What comes to your mind when you hear the term cryptocurrencies?
If you can provide an answer to the above question, then I believe you are conversant with digital assets. However, it is essential that we understand in depth what these digital assets entail as well the underlying blockchain technology.
Cryptocurrencies are digital or virtual assets that are encrypted using cryptography. Cryptography, on the other hand, refers to the application of encryption technology to secure and verify transactions. The cryptocurrencies are designed to function as a decentralized medium of exchange. The digital currencies are also classified as alternative currencies and virtual currencies.
Cryptocurrencies are decentralized as opposed to the centralized fiat currencies that operate under regulations of central banks. However, more and more governments are looking at various ways on how the digital currencies can be regulated. For instance, the South Korean government has recently banned anonymous trading in cryptocurrencies. Decentralization of the virtual currencies is achieved through the blockchain which is a public transaction database that functions as a peer-to-peer distributed ledger.
Bitcoin Explained: Everything you need to know
Have you heard about this Bitcoin buzz? I am guessing yes. With a price that almost hit $18,000 this week, the world’s first and most famous digital currency continues to rack headlines even as it rises in value. After cracking the $1,000 threshold in January last year and ascending to almost $20,000 in late 2017, everybody has been asking ‘What is this Bitcoin thing?’
Bitcoin comprises of technology, math, currency and socio-economic dynamics. It is multi-faceted, highly complex and the technology is still very much evolving. This article provides answers to some of the basic questions about bitcoin.
But first: A Brief History
Bitcoin was created in 2009 by an anonymous person who referred to himself as Satoshi Nakamoto. His aim was to create a completely decentralized electronic cash system with no central authority or server. After developing the technology and the concept, Nakamoto made the open-source code and domains available to others within the Bitcoin community in 2011, and then vanished afterward.
What is Bitcoin?
To put it simply, Bitcoin is a digital currency (cryptocurrency). No coins to mint or bills to print. It is decentralized and no institution (like a central bank), government or any other authority controls it. Bitcoin owners are anonymous. That means, instead of using names, social security numbers or tax IDS, Bitcoin buyers and sellers are connected through encryption keys. Unlike traditional currencies that are issued in a top-down manner, Bitcoin is ‘mined’ using powerful computers connected via the internet.
One of the most interesting things about Bitcoin is that all its transactions are publicly stored and published. The cryptocurrency is traded via a massive peer-to-peer network that can be accessed globally. Whereas the rules regarding bitcoin are not a lot, there are a few that help make it a genuine currency that can be used ‘normal money.’
How does Bitcoin work?
Bitcoin was created to use cryptographic proof rather than trust, allowing a couple of willing parties to directly transact with each other without the need for a trusted intermediary.
This aspect of stateless, bank-free digital currency utilizes an open-shared, cryptographically secure ‘blockchain’ to record and store payment transactions. Recording and storing payments onto the blockchain is powered by users who offer to provide their computer power and are rewarded with newly created bitcoins in an activity referred to as mining.
What determines the value of Bitcoin?
Like traditional currencies, it has everything to do with supply and demand. New Bitcoins are mined at a rate of approximately 25 new coins per 10 minutes. However, the mining will come to an end as they have designed to make sure that only 21 million coins will ever be mined. Today, there are about 16 million coins in use.
How can one get Bitcoin?
Bitcoin can be obtained in various ways. They can be accepted as payments for goods and services. They can also be directly bought from individuals or special websites referred to as ‘exchanges’ that trade Bitcoins for regular currencies.
The obtained bitcoins are stored in a specially-designed program known as bitcoin wallets. Bitcoin wallets can either be used on desktop computers or smartphones and can be securely stored on the web so that they can be accessed from anywhere in the world.
What about the future?
As the world economy continues to change over the next couple of decades, there is a chance that Bitcoin will continue to dominate the Cryptocurrency industry. Until then, discussions about bitcoin will continue to rise, as well as the number of people who continue to grow cold feet about this emerging form of currency. It is widely believed that Bitcoin will fix some of the biggest problems troubling the world’s financial systems.
It is important to note that Bitcoin is not that perfect. Several hurdles need to be crossed before it is universally accepted as ‘real money’. The good news is, if the current trends about Bitcoin continue, there is a chance that this might be achieved sooner than later. As we all know, things on the internet usually grow at rapidly, and this is definitely the case with Bitcoin.
Ethereum: The world’s second largest cryptocurrency
Do you follow financial and tech news? If yes, then you have probably heard of the word “Ethereum”, most of the time in connection with Bitcoin. Ethereum is the world’s second largest and popular cryptocurrency after Bitcoin. The demand for Ethereum continues to rise at such a high speed that it may even drive up the price of graphic cards, as miners try to produce as much coins as they can. So, what exactly is Ethereum? Here is all you need to know:
Ethereum was initially proposed by a programmer who was involved with Bitcoin Magazine, VitalikButerin in the late 2013. Buterin had the objective of building decentralised applications as he had argued that a scripting language was needed for Bitcoin for the development of these applications. After failing to reach an agreement with those involved, he hypothesized the development of another platform that used a more general scripting language. With funding from an online crowdsale, he developed a system that went live on July 30, 2015 with ‘pre-mined’ coins numbering 11.9 million for the crowdsale. These account for about 13% of all the Ethereum coins currently in circulation.
What is Ethereum?
Just like Bitcoin, Ethereum is a distributed, public open-source, blockchain-based computing platform containing smart contract functionalities. The Ethereum platform is used to generate a blockchain whose cryptocurrency is Ether. Ether can be transacted between individuals and used to reward participants mining nodes for the performed computations. Ethereum provides the Ethereum Virtual Machine (EVM), a decentralised Turing-complete virtual machine, which effects scripts using public nodes in an international network. An internal transaction mechanism referred to as ‘gas’ is used to allocate resources and mitigate spam on the network.
How does Ethereum Work?
Ethereum utilizes ‘smart contracts’. A ‘smart contract’ is a written code built into the Ethereum’sblockchain that allows transactions to be stored until terms or contractual agreements are met. For example, if you order goods from a company that accepts Ether as currency with pre-set terms, a smart contract built into Ethereum will be generated to ensure that the agreed-upon terms are met before a digital key is sent to you by the company to unlock the goods. The whole process occurs on the blockchain without an intermediary such that when you receive the digital key from the company, everyone will see it. The contract might stipulate that if the company does not send you the unlock key, your Ether are refunded.
How do you get Ether?
Ether can be mined (which requires high computational power) or bought for fiat currencies as other cryptocurrencies through online trade exchanges such a Bitfinex, GDAX and Coinbase.
My Ethereum Wallet
You can store your Ether in a locally-installed application referred to as the Ethereum Wallet. This wallet is protected by a private key, that stores your Ether securely as well as any other assets you might have on the platform. You can also use the wallet applications to write, deploy and execute your own smart contracts.
It is suggested that you download the Ethereum Wallet only from the GitHub repository or Ethereum.org.
What the future means for Ethereum
The Ethereum platform has been viewed as something more than just for use by corporations; it is viewed as a way of decentralising the internet and making it more democratic. Ethereum developer VitalikButerin claims that it is going to disrupt the traditional power edifices of the world. Smart contracts could offer freedom from the constraints of big businesses and legal systems. However, just like social media has increased the spread of fake news, the automated and decentralised internet powered by Ethereum may have unintended consequences. Like traditional currencies, Ethereum is prone to unforeseen fluctuations. Whether this cryptocurrency is robust enough to survive in the long-run is something that remains to be seen.
Since the inception of blockchain technology which spearheaded the birth of cryptocurrencies starting with bitcoin in 2009. There are over 1000 cryptocurrencies some of which function as tokens of value but not as currencies.
Let’s explore now5 major cryptocurrencies after Bitcoin and Ethereum.
Ripple refers to both the digital currency (XRP) and the remittance network. In addition to that, it is a real-time gross settlement network (RTGS) otherwise known as the Ripple Transaction Protocol (RTXP). The open source internet protocol allows currency exchange using the ledger cryptocurrency referred to as XRP (ripples). According to its website, it the fastest digital asset that is scalable resulting in the world’s first real-time payment processing network. Ripple is not just a currency, it is a platform that can be used by banks and other payment processing institutions to achieve on-demand cross-border payments. The XRP is exchanging with the USD at 1.1121 and has a 30-day volume of USD 71.42 billion.
August 2017, saw the creation of a new cryptocurrency called Bitcoin Cash after a hard fork on Bitcoin classic following a lengthy debate on the scalability of Bitcoin. Bitcoin Cash has increased the block size which resulted in faster and more transactions processed. It has a block of 8MB.
Bitcoin Cash also gets rid of segregated witness (SegWit), which was proposed as a code that would be used to free up block space, therefore, removing certain parts of the transaction. Bitcoin Cash has been increasing in value since its launch in 2017. It is currently exchanging at USD 1497.49.
Since its inception in 2011, Litecoin has tremendously increased in price. It is a peer-to-peer cryptocurrency that was built to be lighter than Bitcoin making mining much more manageable. Litecoin like many other cryptocurrencies, function on the blockchain and is mainly a public ledger for transactions. A former Google employee created Litecoin; Charlie Lee to achieve faster transaction speeds by generating four times the blocks of Bitcoin. Litecoin has set the maximum number of coins to be ever mined at 84 million.
Stellar Lumens (XLM)
Stellar is more than just a cryptocurrency; it is a platform that links banks, payment systems, and people. Precisely, it is an open-source protocol that was founded in 2014 by Jed McCaleb and Joyce Kim. The stellar network is a blockchain distributed ledger that enables cross-asset transfers and payments. Both the network; stellar and the cryptocurrency; Lumens (XLM) is under the non-profit body called stellar.org. It is essential to note that stellar supports exchange with fiat currencies as well as other cryptocurrencies. Fast transaction speeds characterize the currency. The Lumens are trading with the USD at 0.541289 at the time of writing this article.
The NEO cryptocurrency was founded by Da Hongfei and Erik Zhang as Antshares in 2014. It has been widely referred to as China’s first blockchain platform. It is a next-generation network platform for smart contract economy. The NEO system is comprised of a Delegate Byzantine Fault Tolerance (DBFT) algorithm, the NEOX that makes it possible to operate on various blockchains, the NEO contract; a mechanism for smart contracts, the NeoFS which enables decentralized storage and finally the NeoQ ensures quantum-proof. The Neo cryptocurrency has rapidly increased in price and is trading at USD 142 at the time of writing the article.