2018, the internet is filled with posts, blogs, news, opportunities about Bitcoin and Cryptocurrencies.
Cryptocurrencies are making their way into our everyday live, and no matter how much we want to ignore it or to avoid talking about it, it is just impossible.
Every video that you watch on Youtube,
has an ad on the side about some new coin coming out. More and more people are talking about it every day.
Every day there are news about prices going up and down, countries trying to put regulations to the crypto currencies.
The crypto space is in it’s infancy and all the crypto currencies are in their developing stages.
So instead ignoring it, why you don’t learn a little bit more about crypto currencies and the crypto world, the world of tomorrow. I wanted to write a small blog just to tell you some of the basics about the cryptocurrencies but it is impossible to cover even the basics in a single post.
That is why I have decided to divide it into a few posts so you will have some basic knowledge about cryptocurrencies and you will not look like you are from Mars when people around you will start talking about it. The first post I have divided into 5 topics:
- What is Cryptocurrency?
- How do Cryptocurrencies work?
- How are the Cryptocurrencies Value Determined?
- What is Cryptocurrency used for?
- Why Cryptocurrency?
- What is Cryptocurrency
With simple words Cryptocurrencies are digital money where the transactions are done online. It is a medium exchange just like all the other currencies, only designed for exchanging digital information through a process called cryptography. There were been some attempts in the 90’s but they all failed for different reasons. The first successful crypto currency was Bitcoin by Satoshi Nakamoto in 2009, described as a peer to peer electronic cash system.
- How do cryptocurrencies work?
Cryptocurrencies are completely decentralized. The decentralized system that Satoshi Nakamoto came up with, means that the network it is powered by it’s users without having any third party, a central authority or a middle man. So neither the bank or the government have any power over the system. The thing with the centralized system is double spending. That means that the person spends twice. In this traditional way there is a trusted third party – a central server that keeps a record of the balances and transactions. This method always entailed an authority that is in control over your funds and personal detail.
In decentralized network like Bitcoin and all the other cryptocurrencies, every person needs to do this job. And this is done through the Blockchain Technology, a public ledger (account book) of all the transactions that happened within the network, available for everyone.
Example: Cryptocurrencies like Bitcoin have their own network of peers (members). Every peer has a record of the complete history of all transactions as well as the balance of every account. A transaction includes where A gives X amount to B and it is signed by A’s private key. After it has been signed, the transaction is broadcasted in the network. This information is send from one peer to every peer on the network. And this transaction needs to be confirmed. The confirmation is everything. When the transaction is not confirmed, it has possibility to be hacked or forged.
When the transaction is confirmed then it is impossible to be hacked or be reversed, it is a part of a permanent record on the Blockchain.
This means that the cryptocurrencies are not secured by people or a trusted third party, they are secured by complex mathematical equations. It is a 100% secure and can not be compromised. The transaction is confirmed by miners, and this is their job on the network – to confirm the transactional information in the network. For every completed transaction monitored by the miners they are rewarded, fir instance with a Bitcoin. So the miners have a major role in the crypto system.
- Let’s have a look what to miners do?
Everyone can be a miner. Miners (workers) are needed because of the decentralized network where they have no authority to delegate tasks and the cryptocurrencies need some type of a system to prevent any type of abuse. For example if a person creates thousands of peers and spread false transactions it will disrupt the system immediately, and everyone will know the person who is sending those false transaction. In order to be a miner you need to solve a cryptologic puzzle. If you solve this puzzle you can create a block and add it to the blockchain. (more on miners and blockchain in another article).
- How are the cryptocurrencies valued determined?
The value of the cryptocurrencies is determined by the market. The price like any other product depends on demand and supply. So if more people demand certain currency, and the supply is getting smaller then the value increases. More units are mined by the miners to balance the flow. Most of the cryptocurrencies are limiting their supply. For example Bitcoin issued only 21 million bitcoins, so the amount of Bitcoins is decreasing in time and the final bitcoin is to be mined in the year of 2140. This explains why Bitcoin value is higher to the other cryptocurrencies.
- What are cryptocurrencies used for?
You can spend crypto currencies on many things , since the transactions are done online. There are 3 different transactions that can be done when using cryptocurrencies:
- Bitcoin Trading
- Personal Spending
- Crowd Funding
- Bitcoin Trading can be very profitable for professionals and beginners. The market is still new and there are many trading platforms exchanges where you can trade for yourself, companies that can trade for you certain fees. If you own any Bitcoin there is no verification required and you can start trading instantly. Because Bitcoin is not a flat currency, that means that the price is not related to the economy or the policies of any single country. Unlike the stock market there are no official Bitcoin exchanges. There are hundreds of exchanges around the world that operate 24/7. Because there is no official Bitcoin exchange the price is not official and the currency can go up and down very rapidly.
- The second thing you can do with Bitcoin is personal spending. You can use Bitcoin to buy almost anything that accepts bitcoin. From cars to travel tickets. You can have a look on the internet which companies are accepting Bitcoin for their payments and you can start shopping immediately.
- Crowd Funding is where you can donate money. There are platforms that you can donate Bitcoin, Litecoin and other coins depending on the platform. Also many of the new ICO’s are crowd funded. They are selling tokens in pre sale(crowdsale) to raise enough money for that certain coin to come to life. This might have some risks with it, because there are a lot of new coins coming out every day. So you need to be aware of which coin you are going to invest your money to.
- Why Cryptocurrencies?
Cryptocurrencies are digital gold. They are the future.
First of all about the revolutionary properties.. You can always have a control of your account and how the system works and operates. And this is because of the decentralizes network of peers that keeps consensus on the accounts and transactions made. If you compare it to a physical bank account that can be changed and it is controlled by people that you don’t see and governed by rules that you don’t even know.
Second are their monetary properties. The currencies are controlled in supply, so there is a big chance that the value of the cryptocurrencie is highly appreciated over time.
Finally their transactional properties. Cryptocurrency transaction is fast and global. All of the transactions are propagated immediately in the network and they are confirmed in a minutes. Since the transactions are managed by a global network of computers, and they do not take into account your physical location. You can send crypto currencies from one side of the world to another in just a few minutes.
Thank you for reading.
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