The popularity of cryptocurrencies has increased tenfold in recent years with Bitcoin remaining the most prominent. Unfortunately, however, most articles published online that attempt to explain the rise of these financial instruments are full of inaccuracies and market bias which deflects from the real benefits of cryptocurrencies.
Cryptocurrency is the term used to categorise all types of digital currencies that rely on a cryptographic framework for secure, transparent transactions. The technology behind each cryptocurrency makes it impossible to add more units to the supply, as the limit is pre-set in the public algorithm. Similar to precious metals, such as gold and silver, the algorithm behind each cryptocurrency has a roof limit. Once all of the digital coins are “mined”, no more can be produced and added to the supply.
In addition, it is important to understand that cryptocurrencies are virtual, meaning they are not backed by any physical goods and have only digital value. Bitcoin was the first crypto invented and anyone who buys the currency has a digital Bitcoin wallet that synchronises all transactions with the currency’s main database. The bitcoin transaction log exists on a decentralised network, similar to the way torrent files shared. This means it is very hard for authorities to shut down. All transactions that occur through a virtual Bitcoin wallet are automatically logged. They are also synchronised with the peer hosted transaction log and securely protected by cryptography. Transactions are carried out almost instantaneously and a private key is attached to each transaction. This key allows individuals to prove ownership of currency units.
The Basics Summarised
Once a cryptocurrency’s source code is in the public domain, the roof limit can’t be changed. Cryptocurrency miners usually run the mining process 24 hours a day and data centres around the world use UPS systems from the likes of UPS Battery Shop to ensure the mining is not interrupted at any point.
Crypto transactions are near instantaneous.
The source code behind cryptocurrencies is bulletproof. Theft of digital currencies typically happens when hackers access a virtual wallet owner’s computer and obtain the private keys associated with the wallet.
All you need to prove ownership of cryptocurrency is your private key. You can memorise this key or write it down on a piece of paper. This helps to avoid the risk of crypto theft if your computer is hacked or stolen.
There are currently over one thousand different cryptocurrencies. However, only a small selection are accepted as payment methods by major retailers today. The three most popular ones are Bitcoin, Peer coin and Litecoin. The coins associated with them have been mined, therefore, all three currencies are stable.
Fluctuations in Bitcoin prices have a knock-on effect on the price of other cryptos. Since the launch of Bitcoin in 2009, the price has increased from a few cents to over $10,000. On the 18th of December 2017, the crypto hit a record high of $19,498.63. More and more people are using cryptos as a speculative long-term investment as opposed to an everyday currency. Not backed by any state government, the central bank, or physical goods, their values are based on the strength of people’s faith in each digital currency. Market mechanism alone determines the value of cryptocurrencies. Bitcoin has no intrinsic value, its value is in was it allows users of the currency to do.
The relative newness of cryptocurrencies in addition to their unprecedented increase in popularity has meant that applicable legislation has fallen behind. Many people have used this fact to their advantage to carry out both legal and illegal activities. For example, trading cryptos on virtual exchanges, buying drugs, weapons and pornography online, circumventing administration fees when moving money across international borders, laundering money, internet gambling and more. Indeed, blockchain-based betting providers, like Satoshi Dice, account for a large percentage of all Bitcoin activity. It is unlikely that cryptocurrencies will decrease in popularity any time soon. People love having an anonymous, quick and secure way to transfer money around the globe.