alternative cryptocurrencies with diverse features and requirements. Some of these are Bitcoin clones or forks, and others are new currencies that have been developed from scratch. Bitcoin was introduced in 2009 by a person or collective known as “Satoshi Nakamoto.”1 As of Nov. 2019, there were over 18 million bitcoins in circulation with a combined market cap of around $146 billion. Some of the competing crypto currencies created by Bitcoin’s popularity, known as “altcoins,” include Litecoin, Peercoin, and Namecoin, as well as Ethereum, Cardano, and EOS. Today, the combined valuation of all existing cryptocurrencies is about $214 billion—Bitcoin accounts for more than 68% of the overall value of the cryptocurrencies.
How does it all work?
Cryptocurrencies use decentralized technologies to enable people to make encrypted purchases and store money without using their identity or going through a branch. They operate on a global public ledger called blockchain, which is a database of all transactions that have been updated and kept by currency holders. Cryptocurrency units are generated by a method called mining, which requires the use of computer power to solve complicated math problems that produce coins. Users can also acquire currencies from brokers, then store and invest them using cryptographic wallets. Cryptocurrencies and implementations of blockchain technologies are now evolving in financial terms and further use is anticipated. Transactions, including bonds, securities, and other financial assets, may potentially be exchanged using technology.
How to safely use bitcoin?
Prospective Bitcoin investors need to know a few things before they take the plunge.
First, there is usually little security under the Financial Sector Compensation Program. If a Bitcoin trader is compromised and coins deposited in his site are stolen, so there is no government reward like there will be for a bank. The easiest way to defend against this is for customers to move their Bitcoin to a different wallet. Bitcoin.org has a list of recommended items.
Second, scams are very popular. The City watchdog, the Financial Conduct Regulator, released a new warning this year. Action Scam, the government’s fraud contact center, told consumers never to respond to cold calls or tailored adverts. Buyers should stick to the main exchanges, including eToro, Coinbase, and CoinCorner.
Advantages and Disadvantages of Cryptocurrency
Cryptocurrencies are committed to making it possible to pass money directly between two parties without the need for a trustworthy third party, such as a bank or a credit card provider. Instead, these transactions are secured with the use of public keys and private keys and various types of reward mechanisms, such as Proof of Work or Proof of Stake. In current cryptocurrency schemes, the “wallet,” or account address of the recipient has a public key, whereas the private key is revealed only to the owner and is used to sign transactions. Fund transactions are completed with reduced transaction costs, allowing customers to bypass heavy fees paid by banks and financial institutions for wire transfers.
The semi-anonymous nature of cryptocurrency transfers makes them well suited to a variety of illicit practices, such as money laundering and tax evasion. Cryptocurrency proponents, though, also respect their anonymity, claiming privacy advantages such as protection for whistle-blowers or dissidents living under oppressive regimes. Any cryptocurrencies are more private than others. Bitcoin, for example, is a comparatively bad option for doing illicit online business, since the forensic examination of the Bitcoin database has helped the police arrest and convict offenders. More privacy-oriented coins still exist, however, such as Dash, Monero, or ZCash, which are far more difficult to locate.
Cryptocurrency’s potential vision is still very much a problem. Proponents see an infinite opportunity, while opponents see nothing but danger.
Stable cryptocurrencies have risen in popularity as a way to back up bitcoin with assets that hold real value. Money used to be in the gold standard.
Those properties could be other currencies or commodities—nearly something, really. Or, one, simply recreates a structure that already exists. The other problem is that it could make it possible for individuals to commit fraud because it is not as easy to track and control as conventional currencies. There are a variety of better uses for cryptocurrencies. For example, people living in countries with poor economies could be better off investing in Bitcoin than buying local stocks and bonds.