Today in this technological era, cryptocurrency is one of the hot and trending topics in recent times. So you are also one of the curious person who wants to know what is cryptocurrency? Here is a complete guide for you.
A cryptocurrency (or crypto currency) is 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. In simple words, Cryptocurrency is a digital or virtual currency designed to work as a medium of exchange.
There have been many attempts at creating a digital currency during the 90s tech boom, but all are failed attempts for one or other reason. Bitcoin, first released as open-source software in 2009, is generally considered the first decentralized cryptocurrency. Since then, over 4,000 altcoin (alternative coin) variants of bitcoin have been created.
As of May 2018, over 1,800 cryptocurrency specifications existed. As at the time of writing, the market cap of the entire crypto space is at 30.9 billion USD. It was 20 billion just few months ago. Within a cryptocurrency system, the safety, integrity and balance of ledgers is maintained by a community of mutually distrustful parties referred to as miners: who use their computers to help validate and timestamp transactions, adding them to the ledger in accordance with a particular time stamping scheme.
Cryptocurrencies can be used for various things. The decentralized control of each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database.
The validity of each cryptocurrency’s coins is provided by a blockchain. A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography.
Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.
Miners are the single most important part of any cryptocurrency network, and much like trading, mining is an investment. In cryptocurrency networks, mining is a validation of transactions. For this effort, successful miners obtain new cryptocurrency as a reward. The reward decreases transaction fees by creating a complementary incentive to contribute to the processing power of the network. As of November 2017, almost 17 million Bitcoins have been mined and distributed.
Many people believe that cryptocurrencies are the hottest investment opportunity currently available. Indeed, there are many stories of people becoming millionaires through their Bitcoin investments but at same time cryptocurrencies are high risk investment according to the experts. Cryptocurrencies are certainly not what most would call a ‘safe investment’, they are exceptionally volatile to the upside and downside.
However, many people think that the blockchain technology cryptocurrencies are built on is the greatest innovation since the internet. Crypto-tokens are still a young, innovative, and exciting market. That’s pretty much the opposite of old, well-established, and safe when it comes to investing.
The legal status of cryptocurrencies varies substantially from country to country and is still undefined or changing in many of them. While some countries have explicitly allowed their use and trade, others have banned or restricted it. As of January 2018, Bitcoin and other digital currencies are outlawed only in Bangladesh, Bolivia, Ecuador, Kyrgyzstan and Vietnam. In Russia, though cryptocurrencies are legal, it is illegal to actually purchase goods with any currency other than the Russian ruble.
As the popularity of and demand for online currencies has increased since the inception of bitcoin in 2009, so have concerns that such an unregulated person to person global economy that cryptocurrencies offer may become a threat to society.
The number of cryptocurrencies available over the internet as of 10 April 2018 is over 1565 and growing. A new cryptocurrency can be created at any time. By market capitalization, Bitcoin is currently (April 10, 2018) the largest blockchain network, followed by Ethereum, Ripple, Bitcoin Cash, Litecoin, and EOS.
- Bitcoin (BTC) – The first decentralized ledger currency. Cryptocurrency with the most famous, popular, notable and highest market capitalization.
- Litecoin (LTC) – The first cryptocurrency to use Scrypt as a hashing algorithm. In May 2017, Litecoin became the first of the top 5 (by market cap) cryptocurrencies to adopt Segregated Witness.
- Ethereum (ETH) – A Turing-complete programmable currency that lets developers build different distributed apps and technologies that wouldn’t work with Bitcoin.
- Zcash (ZEC) – If Bitcoin is like http for money, Zcash is https, is how Zcash defines itself. Zcash offers privacy and selective transparency of transactions.
- Dash (DASH) – A bitcoin-based currency featuring instant transactions, decentralized governance and budgeting, and private transactions. The former is significantly faster than Bitcoin, whereas the latter is completely anonymous.
- Ripple (XRP) – Designed for peer to peer debt transfer. Not based on bitcoin. Ripple enables banks to settle cross-border payments in real time, with end-to-end transparency, and at lower costs.
- Monero (XMR) – Privacy-centric coin using the CryptoNote protocol with improvements for scalability and decentralization. A cryptocurrency with private transactions capabilities and one of the most active communities, which is due to its open and privacy-focused ideals.
(*Stats retrieved in August, 2018)
A cryptocurrency wallet stores the public and private “keys” or “addresses” which can be used to receive or spend the cryptocurrency. With the private key, it is possible to write in the public ledger, effectively spending the associated cryptocurrency. With the public key, it is possible for others to send currency to the wallet.
Cryptocurrency wallets are software programs that store your public and private keys and interface with various blockchain so users can monitor their balance, send money and conduct other operations. Wallets are secure to varying degrees. The level of security depends on the type of wallet you use (desktop, mobile, online, paper, hardware) and the service provider.
There are a lot of different options when it comes to buying different cryptocurrencies. There are currently almost 1,800 Bitcoin ATMs in 58 countries. Buying and trading crypto is not the same thing. Buying we do through a fiat gateway. Trading will be done on an exchange.
When it comes to other, less popular cryptocurrencies, the buying options aren’t as diverse. With so many options available, it can be difficult to choose the best option. Plus, there are lots of things you need to think about before you start buying cryptocurrency.
Bill Gates, co-founder of Microsoft, investor and philanthropist:
“The main feature of crypto currencies is their anonymity. I don’t think this is a good thing. The Governments ability to find money laundering and tax evasion and terrorist funding is a good thing. Right now crypto currencies are used for buying fentanyl and other drugs so it is a rare technology that has caused deaths in a fairly direct way. I think the speculative wave around ICOs and crypto currencies is super risky for those who go long.” – [source]
Richard Branson, founder of Virgin Galactic
“Well, I think it is working. There may be other currencies like it that may be even better. But in the meantime, there’s a big industry around Bitcoin. — People have made fortunes off Bitcoin, some have lost money. It is volatile, but people make money off of volatility too.” – [source]