CRYPTOCURRENCY AND BLOCKCHAIN | USE OF CRYPTOCURRENCY
What are cryptocurrencies?
It is likely that in recent years you have started hearing the term cryptocurrency. You may have heard it in relation to bitcoin or in relation to "digital currency" or any other financial term. But unless you already use cryptocurrencies, it can be confusing to understand what they are, why they exist, and whether you should use or invest in them.
Originally, cryptocurrency is a digital form of money. They can also be used to represent and exchange other types of digital assets. Cryptocurrency itself does not exist in any physical form such as a note or coin. Instead, they are a digital token that represents something with the same value as Frequent Flyer Points or other types of rewards programs. Digital tokens that make up cryptocurrency are created by software code and stored as encrypted data on a blockchain, which is a form of a permanent database.
Cryptocurrency tokens or coins can be bought, sold or traded on cryptocurrency exchanges. These exchanges operate much like traditional stock exchanges, with the main difference being that they can be bought or sold 24 hours a day. This offers traders a huge advantage because unlike traditional exchanges that typically operate between scheduled hours on weekdays and are unavailable on weekends, cryptocurrency can be traded 24 hours a day, 365 days a year is.
👉A brief history of cryptocurrency
Many attempts were made to create a digital currency during the 1990s but each of them failed for one reason or the other. Some of these were due to traditional business constraints such as funding issues, but the primary challenge was around centralization of the transaction verification process.
Each of these efforts was based around a credible third party approach, where a single organization was responsible for verifying each transaction to ensure that fraudulent transactions did not occur or that people took two different transactions The bar has not attempted to spend the same currency. (Double spending problem). The problem of double spending became extremely difficult to solve in any kind of decentralized system, where there was no central authority to check that no fraudulent transactions were accepted by the network.
But all this changed in 2009, when an anonymous programmer or group of programmers created bitcoins using the alias Satoshi Nakamoto. It was a fully decentralized peer-to-peer electronic cache system that used some very clever coding to solve the double-spending problem. After launching bitcoin, Satoshi Nakamoto continued to assist in the development of the project until 2011, when he sent the last confirmed email from that identity indicating that he would no longer be actively involved in bitcoin.
Cryptocurrency is innovative for several reasons. One of these is their peer-to-peer nature, which means that people can send and receive value independently from any third party. In this way it is similar to cache, except that everything is done digitally. It also means that to approve and verify a transaction, no government, bank or central authority is required to authorize it.
👉How does cryptocurrency work?
Cryptocurrency uses cryptography to verify and secure transactions, as well as to control the creation or total supply of each particular cryptocurrency. For example, the original and best-known cryptocurrency, Bitcoin has a total supply of 21 million bitcoins which can never be extended.
Transactions on the bitcoin network are verified by bitcoin "miners" who solve complex mathematical problems using computers dedicated to the task. In return, miners are rewarded for solving problems with a fixed amount of newly created bitcoins. It serves the purpose of verifying transactions, rewarding those running computers that keep the network running, and providing value to bitcoins because of the significant electricity costs associated with bitcoin mining operations.
These newly created bitcoins are created approximately every 10 minutes upon completion of each "block", a group of transactions on the bitcoin network that are all verified simultaneously and written to the bitcoin blockchain. A blockchain holds secure entries in a type of tamper-proof database where the entries cannot be changed after being verified by the network.
The record of each transaction and indeed every transaction associated with each cryptocurrency is stored on the blockchain. It is considered a permanent ledger that cannot be changed or erased as the entire blockchain exists because copies are spread across all participants in the users' network for each cryptocurrency.
👉What can cryptocurrency be used for?
Cryptocurrency provides a way to send units of any size value from one person or institution to another very fast, anywhere in the world. There is no need to interact directly with the existing banking payment infrastructure, which significantly reduces total transaction costs. Transactions worth hundreds of millions of dollars of bitcoin have been sent in the past, with a total transaction fee of only a few dollars. This is not possible using the traditional banking system.
In addition to more traditional uses, such as shopping online, cryptocurrency can also be used as drivers of many different types of decentralized networks. These networks can be used to operate supply chains and the Internet of Things, securely manage and transmit digital identity information, conduct private transactions or store data in a decentralized manner.
Cryptocurrency incorporating smart contract features (such as Ethereum) also allows transactions without any direct human input, so devices can complete contracts between each other or make payments based on the terms of that contract. This opens the world to a whole host of new digital networks that are more beneficial to network participants. Digital networks based on cryptocurrency transactions have a wide range of other potential applications in many areas, including social media, decentralized finance (DFI), web browsing, gaming, and even real-world asset tokens such as real estate.
👉How much is crypto worth?
There are currently more than 5,000 listed cryptocurrency projects, with a total market capitalization of about $ 270 billion. Bitcoin is by far the most prominent and accounts for about two-thirds of the total market cap with a market cap of $ 170 billion. The second largest project, Ethereum, has a market capitalization of about $ 26 billion. These may sound like fairly large values but as a comparison, tech company Apple is valued at $ 1.7 trillion. This means that currently the value of a company is more than 5 times the total value of more than five thousand cryptocurrency projects worldwide.
As another point of comparison, the global gold market capitalization is $ 9 trillion. While gold has few industrial applications and is commonly used in jewelery, a large part of its total value is in the form of reserves of value. Gold has been viewed as a very reliable store of value for thousands of years because of its limited total supply and significant costs associated with its mining and storage.
Bitcoin is often referred to as Digital Gold because it is considered by many to be a secure digital store of value. This is because its supply is limited to 21 million bitcoins and there are significant costs of electricity associated with its production. Conversely, with traditional fiat currencies such as the US Dollar, British Pound or Euro, there is no limit to how much of this currency can be made by the Federal Reserve Banks, so the value of these currencies decreases over time because More and more currency is created.
👉Is cryptocurrency a good investment?
The simple answer is that it depends on which cryptocurrency you want to invest in. And what time frame do you invest in. Due to the emerging nature and immense potential for future cryptocurrency and blockchain technology projects, many cryptocurrencies are subject to much higher price volatility than traditional stocks or commodities.
This is one of the major criticisms of bitcoin, that its price is too volatile or too volatile. However, as you can see in the table below, if you had invested in bitcoin at almost any time in the past decade, it would have been a very profitable investment. While it is true that large differences are seen between the highest and lowest value of bitcoin each year, by looking at the annual minimum value, you can see that the price is continuously increasing year after year.
The return on investment is also higher than any other asset class. In fact, bitcoin is by far the best-performing asset in the past decade, providing returns orders of magnitude above the US Treasury, global equities, or gold. Other top-performing cryptocurrencies such as Ethereum or Chainlink tell a similar story with a high level of price volatility, but when viewed over a multi-year timeframe, the token is a huge gain in value.
Of course, with more than 5000 cryptocurrencies in existence, for every major success story, many underperforming projects, the projects are unlikely to succeed, as well as a few outright scams. Similar to any other new industry such as the dot-com bubble, which coincided with the introduction of the Internet, there were many commercial failures as well as success stories. So choose carefully which cryptocurrency projects to invest in and which ones to avoid.
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