The last few years have seen Bitcoin and other Cryptocurrencies burst onto the scene in a big way. We’ve seen dramatic price rises making fortunes. Many investors getting REKT in the crashes. We’ve seen bans and government interference in ICO’s. It’s been a roller coaster, to say the least.
But there’s still a long way to go for the majority of the world. The average joe on the street still can’t tell you what Bitcoin is or even how it works. Government departments whose job it is to know still have no clue about the potential benefits of Cryptocurrency. For a newbie, it can all be a little confusing to start with.
Kick back, relax and let us break it down for you so that you don’t get lost in the sea of disinformation.
What Is Cryptocurrency?
Cryptocurrency is effectively digital currency. It uses cryptography to create and regulate digital currency and to verify the transfer of currency between people. Most cryptocurrencies are run on blockchain technology. Blockchain Technology (effectively a peer to peer network) is a distributed ledger verified by a network of computers. Most digital currencies are decentralized and arguably less vulnerable to government interference.
The very first blockchain based cryptocurrency was Bitcoin which was created in 2009 by the notoriously mysterious Satoshi Nakamoto. Now there are thousands of Cryptocurrencies. Many of them serve no real purpose. Others are outright scams.
There are some of them have a specific use or provide a way to pay for goods and services too. Some are used as a way to send secure payments anywhere in the world in seconds. Bitcoin is king and always will be the king of Cryptocurrency.
However, the last few years has seen some really interesting Cryptocurrencies come to prominence. Each of them has their own uses. Ethereum, EOS, Stellar, Monero and Dash are very popular to name a few.
How does it work?
This is where things get kind of complicated for some people. It is complicated. However, you can’t go wrong if you can get your head around these basic parts.
The ledger is central to nearly all Cryptocurrencies. It is where all transactions are made public. This ensures total visibility of the network. The ledger is a list of entries of transactions in a database. The ledger is not stored in one place but copied and verified by a whole network of computers. Having a ledger ensures a Cryptocurrencies network is self-governed without outside interference.
What Is Cryptocurrency Mining?
Mining Cryptocurrency is an integral part of Cryptocurrency. Cryptocurrency Miners verify transactions and add them to the public ledger. They use powerful computers to solve complex math problems to verify transactions. Miners are given a reward for their efforts, which varies based on the cryptocurrency. Bitcoin originally awarded 50 BTC per block mined.
The award decreases over time as the difficulty of mining increases gradually. Cryptocurrency Mining is open source though, so anyone who connects to the network and has the right equipment can confirm a transaction. The first miner to solve a specific problem gets to add a block to their transaction ledger and is given their reward as payment. that transaction is then verified throughout the network. This is known as proof of work.
There is another way of verifying transactions too. Its known as proof of stake. They reward those who help in the verification of transactions on the network based on holding a certain number of coins and locking them into the system. But even most of these coins are premined.
Cryptocurrency Pros And Cons.
Cryptocurrencies make it easier to transfer funds directly between two parties. There is no need for third parties such as banks and other middlemen. These transfers are facilitated through the use of public keys and private keys. This is for security and the safety of your Crypto. Your wallet or account address has the public key, and the private key is used to sign transactions. Fund transfers are transferred with small processing fees paid to the miners or stakers for confirming the transaction. This allows users to avoid the absolute rip off in fees you would be charged by banks and other financial institutions for wire transfers.
Because Cryptocurrency networks are largely anonymous it exposes the risk for criminal activity. The fear is from people looking to launder money and evade paying taxes. However, a recent report found that only a very small proportion of the Crypto world is involved in criminal activity. Some Cryptocurrencies are more private than others. Bitcoin, for instance, is not very private at all and forensic analysis of bitcoin transactions has led to arrest and prosecution for criminals. More privacy based coins do exist, such as Dash and Monero are far more difficult to trace transactions so likely to be more popular for people with dodgy motives and criminal intentions.
Bitcoin and Cryptocurrency are based on supply and demand. Prices fluctuate constantly. Bitcoin has seen some huge rises and falls in price. In fact, we’ve seen it several times over the last decade. This last year alone we’ve seen Bitcoin reach almost £20,000 and falling as low as $3400. Cryptocurrency skeptics constantly call it a speculative bubble. Economic experts are forever calling a correction or a crash the end for Cryptocurrency and Bitcoin. However, Every single time they’ve been wrong.
There are also environmental concerns surrounding Bitcoin and Cryptocurrencies as it takes a huge amount of energy to produce each and every coin that’s mined daily. However, while the United States, China, and others are spewing out billions of tonnes of crap into our atmosphere I think it’s safe to say the problem of Cryptocurrency is minor.
Although innovation in Cryptocurrency is constant and rapid. There is likely to be more and more environmentally friendly ways to create Cryptocurrencies before long.
The biggest threat to Cryptocurrency is and always has been hacking. We’ve seen huge exchanges hacked. People are hacked daily. Millions upon millions of dollars have been lost or stolen. This shouldn’t deter anyone from getting involved in the world of Cryptocurrency though. Even more, is stolen from people who use traditional currencies or fiat currencies as they are known
There are ways in which you can keep your Crypto safe. We’ve even written a handy guide here so you can make sure you’re less likely to fall victim to hackers.
That’s all from the Low Cap Crypto team for now. Feel free to check out some of our other articles for more on the basics of Cryptocurrency. Also, you can make sure you never miss a post again by joining our official telegram announcement channel right here.