Bitcoin, Dogecoin, Ethereum: Are cryptocurrencies Money 2.0?
How would it be if you could pay for all your purchases with virtual money? Well, this is becoming possible with cryptocurrencies.
What are cryptocurrencies?
Cryptocurrencies are digital money and can be used to buy things – but there are no coins or cash. Cryptocurrency transactions are stored in a public ledger using blockchain technology. Blockchain stores data in "blocks" that are linked, or "chained," together in chronological order. It is a distributed ledger that can be viewed by all cryptocurrency users.
The transactions on the blockchain are secured by cryptography (a coded language through which only its sender and receiver can understand the information). Cryptographic codes, also known as "hashes," link the blocks together, making them impenetrable to hackers.
History and origin
In 2008, Satoshi Nakamoto founded Bitcoin (BTC), the first cryptocurrency, and introduced blockchain technology to the world. Bitcoin remains the largest cryptocurrency, but there are now thousands of different cryptocurrencies on the market today including Bitcoin Cash, Ethereum, Litecoin, Cardano, Dogecoin, and XRP.
How are cryptocurrencies created?
Different cryptocurrencies have different digital architectures (code), so how they work varies. As an example, let's use bitcoin, which is "mined." Here’s how mining works: Powerful computers, often known as miners, perform calculations and process transactions on the ledger. By doing so, they earn a unit of the currency or at least a part of a unit. It requires a lot of expensive processing power and often a lot of electricity to perform these calculations. Once they get the currency, owners may store it in a cryptocurrency wallet. A cryptocurrency wallet is software that allows you to transfer funds from one account to another.
But how do cryptocurrencies work?
Cryptocurrency works a lot like a credit card, except you exchange digital assets for goods and services instead of rupees or dollars.
To make a transaction with cryptocurrency, you must exchange currency with a peer using your cryptocurrency wallet. To complete a transaction, you need access to a password, known as a private key. The private key is much like a bank account. You can own multiple keys and own all the funds sent to those keys. Transactions are recorded on a public ledger, which shows the transaction totals without revealing the identities of the parties involved.
What determines the cryptocurrency value?
The value of a cryptocurrency is based on people's faith in it, as determined by the market. The supporters of the cryptocurrency hope that more and more people will want a digital currency that is relatively free from government oversight - and that, as people sink resources into cryptocurrencies, their value will increase over time. Few cryptocurrencies, including Bitcoin, have gone up in value, which has made early users rich.
Also, because it isn’t run by one country or person, cryptocurrency can be used around the world. There aren’t any added costs in using it, and you use it anywhere you can access the internet.
You also don’t worry about disclosing your identity while paying with crypto since there is no need to provide unnecessary personal information.
Why should you be watchful of using it?
They’re not good for the planet. It takes a lot of power to power the computers that maintain cryptocurrencies, which heats the globe. Some say that if Bitcoin were a country, it would be using about as much energy as Argentina! Also, the value of cryptocurrencies goes up and down. Lots of things affect the price, from elections to wars to rival cryptocurrencies.
Crypto facts
- Is there a cryptocurrency with a dog on it? Err, yes. Sort of. Back in 2013, two programmers created Dogecoin, a jokey cryptocurrency named after the ‘doge’ dog internet meme.
- The first commercial bitcoin transaction was for pizza.
- There are more than 9,500 cryptocurrencies in existence.
- The total amount of bitcoins is limited at 21 million.
- Some countries ban cryptocurrencies.