“If you don’t believe it or don’t get it, I don’t have the time to try to convince you, sorry.”
-Satoshi Nakamoto
(Founder of Bitcoin)
First off, let’s start by defining what cryptocurrency is because it can be difficult to understand. The phenomenon surrounding cryptocurrency is a vast, mysterious one, and it has taken the world by storm. Many are investing and profiting from the process and benefits of cryptocurrency.
But much like how paper money is handled by a bank, filled with accountants and depositories, there should also be a security system for digital currencies which is Blockchain.
Keep reading and find out what they are and how they are implemented in today’s digitised world.
What is Cryptocurrency?
Cryptocurrency is a payment method that allows you to exchange goods and services online. Companies can trade goods and services offered by businesses that issue their currency called tokens. Think of it like an arcade token or a casino chip. You need to exchange the actual currency with the currency of the password to access the goods and services. The password currency works using a technology called Blockchain. Blockchain is a technology distributed across multiple computers that manage and record transactions. One of the attractions of this technology is security.
How many different types of cryptocurrencies are there?
According to CoinMarketCap.com, a market research website, more than 10,000 different cryptocurrencies are publicly traded. And cryptocurrencies are on the rise, raising funds through Initial Coin Offerings (ICOs). On July 9, 2021, the total value of all cryptocurrencies exceeded $1.4 trillion, down from the April high of $2.2 trillion. The cap of all bitcoin, the most popular digital currency, was about $630 billion, down from the April high of $1.2 trillion.
Among the various types of cryptocurrencies, Bitcoin has gained the most popularity and increased value over the years. Regarding the current value of Bitcoin, an analysis on CoinDesk stated that Bitcoin has a market cap of 621.26B USD and a current price of 33,126.97 USD.
Why are they so popular?
Cryptocurrencies have gained popularity and publicity for several reasons. Some of the most popular ideas include:
- Proponents consider cryptocurrencies such as Bitcoin as currencies of the future and are vying to buy them before they are probably more valuable.
- Over time, users prefer cryptocurrency to remove the central bank from the money supply control, as these banks tend to reduce their monetary value through inflation.
- Other proponents, such as the technology behind the cryptocurrency, Blockchain, are decentralised processing and record systems.
- Cryptocurrencies are rising in value, and they are not interested in long-term acceptance of the currency as a way to move money.
Are Cryptocurrencies legal & are they worth it?
As always, buyers beware. China has banned its use by default, but whether or not it is legal in the United States is beyond question. Also, be sure to consider how to protect yourself from scammers who see cryptocurrencies as an opportunity to upset investors.
The Turkish Central Bank has banned cryptocurrencies and crypto-assets, including bitcoin, from purchasing goods or services. This is due to the possibility of ‘irreversible’ damage and significant trading risks that follow.
Most countries around the world have legalised cryptocurrencies and have begun using them to purchase goods and services. Online payments for products and services are even incorporated by most online shopping platforms such as Amazon, BestBuy, and many others.
In Nigeria 32% use bitcoins, whereas El Salvador had become the first-ever country in the world to legalise Bitcoin as a currency officially.
But are they worth it?
As cryptocurrency value increases, many investors view this as a mere guess, not an actual investment. Why? Like real currencies, password currencies do not generate cash flow, so someone has to pay more for a call to make a profit. To those who regard cryptocurrencies such as bitcoin as the currency of the future, it should be noted that currencies need stability so that merchants and consumers can determine the right price for their products. It is best to always analyse the market and consider the rise and fall of its value over time.
What is a Blockchain?
Blockchain is a transactional, public digital ledger that records information to make it difficult to hack or tamper with. It enables a secure way for individuals to transact directly with each other without intermediaries such as governments, banks, or other third parties. The growing records of blocks are linked using encryption. Each transaction is added to a growing chain of data that is time-stamped, individually verified by a network of peer computers. Once written, the data cannot be changed.
How do they work?
Like a regular bank that have their procedures, digital currencies and transactions also comprise of sequenced formalities, and here’s how:
- Bitcoin purchases and sales are entered and sent to a powerful computer network called nodes.
- The network of a thousand nodes around the world is fighting to verify transactions using computer algorithms. This is known as bitcoin mining. Minors who complete new blocks first can receive bitcoins for their work. These rewards are passed on to buyers and sellers who pay by network fees. Fees may increase or decrease depending on the transaction amount.
- After the purchase is confirmed as encrypted, the sale will be added to the decentralized director’s block. Next, most networks confirm sales in a process known as “work proof.”
- The blocks are permanently chained to all blocks before the Bitcoin transaction using a cryptographic fingerprint called a hash to complete the sale.
What could become of Blockchains?
Blockchain technology has a wide range of applications across many industrial disciplines. Blockchain is already used for identity management, and smart contracts are used to facilitate supply chain analysis and more. The full potential of blockchain technology has not yet been discovered.
The Bitcoin system is the most well-known application of blockchain technology, and there are thousands of cryptocurrencies built behind this new technology. It is still unknown whether Bitcoin will succeed in replacing other forms of traditional payment methods. Still, the applications of blockchain technology are growing rapidly, and proponents say it could bring about dramatic changes throughout the industry.
The relationship between them is clear: Cryptocurrencies are only the first form of blockchains globally, as blockchains support currencies through their technological ability to become their banking systems or, more specifically, distributed ledger systems. Also referred to as “trivial,” users can design individual blockchains using one’s own set of agreed-upon parameters, and other users can improve their properties by changing these rules to create results instead of traditional forms.
Digital currencies and online security are the co-efficient bonds, and cryptocurrencies and Blockchain fill these roles for all who invest, for all who wish to explore.