Cryptocurrency: A decentralized digital asset.
Blockchain, tokens, cryptocurrency, crypto exchange – sometimes the cryptosphere can feel a little saturated with all of the big buzz words being thrown around. If you’re new to cryptocurrency or are just looking to brush up a little on the history of decentralized assets, stick around as we explore exactly what a cryptocurrency is, the history of cryptocurrencies, how cryptocurrencies work, what caused the emergence of cryptocurrencies, and finally the future of cryptocurrencies.
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What is a cryptocurrency?
Cryptocurrency is a form of decentralized currency that allows for seamless monetary transactions. Cryptocurrencies, such as Bitcoin (BTC), utilize peer-to-peer (P2P) and blockchain technology to act as a medium of exchange.
Unlike fiat currency (Dollars, Pounds) cryptocurrencies are totally decentralized and function apart from a singular authority like a government or a bank. This means that cryptocurrencies are incredibly secure, have almost unlimited uses and can help to safeguard against fraud. So, what is cryptocurrency? In short, it’s a decentralized currency that works peer-to-peer (P2P) on a blockchain – if that’s all you remember, you’re good to go.
History of cryptocurrencies
The evolution of trading is one of the most crucial factors in the journey that we have taken as a society. As we’ve evolved through the millennia, so has the way that we exchange goods and services. From the very first long-distance trade route between Mesopotamia and the Indus Valley (around 3000 B.C.E), to where we are today, trade has been a driving force behind how we function as a species.
So, how did we get from trading salt and other spices to trading cryptocurrencies? We won’t bore you with an ancient history lesson, but let’s take a look at the emergence of cryptocurrency and how we got to where we are today.
Before Bitcoin and XRP, blockchain and even the internet as we know it today, there was Digicash, B-Money and even Bit Gold. These were all forms of digital money, invented in the late 1990s. While none of them was particularly successful (B-Money and Bit Gold were never even officially launched) they served as inspiration for the cryptocurrencies that we know and use today. The primary concern with all of them was that of the double-spending problem. These digital assets needed to be single-use to prevent them from being copied and, essentially, counterfeited. So, more than a decade before the invention of Bitcoin, the idea was already there – there was just no feasible way of executing it with the technology that we had at the time.
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How do cryptocurrencies work?
So, how do cryptocurrencies work? Cryptocurrencies have a ledger, where all transactions that take place with that cryptocurrency are recorded. This allows for total transparency and accountability, and protects against double-spending. The ledger is simply a list of entries into the database, that no single person or entity can make changes to. This is because nobody owns the ledger or the cryptocurrency’s blockchain. Rather, it is self-run and governed by those who own and use the cryptocurrency.
Maybe you’ve heard about cryptocurrency miners? They are in charge of verifying all transactions that go onto the ledger. Using incredibly powerful computers and software, miners crack difficult math problems that act as the key to the verification process. Mining is open-source, meaning that it is open to anyone, and the first person or entity to crack the key can add a block to their transaction ledger. They’ll then be rewarded for their efforts – for example, Bitcoin miners will be given 12.5 BTC at present.
What caused the emergence of cryptocurrencies?
On 31 October 2008, Satoshi Nakamoto published a white paper titled Bitcoin: A Peer to Peer Electronic Cash System. This white paper outlined the function of what would become the Bitcoin Blockchain network. Spurred on by inefficiencies within the global banking system, such as physical resources, fraud, and the involvement of a single authority (government), Nakamoto created the very first decentralized currency – revolutionizing the way we trade in the 21st century.
On 3 January 2009, Nakamoto mined the very first block on the Bitcoin Blockchain – now known as the Genesis block.
What followed was somewhat of a revolution within the digital currency sphere. By March 2010, the first real-life transaction had been made with Bitcoin (BTC) when Laszlo Hanyecz bought two pizzas for 10,000 BTC (I know, we almost fainted too), and the very first cryptocurrency exchange was started under the name of Bitcoinmarket.com.
In February 2011, BTC achieved the same price as the US dollar (USD), and it was during this same year that a number of other rival cryptocurrencies emerged onto the crypto market. By 2013, the crypto market had 10 cryptocurrencies, including Ripple (XRP) and Litecoin (LTC).
But it wasn’t until 2015 that crypto trade really exploded. The 30th of July 2015 marked the launch of the current second biggest cryptoasset, Ethereum (ETH), bringing smart contracts and ERC-20 tokens to the cryptocurrency world. Smart Contracts allow for transactions and contracts to be verified and enforced without the involvement of a third party – making them incredibly useful in cryptocurrency. In August 2015 the first Initial Coin Offering was launched – the Augur digital asset ICO utilized Ethereum’s smart contract network and offered an ERC-20 token.
Today, Bitcoin (BTC) remains the number one digital asset based on market capitalization with Ether (ETH) coming in second place. To date, there are over 2700 cryptoassets on the market, and that number is growing every single day. We’re also finding more and more real-world uses for cryptocurrency – from online shopping to fundraising, and even to getting your fried chicken fix at KFC, the uses for cryptocurrency knows no limits.
What about the future of cryptocurrency?
The desperate need for a secure, transparent decentralized form of digital asset really caused the emergence of cryptocurrency. While those core principles of decentralization and transparency haven’t changed, high crypto adoption rates have resulted in more and more cryptocurrencies being invented. So, what about the future of cryptocurrency? We can’t say for certain – but we’re fairly sure all signs point to a long and exciting road ahead. Why not join the exciting world of crypto trading with us here.
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Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework. Your capital is at risk.