A cryptocurrency is a digital currency created through code. They operate autonomously outside the confines of traditional banking and government systems.
Cryptocurrencies use cryptography to secure transactions and regulate the creation of other units. Bitcoin is the original and by far the most famous cryptocurrency, launched in January 2009. Today, more than 1000 cryptocurrencies are available for trading online.
Cryptocurrencies are significantly different from traditional fiat currencies. Still, you can buy and sell them like any other asset. You can also now trade the price movements of various cryptocurrencies through CFDs.
Cryptocurrencies fall under the umbrella of digital currencies, alternative currencies, and virtual currencies. They were created to provide an alternative payment method for online transactions. However, cryptocurrencies have not yet been widely accepted by businesses and consumers, and their prices are now so volatile that they are not suitable as payment methods. As a decentralized currency, its development is not overly constrained or influenced by governments, while the cryptocurrency economy is monitored by peer-to-peer internet protocols. The individual units that make up a cryptocurrency are encrypted strings of data encoded to represent one unit.
Bitcoin is considered the first decentralized cryptocurrency. Like all cryptocurrencies, it is controlled through a blockchain transaction database, which acts as a distributed public ledger. Bitcoin was created by Satoshi Nakamoto - it is unknown whether the name refers to an individual or a group.
A characteristic of most cryptocurrencies is that they are designed to slowly reduce production. Therefore, only a limited number of currency units will circulate. This has the same properties as commodities such as gold and other precious metals. For example, the number of bitcoins is not expected to exceed 21 million. On the other hand, cryptocurrencies like Ethereum work a little differently. The issuance is capped at 18 million ether per year, which is equivalent to 25% of the initial supply. Limiting the number of bitcoins provides "scarcity," which in turn gives it value. Some claim that the creators of Bitcoin created the cryptocurrency by imitating the precious metal. As a result, mining becomes more difficult over time as the mining reward is halved every few years until it reaches zero. Read more about Bitcoin mining below.
Key Features of Cryptocurrencies
Several key principles govern the use, exchange, and trading of cryptocurrencies.
Encryption Technology
Cryptocurrencies use advanced encryption techniques in several ways. Cryptography evolved from the need for secure communication methods in World War II, aiming to convert easily readable information into encrypted code. Cryptography has come a long way now, and in today's digital world, it is largely based on computer science and mathematical theory. It also draws on communications science, physics, and electrical engineering.
Two main elements of cryptography apply to cryptocurrencies - hashing algorithms and digital signatures:
Hash Algorithms Verify data integrity, maintain blockchain structure and encode people's account addresses and transactions. It also generates cryptographic puzzles that make block mining possible.
Digital signatures allow individuals to prove that they own a piece of encrypted information without revealing that information. For cryptocurrencies, this technology is used to sign currency transactions. It proves to the network that the account owner has agreed to the transaction.
blockchain technology
A blockchain is a decentralized public ledger or list of cryptocurrency transactions. Completed blocks consist of the latest transactions and are recorded and added to the blockchain. They are stored chronologically as an open, permanent, and verifiable record. A peer-to-peer network of market participants manages the blockchain, and they follow a set protocol for validating new blocks. Every "node" or computer connected to the network automatically downloads a copy of the blockchain. This allows everyone to track transactions without the need for central record keeping.
Blockchain technology creates a record that cannot be changed without the consent of the rest of the block. The blockchain concept is credited to Satoshi Nakamoto, the creator of Bitcoin, and has inspired a range of applications beyond digital cash and currency.
Block mining is the process of adding new transaction records to the blockchain as blocks. In the process - using bitcoin as an example - new bitcoins are created, increasing the total number of coins in circulation. Mining requires a specific piece of software for solving mathematical puzzles, and this verification that the legitimate transactions that make up a block are a block. These blocks are added to the public ledger (blockchain) approximately every 10 minutes. When the software resolves a transaction, miners receive a certain amount of bitcoin. The faster a miner's hardware can process math problems, the more likely it is to validate transactions and earn bitcoin rewards.
Major cryptocurrencies
Bitcoin (bitcoin)
Bitcoin is considered the most original and most famous cryptocurrency. Satoshi Nakamoto is a person or group of people by this name, created in 2009. It can be said that its characteristics are more like commodities than traditional currencies. This is reflected in the fact that it is now used more as a form of investment than a payment. As of December 2017, there are approximately 16.7 million bitcoins (a limited number may be 21 million) in circulation. Traders can buy Bitcoin through exchanges or speculate on its price movements through CFDs and spread betting. Learn more about Bitcoin
Ethereum
Ethereum is relatively new in the cryptocurrency space. It launched in 2015 and is currently the second-largest digital currency at the time of writing. It operates similarly to the Bitcoin network, allowing people to send and receive tokens representing value over the open network. The token, called ether, is used as payment on the network. However, the primary use of ether is as a smart contract rather than a payment method. Smart contracts are scripts of code that can be deployed on the Ethereum blockchain. The restrictions on ether are also slightly different from bitcoin. The issuance is capped at 18 million ether per year, which is equivalent to 25% of the initial supply. So while the absolute issuance is fixed, the relative inflation rate is falling every year. Learn more about Ethereum
Bitcoin cash
Bitcoin Cash (BCH) is a cryptocurrency and payment network created by the Bitcoin hard fork in December 2017. A hard fork occurs when the cryptocurrency community diverges. In general, the divergence point is mainly related to the software update used in the network, but for Bitcoin Cash, the divergence point of the hard fork that generated it mainly comes from a proposal to increase the block size limit. . After the fork, the blockchain split in two, with miners and the wider community deciding which digital cryptocurrency to choose. After the Bitcoin hard fork, a Bitcoin Cash coin is generally allocated for each Bitcoin held (but some exchanges do not recognize Bitcoin Cash). Learn more about Bitcoin Cash
Litecoin (litecoin)
(LTC) is a peer-to-peer digital cryptocurrency founded by Charlie Lee (a former Google employee) in 2011. Litecoin is an early "altcoin" derived from Bitcoin, created for smaller transactions than Bitcoin. Technically, Litecoin is almost identical to Bitcoin, but with some notable differences and improvements. For example, Litecoin processes block up to 4 times faster than Bitcoin. Litecoin mining is more technically demanding, but the total volume is also much higher – currently set at 84 million, four times the number of bitcoins. Learn more about Litecoin about other cryptocurrencies that can be traded on the CMC Markets platform >
Summarize
Bitcoin and other cryptocurrencies are best described as underlying currencies. As mentioned above, they are not widely accepted as a medium of exchange today. They have obvious limitations that prevent them from developing into full-fledged currencies. There are also questions about whether cryptocurrencies are just part of a financial bubble. However, although unlikely, it may be used more widely as a medium of exchange in the future. The potential use of the blockchain technology behind cryptocurrencies is also an interesting question. This technology may be used for other purposes, including legal transactions, security programs, and voting systems.
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