History of Cryptocurrency
The basis of cryptocurrency dates back to the early 1980s, when an American cryptographer David Chaum conceived a “blinding” algorithm which remains essential to present day web-based encryption. The algorithm provided more security, constant information trade among parties, & laid the base for future electronic money transfers & was known as “blinded money.” He also founded a company DigiCash Inc. in 1989 to create world’s first digital currency. Nonetheless, it failed to gain prevalent approval, & amid other issues in 1998, DigiCash was compelled to file for bankruptcy.
The first cryptocurrency made is known as Bitcoin. It was created in 2009 by an individual or a group of people, who goes by the alias of Satoshi Nakamoto. No one knows the exact whereabouts or details about Satoshi Nakamoto.
What is Cryptocurrency ?
It is defined as the digital currency in which encryption methods are used to organize the creation of currency units & in validating the transfer of funds thereby functioning separately of a bank. It functions in a decentralized way & uses encryption which no bank or government validates. It is digital in a way that it is virtual, unlike standard money & also it uses cryptography to keep away from counterfeiters, provide more secured transactions & create currency units.
Jan Lanksy, a cryptocurrency researcher, believes that cryptocurrency is the future currency & has given 6 terms to define the cryptocurrency system, which are:
1. The system doesn’t need a central authority, distributed achieve consensus on its state.
2. The system keeps an overview of cryptocurrency units & their ownership.
3. The system defines whether new cryptocurrency units can be generated. If yes, the system defines the circumstances of their origin & how to determine the ownership of these new units.
4. Ownership of cryptocurrency units can be proved exclusively cryptographically.
5. The system allows transactions to be performed in which ownership of the cryptographic units is changed. A transaction statement can only be issued by an entity proving the current ownership of these units.
6. If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them.
Types of Cryptocurrencies
After the introduction of first cryptocurrency, bitcoin, several similar cryptocurrencies came into existence. Let’s take a look at the some distinct cryptocurrencies available:
1. Bitcoin(BTC) - It was the first crypto conceived in a white paper by Satoshi Nakamoto in 2008 & was also the first modern cryptocurrency that laid down the path for a much larger crypto ecosystem. Bitcoin currently dominates over 40% of crypto market & has a total market cap around $93 billion making it the largest cryptocurrency. There are 21 million BTC of which 17 million are said to be already mined.
2. Ethereum(ETH) -It was proposed by Vitalik Buterin in a 2013 white paper. It has the 2nd largest market cap after BTC. ETH has an inbuilt programming language that allow developers to write programs known as smart contracts, that run on the blockchain. It is destined to function as a type of global, decentralized computer, with a Turing programming language & a layer of smart contracts that allow coders to create entirety from decentralized apps to tokens powering ICOs. Ethereum processes transactions in fractions of seconds whereas Bitcoin take more than 10 minutes for the same. Currently, there are around 100,000,000 Ether coins & they will never stop being created. It has a market cap of approx $18 billion.
3. Ripple - Basically, Ripple is a blockchain which is designed to be used by banks to make their transactions faster. It is known as the banker’s coin. Financial organizations such as banks & governments, have collaborated with Ripple hence it might be the best option in finance due to its alliance with governments. But unlike other cryptocurrencies, Ripple isn’t decentralized, rather, its centralized.
4. Litecoin - it was released in 2011 by Charles Lee, albeit with a larger pool of coins, shorter block processing times & a distinct hashing algorithm. It is basically a clone of BTC. Lee invented LTC to be the digital correspondent of silver. It is designed in a way to be less prized & easy to transact with. Also Litecoin will be the first cryptocurrency to use the Lightning Network. The Lightning Network resolves a lot of crypto related problems, such as scalability, which enables the litecoin to process more transactions per second. LTC is both faster & much cheaper than Bitcoin so is a lot better for small payments, hence, known as “Lite”, whilst BTC transactions are costly, so they are useless for small payments.
5. Monero - It is the most distinguished example of the cryptonight algorithm which was invented to add privacy features missing from BTC. In BTC, each transaction is detailed in the blockchain & the trail of transactions can be pursued. But after the introduction of a concept known as ring-signatures, the cryptonight algorithm is able to cut through that path. The first implementation of cryptonight, bytecoin, was massively instamined & hence rejected by the society. Monero was the first non-instamined clone of bytecoin & nurtured plenty realization.
Crypto mining or cryptocurrency mining, is a process by which transactions for different types of cryptocurrency are confirmed & added to the blockchain ledger. It has expanded both as a subject & endeavor as cryptocurrency usage itself has grown aggressively in past few years. On BTC network, all the transactions are managed by the miners. Anyone can become a miner by downloading the copy of all transactions. What miners do is that they run an algorithm to verify all the transactions happening on BTC network, thereby ensuring that every transaction is processed in a safe & secure manner.
Miners get a certain reward in the form of Bitcoin for confirming any transaction & updating the blockchain with the same. That is how new bitcoins are generated. For mining, powerful computers are used that helps record the transactions.
What is Blockchain?
Blockchain is simply defined as a type of distributed ledger for keeping a permanent record of transactions which is controlled by group of computers that is not owned by any individual. Every single block of data is secured using cryptography. Since it is a shared ledger, its information is open for anyone to see. It is a decentralized database managed by distributed computer systems in a P2P network wherein each computer in the distributed network maintains a copy of the ledger to prevent a single point of failure (SPOF) & all copies are updated & validated simultaneously.
Blockchain is associated with digital currencies such as Bitcoin, Litecoin, Ether etc. But presently, blockchain applications are being studied & applied in several industries as a secure & cost-effective way to create & manage a distributed database & keep records for digital transactions of all types.
How Does Blockchain Work?
It a simple yet ingenious way of passing information from A to B in a fully automated & safe manner. One party to a transaction initiates the process by creating a block. This block is verified by thousands, perhaps millions of computers distributed around the net. The verified block is added to a chain, which is stored across the net, creating not just a unique record, but a record with a unique history. Falsifying a single record would mean falsifying the entire chain in millions of instances which is virtually impossible. Bitcoin uses this model for monetary transactions, but it can be deployed in many others ways.
Even on-demand services like Uber & AirBnB are threatened by blockchain technology. All you need to do is encode the transactional information for a car ride or an overnight stay & you have a perfectly safe way that disrupts the business model of the companies which have just begun to challenge the traditional economy. We are not just cutting out the fee-processing middle men, we are also eliminating the need for the matchmaking platform.
As blockchain transactions are free, we can charge minuscule amounts, say 1/100 of a cent for a video view or article read. Why should I pay The Economist or National Geographic an annual subscription fee if I can pay per article on Facebook or my favorite chat app.
Applications Of Cryptocurrency
The blockchain gives internet users the ability to create value & authenticates digital information. There are several distinct areas where cryptocurrency is beneficial. Some of its applications are:
Gaming Industry - The cryptocurrency era has opened up new possibilities for game publishers, developers & ofcourse gamers themselves. As of now, the gaming & social industry have influencers & content writers that provide free services in exchange for a few ‘likes’ or ‘followers’. There’s an opportunity to change this dynamic as any content published can be rewarded through cryptocurrency. Gamers can also receive incentives in the form of crypto.
Travelling - Cheapair.com has been accepting Bitcoin as a form of payment when purchasing flights, hotels, car rentals etc since 2013. So, it’s a good time you should consider travelling using your Bitcoins.
Real Estate - Well, Propy.com is the world’s first international real estate that accepts crypto as payment for buying property. A purchase of a spectacular villa in Indonesia worth 1000 BTC in 2014 is among few of such transactions.
Education - The education system is also taking a sip from the cryptocurrency’s cup. Some institutions now accept cryptocurrency as a form of payment. A couple of universities in Switzerland, US & Germany now accept Bitcoin payments. The University of Nicosia (in Cyprus) is the first accredited university in history to accept Crypto for tuition as well as other fees through Bitpay (a popular payment processor).
Food Joints & Restaurants - Subway, a major player in the fast food industry, accepts cryptocurrency as a form of payment. Pizzaforcoins is another company that accepts crypto payments.
Automobile Industry - In December 2013 a Tesla model S was reported to have been bought at a whopping price of 91.4 Bitcoins. Later a 2014 Lamborghini Gallardo LP 550–2 Coupe was also purchased for 216.8 Bitcoins.
Smart Contracts - Some Cryptocurrencies have built in Smart contracts. They are built in protocols to facilitate, verify and enforce a contract. For an example, you could be paid by a minute for the freelance work you do
Payments - Cryptocurrency provides a much faster way to transfer certain amount within a second without any hassles.
Advantages of Cryptocurrency
Like a coin has two sides, there are always pros & cons to everything in life & this is why you need to weigh both actions thoroughly before making a decision. And it totally depends upon us how we use technology to make our lives better & easier.
1. Highly Secured - All your transactions are secured using cryptography. It is next to impossible for any person other than the owner of the wallet to make any payment from the wallet.
2. Low Operation Cost - Transferring money by using any other online forum or bank gateway is costly as they levy considerable fees for the transaction. But digital currencies charge little to no transaction fees that are exchangeable over the network.
3. Decentralized - Cryptocurrency is decentralized, meaning it can’t be deflated or inflated due to the choices of a central government.
4. Swift - Transactions are quick, permanent, & hard to fake, this eliminates a lot of the fraud issues banks deal with.
5. Transparent - It is transparent despite its privacy features. This is called being pseudo-anonymous. This transparency helps build security & trust whilst creating a level playing field.
6. Anonymity - In cryptocurrencies, you’re able to create an infinite number of wallets without reference to the name, address or any other information.
1. Lack of Knowlege - Most people are not aware of how to use cryptocurrency & hence open themselves to the hacker. The digital currency technology is somewhat complex & therefore one needs to be mindful of it before investing.
2. Strong Volatility - Since from the beginning, cryptocurrencies have highly volatile nature. This is one of the main reasons mass adoption is taking longer than it should. Many corporations don’t want to deal with a form of money that is going to go through huge swings in volatility.
3. Investment Risks - Crypto investments involves high risk because of its volatile nature & terrorist & other illegal activity financings, which means that there is no legal formal entity to guarantee in case of any bankruptcy.
4. Not Accepted Widely - Still, cryptocurrencies are not acceptable in countries & online websites. Very few countries have legalized the use of cryptocurrencies. It makes it impractical for everyday use. Due to a lack of acceptance.
5. Not Able to Reverse the Payment - If you mistakenly pay someone by using cryptocurrency, then there is no way to get a refund of the amount paid. All you can do is to ask the person for a refund & if your request is turned down, then just forget about the money.
Future Of Cryptocurrency
Cryptocurrency is an exciting concept with the power to fundamentally alter global finance for the better. The market of cryptocurrencies is vast, fast & wild. Nearly every day new cryptocurrencies emerge, old die, early adopters get wealthy & investors lose money. Every cryptocurrency comes with a promise, mostly a big story to turn the world around. Few survive the first months & most are pumped & dumped by speculators & live on as zombie coins until the last bag holder loses hope ever to see a return on his investment.
Few years from now, there is every possibility that cryptocurrencies might gain legitimacy as a protocol for business transactions, micropayments & may even overtake Western Union as the preferred remittance tool.
1. VC investor Tim Draper has predicted that the total cryptocurrency market capitalization will hit $80 trillion in the next 15 years.
2. Iran has announced that they will start treating cryptocurrency mining as an industry. This regulation comes after increased pressure on the country enforced by a change in economic sanctions imposed by the United States.
3. Tech giants Alibaba & IBM are vying for the top spot on a new list that ranks global entities by the number of blockchain related patents filed to date. China’s Alibaba only just seals first place, having filed a total of 90 patent applications, whereas IBM has to date filed a total of 89. Mastercard is at third with 80 filings, followed by Bank of America, with 53.
These use cases & predictions says a lot about the future of cryptocurrencies in 2019 & beyond. The blockchain is growing faster than ever. As these organizations & technologies mature, their real-world use cases will increase manifold, more than what we see today, reducing some speculative market elements to ground it in the actual performance, utility, form & function of the next-gen internet.
Well, It’s in our nature to only make predictions & assumptions based on history, present events & trends of crypto. The digital currency based on cryptography was introduced to the world so that it could overcome the flaws of centralized transaction system. But this so called decentralized system too has some limitations. It is a currency generated & transferred by machines but used by humans. Although its popularity is increasing but its acceptability is extremely less compared to that of standard currency. Bitcoin is a legal tender in some of the countries whilst banned in some. With diverse rules & regulations of every nation, it is a bit challenging to fit the cryptocurrencies as a mode of payment. And many who understand this concept are from technological background.
Omnipresence of crypto will become a reality when it has a diverse acceptance. Explanation of crypto in a simplified language, protection from hackers, & security for not being used by unethical resources, decentralization & anonymity in its true sense will expedite the adoption of cryptocurrencies in day-to-day life.
There is surely a challenging path for crypto but it has managed to stay strong till amongst the all the hurdles faced. What if it is not accepted as the mode of payment for which it was invented? The cryptos have acquired the highest position in investment options. Forex & stocks are left behind in the race. Suppose you had bought 1 BTC when the price was $1k and you have held it till the price reached highest i.e. $20k. Flattered by the profit? And this too in a time span of one year! Which other trading asset gives such fascinating returns? So, it is upon us to decide what cryptocurrency means for every single one of us.