Exchange goods between the producers were widely practiced as business transactions during 9000 BC. If someone has any surplus goods, they used to exchange it with a person who needs that item. This was a money-less way of business with a lot of confusion. Thus to make it standardized, humankind started using currency from 600BC.
It was thought that now everything would be safe and secure. However, people got frustrated as this new invention generates new issues. One of the most significant ones is the security. New developments and innovations in digital transactions offer protection from the latest threats. Therefore, a new digital currency arises with enhanced security and utility. Yes, you are right. It is the Cryptocurrency.
What is Cryptocurrency
It is a type of digital currency that uses security features (e.g., cryptography) and anti-counterfeiting procedures. People use both private and public keys to transfer this digital money. The transaction takes place between individuals and organizations.
Like conventional currency, there is no regulatory body like a central bank for Cryptocurrency. Thus, there is no fixed rate for exchange, and it is called “Fiat Currency.” The users have to agree on the currency’s value before any trade. The rate solely depends on the basic concept of ‘supply and demand.’ Just like any precious metal, the rate will be high when the supply is scarce and vice versa.
Bitcoin’s Technical Lead Gavin Anderson described the cryptocurrency as the “decentralized currency of the people.” It takes the centralized banks out of the scenario because the currency needs to be signed cryptographically for each transaction.
The introduction of Cryptocurrency is a significant shift from institution to individual-level financial transactions. However, these transactions are anonymous, so they are untraceable. This makes it a potential medium for illegal trades like drug trafficking. Because of the decentralized untraceable nature, law enforcement agencies have difficulties in tracing these illicit transactions.
How it Works
It may sound puzzling how financial transactions take place without a centralized system. However, the process of how cryptocurrency works is simple. It is open and only takes place when both the seller and buyer confirmed it through miners. All these transactions will be recorded in the ledger. Therefore, to get a better idea let us dig in.
Blockchain is the base
The exchange of this digital currency requires a decentralized peer-to-peer network. The network is the Blockchain, the backbone of Cryptocurrency transactions. This network ensures a complete clarity and record of each trade within the network.
As every member of the peer network can see what is going on with each coin, it is almost impossible to do any cheating or gaming with it. Both the sender and receiver, upon agreeing, sign off on payment to generate a digital signature. Both have a private and public key to create this signature.
Every trade will be confirmed and verified before registered in the ledger.
Ledger, the center of the Cryptocurrency market
This ledger is a public registered accessed by all the members of the peer network. All the trades are public in the ledger; therefore, total visibility is always there. This total visibility ensures that everyone plays a ‘fair game.’ Moreover, it eliminates any possibilities of double-spending.
From the creation of a cryptocurrency, all the confirmed trades are stored in the ledger. However, the identities of the owners are always encrypted. Along with this anonymity, additional cryptographic techniques provide the validity of this record keeping.
No one can change any entries in a ledger without going through some specific procedures. They are not only time consuming but also include a sophisticated algorithm. There is no moderator or supervisor of the ledger. As it is decentralized, it runs by itself through self-governance without the interference of an outsider.
Miners play a vital role
Just like miners beneath the earth, cryptocurrency miners play a pivotal role in trade and registration. Unless the trade is confirmed, it will not be registered in the ledger. Do you know who does this confirmation? Yes, the miners.
Confirming a transaction is nothing like confirmation in a bank. The miners need to go through solving increasingly complicated computational problems. These problems are like mathematical puzzles with a very high difficulty level.
Mining is open-source; therefore; anyone who solves the puzzle can confirm the trade. The first miner who solves the problem gets the opportunity to add a block of transactions in the ledger. Right after the transaction is approved and registered, it becomes a permanent entry visible to all peer members. The miner gets a small transaction fee into his/her wallet.
The whole system of conformation and ledger entry is known as ‘proof-of-work.’ This gives its value to the newly created Cryptocurrency coin.
Evolution of Cryptocurrency
Digital currency is not a very new concept. People started working on it from the last century and the beginning of this century. Multiple attempts had been made from 1998 to 2009 to develop a digital currency secured by encryption. B-Money and Bit Gold were two of the well-known ancestor of Bitcoin. They were formulated but never developed fully.
Bitcoin, the first-ever cryptocurrency, was introduced in early 2009 by Satoshi Nakamoto. The introduction was the byproduct of another invention, and the inventor described it as “a Peer-to-Peer Electronic Cash System.” The first mined block of Bitcoin is known as Genesis Block.
The first-ever purchase using the Bitcoin tool place in 2010. Laszlo Hanyecz bought two pizzas using 10,000 Bitcoin. If Mr. Hanyecz could save those coins, they would have priced $100 million!
The popularity of Bitcoin encouraged investors and technical experts to introduce other currencies. Although the basic concepts were not different from the Bitcoin, the new currencies offered greater speed and anonymity as well as other benefits. Among the first of the post-Bitcoin era are Namecoin, Litecoin, etc.
The cryptocurrency price plummeted in 2013 due to a disastrous hack in the Bitcoin exchange named Mt. Gox. Users’ trust and confidence went to rock bottom, and the price also touches its record low $300 to $1000.
Since 2016, the Cryptocurrency market experience server crowd and rivalry. One Blockchain-based peer-to-peer currency named Ethereum almost stole the thunder of Bitcoin. This digital currency introduced the first Initial Coin Offerings (ICOs) to raise funds from new investors.
Since 2016, the market never had to look back. It is a booming field with more than 1,100 cryptocurrencies in the market.
Top Cryptocurrencies of the world
You will be surprised to know the total market capitalization of Cryptocurrencies. It is $850 billion. Hold tight, since the beginning of the year; it increases 850%. Just think about its prospects in the future. However, most of the people only talk about Bitcoin, when talking about Cryptocurrency.
It is the first of its type to appear in the market in 2009. Nevertheless, there are 1,100 digital currencies available in the market. It is not easy to say which one is the best but according to the user’s choice; the following five are dominating the market.
Cryptocurrency and Bitcoin come simultaneously on people’s minds. In 2009, Bitcoin pioneered the Cryptocurrency concept as a side innovation of another significant venture. The inventor of this digital money wanted to by-pass the centralized financial system and offered a parallel system for more open trade.
This currency is now dominating the significant share of the currency market. Moreover, many real-world trades use this currency. The current supply of this digital money is nearly $16.5 million. A recent prediction of Michael Novogratz, the CEO of Galaxy Investment and former partner of Goldman Sachs says the individual currency value will reach $20K this year.
Despite its extensive use, the very high unit price makes the entry-level investors think twice before pouring the money. You may have to wait for high volume transactions for a lower unit price.
Vitalik Buterin launched this digital currency in 2015. Unlike conventional digital currency, it works more as an infrastructure rather than a pure peer-to-peer currency. The currency was offered as ether, the Ethereum Altcoin. The venture raised around $18.5 million from the market.
The unique feature of this currency is the Blockchain can be used as a development platform for many features. Any peer member can use the Blockchain base to develop verities of applications like crowdsourcing or contracts.
The block time is relatively faster for Ethereum than Bitcoin. A Bitcoin block takes 10 minutes whereas Ethereum takes only 12 seconds. The value of an Ethereum coin based on a concept called ‘gas.’ The amount of gas depends on storage needs and hereby defines the currency value.
If you require faster functionality, go for Ethereum rather than any traditional Cryptocurrency.
The currency rippled over the market in 2012. The introduction was based on a distributed ledger. Like Bitcoin, the transactions pass through validators and nodes. However, the Ripple has relatively stronger governance than any other conventional digital money. The consensus ledger requires validation from specific validators, and global banks and financial institutions facilitate the processes.
Ripple comes with a faster settlement speed. All the thanks go to the Consensus Ledger system. It settles the transactions within few seconds. Much faster than any currencies in the market!
Anyone in the Ripple network can sell or buy digital money without any other transfer or trade fees. Because of these friendly features, Ripple is getting popular in the Cryptocurrency market.
You can guess from the name that there is an influence of Bitcoin on it. The founder of Litecoin, Charlie Lee made this digital currency like Bitcoin with few exceptions. One of them is the specific block generation time which is 2.5 minutes.
Litecoin is a hardware friendly cryptocurrency. The algorithm requires high-speed RAM but does not need high processing speed. Moreover, the currency has a large number of coins available at minimum cost.
Because of fast block generation, the Litecoin can handle a massive transaction volume. Therefore, if you require a quick double confirmation, Litecoin is the choice for you.
This fast currency works better at a higher processing speed. Thus, you can refer to it when dealing with quick trades at an affordable cost.
Dash is one of the most user-friendly cryptocurrency. This digital money was formerly known as Darkcoin and Xcoin. This peer-to-peer digital currency initiated masternodes to secure the network. Moreover, the network offers user-friendly incentives like InstaSend for fast transactions. PrivateSend, a more secure and anonymous option of trade, ensures privacy.
As an operator, you have to invest 1000 dash in hosting a masternode. However, you will get 45% of the reward from each mined dash block. You will get a constant supply as 7-Dash per month.
Unlike other Blockchain, Dash is self-funded. Around 10% of each block reward goes to the network development and promotional budget. Thus, if you work as a developer in Dash Blockchain, you will be paid. How great is that?
Each masternode has voting power. It ensures quick but fair decision-making. Moreover, if you prefer privacy to performance, Dash is the best choice.
It is just the Beginning
Within the last decade, the concept of decentralized digital currency not only flourished but it also challenges the centralized banking. However, the utmost anonymity raises some security issues.
No matter what the glitches are, the Cryptocurrency is getting popular, and it will reach its record high if the investment comes from the renowned institutions.