Cryptocurrency or virtual currency is a type of digital asset devised to serve as a means of exchange in which coin ownership accounts are saved in a computerized database ledger (the master ledger is blockchain) using powerful cryptography to guard transaction accounts, monitor the production of additional coins, and authenticate the transfer of coin ownership. Since most cryptocurrencies are not controlled by national governments, they are recognized as alternative currencies that are operated outside the boundaries of state monetary policy.
HOW DID CRYPTOCURRENCY COME ABOUT?
The technology of cryptocurrency dates back to the 1980s when a “blinding” algorithm was developed by an American cryptographer, David Chaum. This algorithm is in fact the bases of today’s web-based encryption. This algorithm made secure, unaltered exchange of information between parties possible and is responsible for setting the future electronic currency transfers up for success.
By the 1980s, with some other cryptocurrency enthusiasts, Chaum created DigiCash, a for-profit that generated currency units based on the blinding algorithm. It was not decentralized at that point and managed to have a supply control monopoly.
Initially, DigiCash was dealing directly with individuals, however, due to the suspicions of the Netherland’s central bank of false play, DigiCash was faced with an ultimatum, where it decided to sell exclusively to certain licensed banks only. Later DigiCash was approached by Microsoft, however, things didn’t work out and DigiCash went bankrupt in the late nineties.
This was the time when a software developer Wei Dai, published a paper on a system called b-money: a virtual currency framework that included many of the primary components of modern-day cryptocurrencies, like anonymity securities and decentralization. Yet, b-money was not taken forward as a business.
Nick Szabo, an associate of Chaum, gave a shot at it and built Bit Gold making use of blockchain. However, Bit Gold never gain widespread popularity, just like DigiCash, it’s no longer in business.
After DigiCash, much of the electronics financial transaction research and investment moved to more traditional, albeit digital, intermediaries, such as PayPal. After the downfall of all these prior efforts at making virtual currency exchange work, in 2008, a paper published by a pseudonymous person/group, Satoshi Nakamoto, brought the breakthrough in modern Cryptocurrency. Nakamoto released Bitcoin to the public in early 2009, and a group of enthusiastic supporters started trading the currency and mining it. Bitcoin exchanges and the first of what would eventually be hundreds of related cryptocurrencies began to emerge by late 2010, including common alternatives such as Litecoin.
WHY SHOULD ONE INVEST IN CRYPTOCURRENCIES?
- HOLDS HUGE RETURN POTENTIAL: One of the facts that makes people consider investing in cryptocurrencies is that it will be worth over 400,000 today if you would have invested $1000, in bitcoin in 2013. In a short period of time, recent ICOs (Initial Coin Offering) have produced a range of huge returns.
- EASY, SECURE, AND FAST TRANSFER: The procedure of transferring funds is simple. The payment is received in real-time. Also, this transfer is done by private and public keys, ensuring that any transaction is safe and reliable.
- ANONYMITY: Although the address, hash, blockchain number, and miner name of each transaction are registered for everyone to see in the ledger, the process of transferring and trading your digital assets is anonymous. Hence preventing the hassle of identity theft.
- AUTONOMY: From how you want to receive it, where you want to invest your digital money, and whom you want to give it, you have full power over your cryptocurrency funds. This makes an optimal alternative investment for your retirement or the trust fund of your children.
- QUICK RETURNS: Because cryptocurrencies are risky investments, it is best to compare them to venture capital and angel investing. Taking an example here of Datum who released their ICO, having already received pre-ICO funds of $1.5 million. Since cryptocurrencies are network-based and Datum has already earned a groundswell of support, investors know it is likely that they will be able to start cashing out their investments comparatively quickly.
Now that you know what cryptocurrencies are, let’s talk about a few of them and their advantages.
The following are the different types of cryptocurrencies available today:
Bitcoin, a digital currency that was created after the housing market collapse in January 2009, by a Satoshi Nakamoto. The Identity of the individual who developed this invention remains a mystery. Apart from the government-issued currencies, Bitcoin provides the guarantee of lower transaction costs than conventional online payment systems and works by a decentralized authority.
Purchases of Bitcoins are discrete, meaning a user’s purchases are never associated with the user’s identity, just like purchases made through cash. Bitcoin is a peer-to-peer payment system which means that the user can send and receive payments from anywhere in the world without an external authority controlling and charging the user for the transaction.
In order to build decentralized applications, Etheruem was created as an open-source framework that allows software developers the freedom to incorporate blockchain technology. Rather than running on a single computer that is prone to failure, Etheruem runs on a P2P network of computers.
This platform was built by Vitalik Buterin, the founder of Ethereum. He and his team successfully created a general scripting language that allows companies to create decentralized apps on top of their current Etheruem blockchain.
According to the founder Charlie Lee, Litecoin is created to be the “Silver to bitcoin’s gold’. As we all know well that the availability of silver outweighs the supply of gold. The maximum supply of Litecoin which is 84 million is four times greater than that of bitcoin. Litecoin is based on an open-source protocol and is not controlled by any central authority just like Bitcoin. However, Litecoin is far cheaper and faster as compared to bitcoin. Litecoin pricing works more rationally than bitcoin and has a more viable future for many cryptocurrency users and traders.
Tether is a cryptocurrency with a value intended to mimic the US dollar value. The concept behind tether was to build a secure cryptocurrency that could be used in the form of digital dollars. Tether is the most common stable coin and also serves as a dollar replacement on many exchanges. A cryptocurrency that serves this function of being a stable dollar replacement is called “Stable coin”. To anchor or “tether” the value of stable coin to price of currencies like the US dollar, Tether transforms cash into digital currency.
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