Cryptocurrency. By now, chances are good that most of us are somewhat familiar with the term. From Bitcoin to Ethereum and even Facebook’s Libra, digital currency has taken the world by storm. Way back in 2017 when Bitcoin valuations went through the roof, investors and punters alike scrambled to get on the crypto train.
However, how much do you actually know about cryptocurrency? To some, cryptocurrencies are just another commodity to be invested whereas to others they represent the future of finance. Whether you’re investing or just looking around, we’ve prepared a simple guide to give you some background into the world of digital currency.
Given that Bitcoin and Ethereum are the most popular forms of cryptocurrency at the moment, we’ll be making plenty of references to these currencies for the sake of convenience.
1. Bitcoin was created by accident
Like many great discoveries, the creation of Bitcoin may have come about purely by accident. In fact, according to the enigmatic founder Satoshi Nakamoto, the purpose behind Bitcoin’s creation was to develop a decentralized digital cash system.
The reason behind this was that Nakamoto was convinced that central banking authorities will not be able to effectively manage currency valuations which would result in widespread inflation.
Traditionally, payment transfer systems are controlled by a central server which constantly keeps track of transactions that are being made. In a decentralized system, transactions cannot be validated by any single authority. Instead, individual users need to keep track of any transactions.
While many claimed that this was impossible, Satoshi Nakamoto proved them wrong with the invention of Bitcoin.
2. Cryptocurrencies are decentralized
It is because of its decentralized nature that Bitcoin and other cryptocurrencies are extremely popular with people who desire a degree of anonymity in their transactions. Because of this, it should come as no surprise that Bitcoin is the primary medium of exchange on the deep web, where legally gray or even illegal transactions are sometimes made.
The untraceable nature of such transactions has consequently resulted in significant government consternation. Amongst some of the concerns were that Bitcoins and other cryptocurrencies could be used to transfer large amounts of money out of the financial system.
Alongside this, the pseudo-anonymity offered by cryptocurrencies makes them a popular choice for those looking to launder illicit gains or evade taxation. However in recent times, Bitcoin adoption rates have been on the rise with major retailers in the U.S accepting Bitcoins as payment.
3. Cryptocurrencies are extremely popular in certain nations
Recently, we’ve seen how cryptocurrencies have taken off in countries with unstable or dictatorial governments. Zimbabwe and Nigeria are examples of two such nations on the African continent where cryptocurrencies are extremely popular.
In a country such as Zimbabwe where hyper-inflation runs rampant, locals have turned to Bitcoin as their primary medium of exchange. Due to the decentralized nature of the cryptocurrency, its valuations are not affected by external factors such as government instability and geopolitical tensions.
Another example of this can be seen in Latin America where Venezuelans have made extensive use of cryptocurrencies in their daily lives. The collapse of the Venezuelan economy coupled with the unstable government has resulted in hyperinflation and the crash of the Venezuelan Bolivar. To cope, citizens have turned to cryptocurrencies as a primary medium of exchange.
4. Cryptocurrency such as Bitcoin can be earned through mining or trading
By now, you would have heard of Bitcoin mining. Essentially, mining is the process of confirming transactions that have occurred along the blockchain. Through a combination of cryptography and processing power, miners are able to validate these transactions and are in turn rewarded with Bitcoins.
In the early days, Bitcoin mining was a relatively simple task which could be done easily. Over the years however, as the blockchain lengthened, miners required significant processing power to mine Bitcoins.
Alongside this, every few years an event known as halving occurs in which Bitcoins awarded for successfully solving a transaction are halved. Consequently, this gives miners less incentive to mine Bitcoins which is intentionally done in order to prevent a glut in the market.
Nowadays, most people obtain their cryptocurrencies via online exchanges, which buy and sell crypto. Unfortunately, there are plenty of disreputable exchanges on the market who may be susceptible to hack attacks and online heists. We recommend you reading this eToro review, since this is one of the must trustworthy trading companies in the market, with their security policies.
The cryptocurrency market is an extremely volatile one with prices constantly fluctuating. However, the unregulated nature of the market means that one has to exercise caution when buying or selling cryptocurrency.
Author: Benjamin Lee