Most people have heard of Bitcoin, particularly if they ever had some in the early 2000s and then sold it before its worth swelled to over $13,000 per Bitcoin. We could have all been retired by now if we had hung on to those precious digital coins.
What is Cryptocurrency
History of Cryptocurrency and Bitcoin
For those who don’t know, cryptocurrency is a completely new digital form of currency. It was created by the mysterious and still relatively unknown Satoshi Nakamoto. He published a white paper called Bitcoin: A Peer-to-Peer Electronic Cash System.
The whitepaper revealed the workings of the “Bitcoin blockchain network,” and it would eventually lead to the first Bitcoin ever found in January 2009. By March 2010, the first cryptocurrency exchange was launched, and by 2011, you could exchange Bitcoins for US dollars. Well, it was only worth a few cents in the beginning.
Over the next decade, Bitcoin would grow in worth, but there were ups and downs. Many other cryptocurrencies also popped up during this period including Ethereum, Litecoin, Dogecoin, and a variety of others.
Today, 11 years later in January 2020, each Bitcoin is worth $8,429. The cryptocurrency recently received a huge boost after it was revealed that Craig Wright held the keys to $8.9 billion in Bitcoins, also known as the Tulip Trust.
Understanding Cryptocurrency Terms
Before going any deeper, there are a few terms that commonly pop up when looking at cryptocurrencies. These include but are not limited to:
Bitcoin was the first ever created cryptocurrency. Everything else falls under “altcoins,” including Ethereum, Litecoin, Dogecoin, Bitcoin Cash, Ethereum Classic, and hundreds of others.
Every cryptocurrency transaction is recorded on a blockchain, which is a public record that verifies the digital currency transactions in order to prevent fraud and other scams. Transactions are saved as blocks, and each new block adds to the chain. There is a new block added about every 10 minutes, but this changes over time.
This is the art of writing in or deciphering code. It uses mathematics and algorithms to create secure transactions in online platforms, which is how we have encrypted accounts and digital currencies.
Fiat currency is the paper money represented in Euros, British pounds, or US dollars.
Cryptocurrency mining uses the proof-of-work (PoW) system where digital miners can solve math problems to validate all cryptocurrency transactions. These miners discover cryptocurrency in exchange for their time and computer resources. Since these mathematical calculations require a lot of time and resources, larger computers with higher GPU requirements are necessary. Read further down for more information about Bitcoin mining.
A node is a computer that has joined the worldwide cryptocurrency blockchain network. These nodes serve as a way to check transactions recorded on the blockchain. Even if one node shows an incorrect transaction, then the transaction won’t complete, which means that cryptocurrency is incredibly hard, maybe even impossible, to corrupt.
A private key is used to store the password that gives a cryptocurrency owner access to their wallets. Each wallet relates to its own key, and without that key, users cannot access their coins.
Just like a physical house address, a public address is a combination of letters and numbers that is used to send cryptocurrency to and from owners. It’s the only public-facing piece of data that exists on the blockchain. Each transaction has its own address.
How is Crypto Created
Benefits and Disadvantages with Cryptocurrency
If you love the ups and downs of Bitcoin, then you probably only see the benefits of investing in cryptocurrency. However, there are some drawbacks. Others are simply confused about how digital currencies equate to so much cash. Isn’t it simply found money on the internet? Yes and no!
Is Crypto Secure?
Cryptocurrency transactions are incredibly secure and hard to access. You MUST have your key in order to access your wallet. It’s also completely anonymous.
While this is amazing for those who want to store billions of dollars, what happens when you lose the key? So many have lost hundreds of thousands of dollars simply because they lost their Bitcoin wallet key.
The anonymity and private security also mean that people use cryptocurrency for not-so-legal reasons, like the Silk Road marketplace.
Is Crypto Affordable?
There are low transaction costs and some fees for exchanging crypto, but otherwise it is pretty simple to exchange or use to buy goods online.
Right now, not all cryptocurrencies are accepted everywhere, but Bitcoin has become pretty prevalent for online stores.
How Volatile is Crypto?
Crypto is a pretty risk investment. While they can yield a high reward, you may also lose it all in a day. While Bitcoin has made strides to being more stable, other cryptocurrencies are still in their infancy and may be more volatile. In addition, the legal restraints and other problems with suggested cryptocurrency regulation may shut down exchanges one by one.
Is Crypto Regulated?
Currently, crypto is not regulated, and it’s not valued by any government or financial institution. That means it’s a truly global currency, and it’s monitored just by peer-to-peer internet protocols.
Since crypto is decentralized, it can be used for nefarious activities. There is also no protection for lost coins.
Is Digital Currency Safe?
Since there is no physical cash or coin, there is less risk of someone stealing your money if you were ever robbed physically. It’s also convenient to access and monitor your wallet online.
However, it’s also purely digital, which means if you lose your key, you can’t recover any lost coin. If a transaction is not validated, for whatever reason, you could also lose your coin.
Will Crypto Ever Have Inflation?
Cryptocurrency can’t be inflationary by design. There is a set amount of coins that can ever be mined. Since there is no inflation, it’s unlikely that it could ever be the central currency for any country since it’s not flexible.
Can Anyone Mine Crypto?
Yes, anyone can mine cryptocurrency, but you need the proper GPU and internet to do so. Mining uses up a ton of resources, and recent studies showed that crypto mining uses more electricity than Argentina.
Can Anyone Create a Cryptocurrency?
Yes, anyone can create their own cryptocurrency. All that is needed is a community of people who believe in the reason for the coin and a network, who will eventually mine for it and become loyal followers of your crypto.
You also need a unique code that will encrypt the software and blockchain network, which is where your cryptocurrency will operate. Most crypto is actually based on the source code of Bitcoin.
Many businesses are creating their own cryptocurrencies under a process called initial coin offering or ICO. These ICOs enable startups to raise more money by creating digital tokens that can be spent on future services and products through the company.
Types of Crypto
There are currently thousands of different cryptocurrencies available. Here are a few of the most popular.
What is Bitcoin
What is Litecoin
What is Ether by Ethereum
Launched in 2015, Ether (ETH) was created with a decentralized computer network and has a payment system. Ether is traded a cryptocurrency on exchanges, but it’s more often used to pay for services and fees on the Ethereum network. The price of ETH is currently around $120 USD.
How to Get and Store Cryptocurrencies
Cryptocurrency may be the way that you forge your fortune, and it’s become a well-established part of the economy. However, not all merchants and marketplaces offer Bitcoin. Our economy has become more open-minded towards digital currencies, and it’s likely that won’t change. There may be another thousand cryptocurrencies developed in the next years. Which one will you invest in?