It is amusing how the world is rapidly transforming to a digitally oriented one. Man’s constant search for a better life has spurred some innovations which sometimes baffle humanity. Most people no longer find it safe doing transactions with the use of physical cash or through mainstream financial institutions. With the click of a mouse or a punch on a phone one can make thousands of dollars online without physical labour. What a world! Digitalisation is rapidly transforming the 21st century era. The growing popularity of cryptocurrency is the perfect definition of the 21st century world that is moulding and staring humankind in the face, an ever evolving digitally world.
What is cryptocurrency actually about
The question that may obviously linger in one’s mind is what the concept of cryptocurrency is all about and how does it function? Though a popular concept, not many people actually understand cryptocurrecies. In the past few years, cryptocurrencies like Bitcoin have made their way to unprecedented popularity with many people buying and selling them online. This phenomenon has attracted the attention of mainstream media as more and more people are fighting to be part of the bandwagon. It is worthwhile to understand the concept of Cryptocurrency.
Cryptocurrency is said to be a digital asset premeditated to work as a vector of cryptocurrency exchange that uses cryptography to secure transactions, to regulate creation of additional units and verify the transfer of asset. This presupposes that cryptocurrency transactions are free from third party interference since there is the use of cryptography. As of 2017, there exist over a thousand Cryptocurrency specifications. It should be noted that the first cryptocurrency came into existence as far back as 2009 in the name of Bitcoins.
All other Cryptocurrencies in existence today are similar and are derived from the first exclusively decentralised cryptocurrency, Bitcoin. They are collectively referred to as Altcoins. This appellation of other Cryptocurrency came after the successful launch of Bitcoins. Bitcoin is still leading the virtual currency ecosystem regardless of the competition from others. The closest competitor to Bitcoin as of now Is Litecoin. There exist various functioning websites today which allows you to convert cryptocurrency to real money and transfer it to your bank account and the other way around.
Cryptocurrencies and conventiional currencies
Cryptocurrencies are different from the conventional currencies in daily use. This is because they are not physical, that is they are only gotten online and there is no central authority like the central bank that regulates the supply of cryptocurrency. The decentralised control of each cryptocurrency works through a blockchain technology system which serves as a transaction database, operating as a distributed ledger. The primary factor upon which decentralised cryptocurrency are based was created by an individual (or perhaps a group) known as Satoshi Nakamoto.
Knowing how they are generated and used
There’s a lot of talk about Cryptocurrency, but have you ever wondered how cryptocurrencies are being made or generated? As earlier noted there is no central authority that oversees the issuance of cryptocurrency. The process of generating new Cryptocurrency is known as Digital currency mining. This is process done with specialised computer software such as Multiminer or hard wares such as the Graphic Processing units (GPU)that allows miners to get a reward in form of a Bitcoin or any other type of cryptocurrency. To generate a bitcoin for example a miner is expected to solve a complicated mathematical puzzle. The difficulty of solving this problem depends on the number of people doing the mining at the time, the greater the number of people doing the mining the more difficult it is to emerge successful. Digital currency mining is much easier for miners if they have powerful processors. These processors are found in the CPUs.
Let’s imagine A sends one bitcoin to B, the transaction is announced to everyone on the Bitcoin network or posted in a huge database usually referred to as Blockchain or Ledger based on blockchain technology. Everyone has their own copy of the blockchain. The mining process involves compiling current transactions into blocks and trying to solve a difficult mathematical puzzle. The first person to solve the puzzle must place the next block on the chain and claim the rewards. The process of digital currency mining can be done by a group of individuals or just a single person. In the case of Bitcoin, the amount of bitcoin released with each mined block is called the block reward. The block reward is halved every 210,000 blocks or approximately every 4 years. With the debut of Bitcoin in 2009, the block reward was 50 but has now fallen to 12.5 in 2018 and is expected to decrease further. There are only over 21million Bitcoins in the world at the time of this writing. To prevent the devaluation of the currency by miners building masses of blocks, the task of solving the puzzle is made harder to conduct. This is done by making miners solve some difficult mathematical problems known as proof of work.
With the introduction of the Bitcoin mining, there was production of CPUs from desktop computers, graphic card, graphic processing units and more recently ASIC, which stands for Graphic-Application Integrated, designed exclusively to mine Bitcoins .
To successfully create a block, it must be followed by a cartographic hash that accomplishes certain requirements. The most realistic way of arriving at a hash matching the correct standards is to merely calculate as many times as possible and wait until you get a matching hash. When the right hash is finally found, a new block is formed and the miner that founds it is rewarded with units of cryptocurrency. Digital currency mining in a way implies that there are many people competing and the faster and superior your gadgets are, the more likely you are to emerge victorious.
To successfully mine contemporary cryptocurrencies you will need to incur a cost of about 1,000 pounds on hardware as well as footing considerable electricity bills, consumed by hardware on daily basis. This implies that most miners spend most of the mining income to cover the costs of running their gadgets.
The importance mining nodes
Before leaving the concept of digital currency mining it is important to relate one of the terms closely related to digital currency mining but peculiar to Bitcoin, nodes. A node is simply a powerful computer hardware that mans the bitcoin software and helps to keep bitcoin running by participating in the transmission of information. Anyone can download the bitcoin software which is free. The only limitation of the nodes is that it consumes a lot of energy and storage space. They spread bitcoin transaction around the world. This process is facilitated by continues transmission of information from one node to another or a group of nodes to another that they know. Through this process the information goes around in little or no time. You should also know that some nodes are mining nodes.
Using and exchanging cryptocorrencies
Having known what digital currency mining is all about, it is important to know how the cryptocurrency exchange market operates, how are cryptocurrencies traded for other assets or other currencies. Just like physical currencies, cryptocurrencies are not needed for their own sake, otherwise people would not have been scrambling for it. Cryptocurrency exchange is done through mediums by which you can buy and sell or exchange your cryptocurrency with other cryptocurrencies. These exchanges depend on the cryptocurrency market cap.
The websites in charge of cryptocurrency exchange can facilitate the exchange of Bitcoins and Litecoins for example, depending on the cryptocurrency market cap of the two. These websites can equally facilitate the exchange or conversion of say litecoin to US dollar, British Pounds or Euro. The websites are like the meeting points between buyers and sellers and take a fee from each successful transaction. Cryptocurrency exchange can equally be facilitated by brokers
At the time of this writeup the cryptocurrency market cap stands at about $600billion and is said to hit a record of $1 trillion, superseding the market cap of Facebook and Amazon for example. Amongst all the cryptocurrencies Bitcoin has the highest market cap. The ever-increasing cryptocurrency market cap is thanks to the fact that many businesses around the world revolves around it. It is worth noting that cryptocurrency market cap is determined by the number of people going for it. This simply explains why the market cap of Bitcoin is much higher than those of other cryptocurrencies.
Having looked at the intricacies related to Cryptocurrency, let’s look at the main types of cryptocurrency existing around the globe. As earlier noted there exist more than a thousand types of cryptocurrency around the world. Some of the most popular and valuable include;
1) Bitcoins: Bitcoins are like the reference to the cryptocurrency ecosystem. After it’s debut in 2009, it has grown in leaps and bounds to become the leading cryptocurrency in the world. All other digital currencies are inspired by bitcoins. It is the first decentralised digital currency.
2) Litecoins: This is another very popular amongst the different types of cryptocurrency is the litecoin created by Charlie Lee. It was introduced in 2011 and is amongst the initials of the digital currency phenomenon. This type of cryptocurrency is baptised as silver after bitcoin which is considered as gold. Just like bitcoin, litecoin is based on an open source global payment network with no central authority regulating it. It uses scrypt as a proof of work which can be decoded with the aid of CPUs. Litecoins are said to have a faster generation rate as compared to bitcoins thus making its transactions faster.
3) Ethereum(ETH): It came to the lamp light in 2015.It is equally a decentralised software that allows smart contacts and distributed application to be built and run in without any down time, fraud control or intrusion from any third party. The application on Ethereum uses ether that runs on a specific cryptographic token.
4) Zcash: It was launched in late 2016.This type of cryptocurrency offers privacy and selective transparency of transactions. For the above reason Zcash is said to provide extra security and privacy where all transactions are noted and issued through the blockchain technology, though details such as the sender recipient and the amount remain private.
5) Dash: It was earlier referred to as Darkcoin. It is said to be a very secretive version of Bitcoin. It offers more anonymity as it works on a decentralised master code network that makes transactions trace-free. It was launched in in 2014 and became popular within a short period of existence. It was developed by by Evan Duffield and can be mined using a CPU or GPU.
6) Ripple: With the release of this type of cryptocurrency in 2012, Ripple has a market capitalisation of about $1.26billion. Ripple is a real-time global settlement network that offers instant, certain and cost friendly payments. It equally enables banks to facilitate payment in real time with end to end transparency. It’s method of conformation which is known as the Ripple Consensus Ledger, does not need mining. This characteristic of Ripple is unlike any type of Cryptocurrency. It therefore reduces the usage of computing power and cuts down network latency.
7)Monero(XMR): Of all the types of Cryptocurrency, Monero was the best performing cryptocurrency in 2016 in terms of price, rising more than 27-fold, as confirmed by Wired.com. At the time of this writeup, 1 Monero is traded for around $12. The increasing market cap of the Monero is because of its increasing presence in the black market online. All its transactions are anonymous and untraceable. This is achieved through several instruments that addresses vulnerabilities in Bitcoins. It has a feature known as “ring signatures” which mixes up the transaction of many users automatically to make forensic analysis of money flow intolerable.
A cryptocurrency wallet is responsible for storing public and private keys which can be used to receive or spend any cryptocurrency. It should be noted here that the cryptocurrency itself is not in the wallet. As of 2018 there exist about 1300 cryptocurrency wallets. A wallet can contain several public and private keys. The most popular of these cryptocurrency wallets is the Bitcoin wallets. It is advisable to know who is supposed to have access to his or her private key and eventually having access to cryptocurrency. Bitcoins and other cryptocurrencies that owe their origin from it, the cryptocurrency is decentrally stored and upheld in a publicly available ledger. All cryptocurrencies have a private key.
A wallet comes in many forms, it could be an application installed locally on a computer telephone or table. The wallet can also be in the form of a hardware. When a user of hardware wallet requests a payment for example, the wallet’s API (Application Programming interface) creates the transaction. To receive a cryptocurrency, you don’t need access to the receiving wallet. The sending party needs to know the destination address. For that reason, everyone can send a cryptocurrency to any address and only the one who has got the corresponding address can access and use it.
To initiate a deal, the cryptocurrency wallet connects to the client or node on the network to process the request. There exist a host of clients. They include full clients, headers-only clients, thin clients and mining clients.
ADVANTAGES OF CRYPTOCURRENCIES.
Any innovation or invention suggests that there have been problems or a problem with the existing services, but what have the phenomenon of cryptocurrency come to add to human life or how are they affecting the global scenario positively. The paragraphs below suggest some of the most outstanding advantages of cryptocurrency to the 21st century world
One of the most significant advantages of digital currency is security. Unlike mainstream methods of payments such as cash and credit cards, all the cryptocurrencies exist only online, that is, they are digital and thus inccripted. For this reason, therefore, the fear of theft during any transaction of any kind is limited. Moreover, once a cryptocurrency transfer has been authorized it can’t be reversed unlike transactions enabled by credits card companies. Also, it is impossible to counterfeit cryptocurrency. cryptocurrencies cannot be reversed at will by the sender as with credit cards charge-backs.
Another advantage of cryptocurrency is transactions are much easier as compared to our everyday transactions. Traditional business transactions in most cases require the services of a broker, agents or legal representatives. This do not only complicate transaction, but significant costs are incurred. Cryptocurrency transactions on the other hand are are a one -to-one affair. This therefore cuts out the usual phenomenon of middle men standing between parties involved in a transaction. This does not only serve time and money but equally give the parties involved in a transaction a sense of confidence as they know who they are. Sometimes middle men or brokers raise the cost of especially real estate or automobile before getting their normal commissions. This is financially unfriendly to those buying such things.
Little or no transaction fees
Furthermore, no extra fee is charged with cryptocurrency related transactions. With traditional banks transactions charges are levied for most, if not all the transaction of their clients. Transactions such a funds transfer are charged a fee. If you must calculate the amount of money taken out of your account especially those who do financial transaction with the aid of a bank on daily bases, you will see that a significant part of your funds is taken in the name of transaction fees. Even though there are some financial charges involved if you are to engage the services of a third-party management services to maintain your cryptocurrency wallet, the charges are not as much as compared to the charges sometimes levied by financial institution.
Also, since the data miners solve mathematical puzzles to generate cryptocurrencies, they receive remuneration from the cryptocurrency network involved, and do not usually pay any fee.
Easier, Faster international trade
Another advantage of these different types of cryptocurrency is that they makes international trade easier. Though digital currencies are not recognised as a legal tender on national levels at the time of this writing, digital currencies by their very nature are not subject to any exchange rates, interest rates or other levies imposed by specific countries. One of the things that had hindered international commerce is the problem of exchanging other currencies for others. This issue has made trade between some countries virtually impossible.
Digital currencies use peer-to-peer mechanism of the blockchain technology, with could facilitate international commerce to run smoothly without necessarily being perturbed by issues related to currency exchange fluctuations, for instance. This as a result saves time likewise money on the on the part of any business man, as there is not extra expenditure incurred from the transfer of money from one country to another. All this centres around the fact that there is no central authority in charge of issuing any type of cryptocurrency.
Another advantage of digital currency is that individuals own and control their funds. This is unlike the traditional bank and credit card system that exercise unlimited rights over your funds. Unless you have handed over the management of your wallet to a third party for example you remain the sole owner of your wallet and master of Your finances, since there exist both private and public encryption keys that make up your cryptocurrency address. With traditional financial institution your transaction history is on their records.
Also, cryptocurrencies are much more accessible as compare to traditional banking institutions. This is because the internet is the principal mechanism through which cryptocurrencies are facilitated. This therefore means that any person that has access to a mobile phone and data connection can benefit from cryptocurrency related services if he joins it. Out of the world estimated 7billion people, 2.2billion have access to the internet or a mobile phone but traditional banking systems are still a luxury to most of them.
In addition, there is no identity as far as cryptocurrency transactions are concerned. Nobody can steal your private data from merchants which ensures that your most sensitive data remain confidential. By owning a proxy ID you can make sure that no one knows anything that concerns you. Core amongst the benefit that accrue from the use of cryptocurrency is the fact that your identity is protected. Using the old fiat system requires providing information that your credit card contains to a merchant who gets access to every detail through the “pull” bases. Unless you tell someone your password, or you are careless with It, it is extremely difficult for your private key to be found or better still hacked. Your transactions can only be seen if somebody is in possession of your public key.
DISADVANTAGES OF BITCOINS
One of the major disadvantages of digital currency is that payment is irreversible unlike with mainstream financial institutions. If you by any means pay someone with the use of cryptocurrency, then there is no way you can retrieve it. At this point in time you are at the mercy of the person whom the fund was sent to. If the receiver wants, he can refund it but if he/she denies there is nothing you can do about it.
Another drawback of digital currency is the fact that it is not accepted widely. It is not every websites and company that accepts bitcoin payment as of now. In fact, the use of digital currency is still a taboo in some countries. Though this weakness may look temporal although cryptocurrencies are increasingly penetrating every country of the world, there is still time for it to be used effectively in commerce, international bank transfers and electronic payments.
Another shortcoming of digital currency is that there is the possibility that you can lose your wallet. Imagine a situation where you had stored your money in form of digital currency on your phone or computer and you happen to forget your password or lose your gadgets, that is all about your cash. Even with the assistance of a legal expert, all will zero down to nought if you don’t see your missing gadgets.
Also, the concept of cryptocurrency is comparatively strange to many people due to limited knowledge about it. some people invest without a proper knowledge of how digital currency works. These people incure colossal losses at the end. The blockchain technology is very complicated and people with limited information cannot understand it.
All innovations or inventions take a considerable time to be adopted, but with the fast rate of globalisation and increase accessibility of data connection and cell phone by people all over the world, there are reasons to believe that cryptocurrencies will one day capture the world. After all credit card for example was not adopted instantly at the time of its introduction. Let’s watch and see what will become of the cryptocurrency revolution.