What Is Cryptocurrency: Types, Benefits, History and More
The article explains what is cryptocurrency, its types advantages, history, and types in great detail. Learn more about the reasons cryptocurrencies have become popular over these past years.
Cryptocurrencies have become increasingly popular over the last several years. As of the year 2018 the number was more than 1,600! This number keeps increasing. There has been an increased demand for those who can develop the blockchain (the basis technology behind cryptocurrencies such as bitcoin). The salaries blockchain developers earn show how much they are valued: According to Indeed, the average salary of a full-stack developer is more than $112,000. There's even a dedicated website for cryptocurrency jobs.
Are you interested in working as a blockchain developer , or just need to stay abreast of new developments in technology, Simplilearn's Cryptocurrency Explained video provides a comprehensive explanation of the concept of cryptocurrency and why it's important will get you off to an excellent start. We'll review what's been covered in the video.
A Brief History of Cryptocurrency
At the time of caveman, people used the barter system using which items and services are traded between two or more people. For instance, someone might exchange seven apples for seven oranges. The barter system slipped off the radar because it was not without weaknesses:
- People's requirements have to coincide--if you have something you want to exchange, somebody else has to want it, as well as you should want something that the other party is providing.
- There's no common measure of value--you have to decide the amount of items that you're willing to trade in exchange for another item, and not all items are able to be divided. You cannot, for instance, split a live animal into smaller pieces.
- These items cannot be moved easily as our currency of today, which can be stored in a wallet or is kept on mobile phones.
After people realized the barter system didn't work quite well It went through several iterations. In the year 110 B.C., an official currency was introduced; by A.D. 1250, gold-plated florins were created and utilized across Europe as well. After 1600, until 1900, the paper currency gained widespread popularity and became widely employed all over the globe. This is the way modern the currency that we are familiar with became a reality.
Modern currency is comprised of paper currency, coins, credit cards and digital wallets such as, Apple Pay, Amazon Pay, Paytm, PayPal and many more. The entire system is governed by government agencies and banks which means that there's an uncentralized authority for regulation which controls how the paper currency and credit cards work.
Traditional Currencies vs. Cryptocurrencies
Imagine that you're trying to pay back the person who gave you lunch by sending cash online to their account. There are many ways which this could go wrong, such as:
- A financial institution might be experiencing a technical problem, such as its systems are malfunctioning or machines aren't running properly.
- Your or your friend's account could have been hacked--for instance, it could have been a denial-of-service attack or identity theft.
- The limit for transfers on your or your friend's account may have been exceeded.
There's a common point that can fail: the bank.
That's why the future of currency is with cryptocurrency. Think about a similar exchange with two users who are using bitcoin. It will ask if the person is sure he or she is ready to send bitcoins. If the answer is yes, then processing is carried out: the system authenticates the user's identity as well as checks to ensure that the user is in possession of the necessary balance necessary to complete the transaction and the list goes on. After that's done it's time to transfer the funds and the money lands in the receiver's account. This all happens in only a couple of minutes.
In turn, it eliminates all the problems of modern banking. There are no limitations on the amount of money it can be transferred, accounts cannot be hacked, as there's not a central fault. In the above paragraph that as of 2018, there are more than 1600 different cryptocurrencies in existence. The most well-known ones include Bitcoin, Litecoin, Ethereum, and Zcash. A new cryptocurrency is popping on a daily basis. With the amount of growth they're experiencing at the moment it's likely that there will be plenty to be added!
Let's continue to look at what cryptocurrency is.
What is Cryptocurrency?
A cryptocurrency is a kind of digital or virtual currency meant to be a medium for exchange. It's very similar to the real world currency, but it doesn't have a physical form, and uses cryptography to work.
Because cryptocurrencies operate independently and with no central authority which means that they do not have a bank, or central authority new units can be added only after certain conditions meet. For instance, with Bitcoin, only after a block has been added to the blockchain can the miners be awarded bitcoins. It is the only method by which new bitcoins can be produced. The bitcoin limit will be 21 million. Following that point, no bitcoins are produced.
Benefits of Cryptocurrency
When you use cryptocurrency, the transaction cost is low to almost nothing, unlike, for example, the cost of transferring funds through a wallet that is digital to the bank account. Transactions can be made anytime of the day or night, as there is no restriction on purchases and withdrawals. And anyone is free to utilize cryptocurrency, unlike opening a bank account, which requires documentation and additional paperwork.
The speed of international cryptocurrency transactions is faster than wire transfer transactions too. Wire transfers take about half a day for the funds to move between two locations. With cryptocurrencies, transactions take just a few minutes or maybe just a few seconds.
What is Cryptography?
The term "cryptography" refers to using encryption and decryption to protect communication presence of third party with bad intentions, which is to say, entities who would like to take your data or eavesdrop on your conversations. Cryptography makes use of computational algorithms such as SHA-256, which is the algorithm used for hashing which Bitcoin makes use of; a publicly accessible key, which is like an identity digitally created by users that are shared with others; and a private key and is the digital signature of the user which is hidden.
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Cryptography in Bitcoin Transactions
When you make a transaction with bitcoins, first, there are the details of the transaction: who you wish to transfer the bitcoins and how many bitcoins you want to send. Then the information is passed through an algorithm that hashs the information. Bitcoin, as mentioned utilizes it's SHA-256 algorithm. This output then goes through a signature algorithm with the private key of the user, used to uniquely identify the individual. The digitally signed output is sent out to the world for users to check. This is done by using the sender's private key.
The users who check the transaction to see whether it's valid or not are also known as miners. When this process is completed the transaction as well as others are added to a blockchain. There, the transaction's details are not able to be changed. The SHA-256 algorithm appears similar to on the photo below.
You can see how complicated the encryption is. It's safe to say that it is hard to break.
Bitcoin vs. Ethereum
We've all heard it's true that Bitcoin is a type of digital currency that is decentralized and works with blockchain technology. It also means it relies on a peer-to-peer network to perform transactions. Ether is a different popular digital currency, which is accepted by the Ethereum network. The Ethereum network uses blockchain technology to develop an open-source platform that allows for the creation and running decentralized applications.
Bitcoin and ether are the most popular and valuable cryptocurrencies of the moment. They both use the technology of blockchain, where transactions are joined to the block in which the chain of blocks is built in which the information cannot change. For both, the currency is mined using a method known as proof of Work, involving a mathematical puzzle that has to be solved prior to the block is placed on the blockchain. Furthermore, both bitcoin and Ether are popular around all over the world.
Bitcoin is used to send cash to an individual. The method used to do this closely resembles what happens in real-world currencies. Ether is used as money within the Ethereum network, but it is also used in transaction in real life too. Bitcoin transactions are done manually, which means you have take care to do these transactions as you would like them done. In the case of ether, you can have the option of performing transaction manually or automatized. The transactions are programmed. This means the transactions will take place only once certain conditions are completed. In terms of duration, it typically takes 10 minutes to perform a bitcoin transaction--this is the amount of time required for a block being added to the Blockchain. With ether, it takes around 20 seconds to complete an exchange.
There's a limit on the quantity of bitcoins you can have: 21 million. This number is supposed to get to 21 million by 2140. Ether is expected to be in circulation for some time and will not exceed the 100 million unit mark. Bitcoin can be used to make transactions involving products and services. Ethereum makes use of blockchain technology for creating a ledger in order to trigger a transaction when a specific condition is fulfilled. Finally, Bitcoin uses the SHA-256 algorithm. Ethereum uses the ethash algorithm.
In May 2020, 1 bitcoin equals $8741.81 dollars. One ether equals $190.00.
The Future of Cryptocurrency
There is a clear divide in the world regarding cryptocurrencies. On one hand are people like Bill Gates, Al Gore and Richard Branson, who say that cryptocurrency is superior to normal currencies. On On the other hand are those who are on the other side, such as Warren Buffet, Paul Krugman along with Robert Shiller, who are anti-ponzi schemes. Krugman as well as Shiller each Nobel Prize winners in the field of economics, call the scheme a Ponzi scheme, and one that is used to facilitate criminal activities.
There's the possibility of a battle between regulation and anonymity. Given that a variety of crypto currencies have been associated with terrorist attacks, governments would prefer to oversee how these currencies function. However, the main emphasis of cryptocurrencies is to ensure that users remain anonymous.
Many futurists think that by the 2030 year, cryptocurrency will occupy 25 percent of currencies used in national economies, which means a significant chunk of the world would start believing in cryptocurrency as an option for transactions. It's going to be increasingly appreciated by customers and retailers as well, and will continue to have a volatile nature so prices will continue to fluctuate, as it has been for many years.
This concludes our cryptocurrency course. If you'd like to learn the basics of blockchain (the basis of the technology that powers bitcoin and other cryptocurrencies) you should take a look at the Simplilearn Blockchain Basics Course. For further information on blockchain and receive a blockchain certificate to enhance your resume complete the Blockchain Certification Course.
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