- What is a CryptoCurrency?
- How do CryptoAssets and Virtual Currencies Work? [2019 Overview]
- What is Cryptocurrency? [Everything You Need To Know!]
- Top Ten Coins To Watch In 2020
- Best Cryptocurrencies to Invest in 2020 – Overview
- List of cryptocurrencies
- Like what you’re reading?
- Which cryptocurrencies are in use
- The Cryptocurrency Basics
What is a CryptoCurrency?
How do CryptoAssets and Virtual Currencies Work?
The idea of cryptocurrencies has been around for a long time.
Developers and coders have been seeking the perfect way to implement cryptography into a digital asset since the birth of the internet. The idea is to use cryptography to secure all transactions of the specific digital asset, as well as control the creation of that same asset through the same means.
First descriptions of a functional Cryptocurrency appeared around 1998, and were written by a person named Wei Dai.
They described an anonymous digital currency titled “b-money.” Not long after, another developer by the name of Nick Szabo created what they call “Bit Gold,” the first cryptocurrency that used a proof of work function to validate and authenticate each transaction. All following currencies would use this proof of work concept in their code.
It wasn’t until 2009 that the first, decentralized cryptocurrency was launched and developed by none other than the famously reclusive Satoshi Nakamoto.
Simply put, his digital form of currency was a work of art. It used cryptography and proof of work functions just as described by Nick Szabo.
What is Cryptocurrency? [Everything You Need To Know!]
The whole code was released as open source for anyone to see and work on in 2009.
Bitcoin was the first currency of its kind. Each transaction between Bitcoin users was designed in a peer-to-peer method, meaning that all transactions were direct and without an intermediary.
Each transaction is then authenticated and verified multiple times by other computers on the network. The more time passes since the occurrence of the transaction, the more validated it becomes. It is estimated that once a transaction has been verified 6 times, its validity is equivalent to a 6 month old credit card transaction.
Because Bitcoin has no repository or single administrator, and since all of the code used for its own functionally is open source, it is considered to be a truly decentralized system.
The Bitcoin community itself makes decisions on what needs to be implemented in the code and what needs to be rectified. In order for Bitcoin to work correctly, each version of the Bitcoin Core software has to be compatible with each other, so everyone has to make the decision regarding all updates to the software, otherwise those who do not agree with the update will not be able to be a part of the Bitcoin network.
Since the computing power of the users on the network is needed to keep Bitcoin alive, it is in the developers’ interest to keep everyone happy with the decision that they make.
Top Ten Coins To Watch In 2020
Furthermore, since all of the code is open source, it is practically impossible to shift any power over Bitcoin to a single user or a group of users because this part of the code would be identified quickly and brought to light, making most of the users very unhappy with an attempt to centralize the currency.
Satoshi Nakamoto has claimed to be a man living in Japan who was born on the 5th April, 1975. However, Nakamoto has always been somewhat secretive about his identity. In fact, it is unclear to this day whether they are a real person or a pseudonym.
Best Cryptocurrencies to Invest in 2020 – Overview
Many people speculate that Nakamoto is actually a group of developers who worked together to jump start the Bitcoin project and then disbanded when it took off. Nakamoto worked on the Bitcoin system up until December of 2010, at which point he handed over the network alert key and the source code repository to Gavin Andresen while distributing some of the key domains linked to Bitcoin amongst notable members of the Bitcoin community.
Afterwards, his involvement with the project ceased.
The father of Bitcoin was able to not only code an exceptionally well built system, but also found clever ways to ensure his work was validated and not misunderstood for some sort of a scheme by others.
For example, Nakamoto left a message inside this first manually altered code. When the first block of Bitcoin was mined, it read ‘The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.’ This quote is the headline for The Times newspaper which was published on January 3rd, 2009.
The clever use of this simple message is overlooked by many, and it dictates that the first block was mined no earlier than January 3rd, 2009. This is extremely important because the whole Bitcoin system is designed to run and validate itself from the previously mined blocks, so giving a valid timestamp which can be authenticated by a simple headline title to the first block was genius.
List of cryptocurrencies
Afterwards, all blocks used the previous block for reference.
It should also be noted that the timestamps on the subsequent blocks indicate that Nakamoto did not mine the first blocks in an attempt to keep them for himself and make profit this way. Yes, Nakamoto was awarded Bitcoins as he was the first and a sole miner for some time, but this continued only for about 10 days after the launch of the Bitcoin network.
The only thing that Nakamoto used his Bitcoins for was a few test transactions. Starting from around mid-January of 2009, those Bitcoins were left unspent. Anyone can check the public log of Nakamoto’s Bitcoin address, which shows roughly 1 million Bitcoins. This amount of Bitcoins is roughly equal to about $2.8 billion USD. Needless to say, Nakamoto’s invention was a success.
This is all fun and peachy, but how exactly are all the transactions made by Bitcoin users kept in check?
Well, luckily Satoshi Nakamoto thought of a rather ingenious way to handle transactions and making them all transparent at the same time.
Simply put, whenever a user sends a certain amount of Bitcoins to another user, a third user verifies this transaction and publicly notates it in a ledger which is accessible by anyone.
This ledger is called the “blockchain.” As time goes on, more and more users see the transaction in the blockchain and are able to verify it again. The more times each transaction is verified, the more secured it becomes.
The idea behind the blockchain comes with two main principals. The first is easy to understand, make all the transactions public thus allowing complete transparency over all transactions and the ability to cross reference or double check each transaction if necessary.
The second principal is somewhat more unique and isn’t realized by others. Recording each transaction in a public ledger also prevents this information from being duplicated. This way every transaction is unique in its own way, which successfully eliminates transaction fraud and other financial crimes. Oh, did we mention that verification of each transaction are done by other users on the Bitcoin network, and this can’t be compromised or corrupted by anything or anyone?
Yep, it truly is that secure.
The beautiful part of a blockchain is that you aren’t limited to just using it with Bitcoin. In fact, many other online currencies and representations of digital value have started using blockchain as a method to prevent unfair transactions.
The best part is that you don’t need to know anything about the way it works, simply plug it in and watch it do its magic. However, having a general understanding of the blockchain gives you the ability to fully comprehend the security and stability that blockchains bring to the table.
So how exactly does the blockchain function? It’s actually a lot simpler than you think.
Whenever a transaction is authorized and added to the ledger, it is replicated amongst all the nodes on the network. This means that every computer that is connected to a network which is using a blockchain has a copy of this ledger stored on their machine.
Every time another transaction occurs, it is updated. Because these ledgers are simultaneously being kept on multiple machines, messing with or editing them is pretty much impossible. Furthermore, because it is being replicated and updated on all machines, there is no single point of failure, meaning if something happens to one ledger, there are thousands of others that can verify the data and omit the faulty one.
This idea of all nodes controlling the blockchain is why it is truly decentralized.
Effectively, every user connected to the network who is acting as a node through the software is an administrator of the blockchain. What does this mean in plain English? There is no single entity or group that controls the blockchain, and everyone is an equal admin of the public ledger.
Why is using blockchain and decentralizing a currency so important to its success?
The answer to this question boils down to the ability to cut out the proverbial middle man responsible for verifying all transaction who in the real world charge the users for this action. What does this mean for the user? The transaction fees are set by the users.
In theory, there doesn’t have to be a transaction fee at all to complete each transaction, but there is the matter of speed and how quickly you want your transaction to be added to the blockchain. If you need everything done now and want your transaction to be accelerated to the top of the list, then expect to pay a small amount for your transaction. The thing is, it doesn’t matter how much money you are sending in your transaction, low or high it is all equal to the roughly the same amount of data.
Because of this, the fee will entirely be reflected only by how fast you want the transaction to be complete.
Each blockchain transaction can be coded with more conditions and information put into the transaction. Essentially, this gives the users an opportunity to generate what many call a Smart Contract. For example, let’s say you are starting a new business and are looking for a certain amount of investors with a promise of making money back within a period of time.
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With the help of a Smart Contract, you can code these conditions into the transaction and ensure that it will only proceed if you have enough investors. The beautiful part about these Smart Contracts is that they are transparent on the blockchain, meaning you can’t simply modify the transaction once the investors have paid their share and end up scheming them over. Once the transaction has been made, all of its conditions are set in stone.
Another thing that the blockchain can be used for is truly decentralized market systems which can use peer-to-peer payments without a middleman.
One of the early examples of such a market is OpenBazaar.
It is a completely free marketplace where you can Buy or Sell items without any fees or restrictions. The payment system is peer-to-peer and a blockchain is in use to verify all transactions. Simply download the software and look for items you wish to buy or post items you wish to sell; the rest is history as they say.
There is truly no limit to the blockchain. For instance, imagine using the blockchain to host every website on the internet.
Instead of connecting to one specific host which has all the files stored on their computer, the blockchain can have the website stored on all computers at the same time. Doing this would greatly increase the speed of accessing the information or files stored on such a decentralized website.
Imagine streaming videos or music through such a network. It could truly be an amazing sight.
While Bitcoin was one of the first currencies to hit the global network, it certainly isn’t the only one.
Most of the digital currencies out there use some of the code found in Bitcoin, and nearly all of them use the blockchain. It’s simply too good of an invention not to take advantage of. But each currency has something unique to offer to its users.
Some try to focus on even greater security, while others prioritize transfer speeds.
Which cryptocurrencies are in use
No matter what your priorities are, we are certain there is a cryptocurrency out there for you. Let’s take a look at some of the major cryptocurrencies out there and see what they have to offer.
This cryptocurrency is one of the first ones to hit the market after the launch of Bitcoin.
Technically, it is nearly identical to Bitcoin, but with one major difference. Instead of using SHA-256d as its hash algorithm, Litecoin uses Scrypt, created by Colin Percival and designed to make it extremely expensive to initiate large scale hardware attacks because of the amount of memory that is needed to decrypt a single key.
The Cryptocurrency Basics
Litecoin was released in 2011 and was founded by Charles Lee.
Also released in 2011 and very similar to Bitcoin, this cryptocurrency uses SHA-256d for its hash algorithm.
The main difference between Bitcoin and Namecoin is the ability to store date within its own blockchain transaction database. This does propose a challenge when all the transactions are scaled; to solve this issue Namecoin uses a shared proof-of-work system. Namecoin can also act as a decentralized DNS. It was created by Vincent Durham.
Peercoin is another cryptocurrency which uses SHA-256d as its hash algorithm.
Created around 2012, this cryptocurrency is one of the first to use both proof-of-work and proof-of-stake systems. The inventor of Peercoin, known as Sunny King, saw a flaw in the proof-of-work system because the rewards for mining are designed to decline over time.
This reduction in rewards increases the risk of creating a monopoly when fewer miners are incentivized to continue mining or start mining, thus making the network vulnerable to a 51% share attack. The proof-of-stake system generates new coin depending on the existing wealth of each user, so if you control 1% of the Peercoin currency, each proof-of-stake block will generate an additional 1% of all proof-of-stake blocks.
Incorporating a POS system makes it significantly more expensive to try and attain a monopoly over the currency.
This cryptocurrency was initially created as a joke on December 8th, 2013.
However, the meme based currency quickly generated a community and reached a value of $60 million USD by January 2014. Today, this currency is worth nearly $440 million USD. Although there aren’t many mainstream applications designed to use Dogecoin as a method of payment, many online users have been using this form of digital currency as a way to tip others for their creative content or services.
Dogecoin is very popular amongst the social media networks. With the help of crowdfunding, the community managed to schedule a delivery of a gold coin which represents the official currency to reach the Moon’s surface by 2019. Created by Jackson Palmer and Billy Markus, Dogecoin uses Scrypt as a hash algorithm alongside a POW system to solidify all transactions.
This form was an attempt at creating a decentralized digital currency system to replace the heavily restricted Icelandic currency known as krona.
The use of Bitcoin in Iceland is also very restricted.
This is part of the reason why Baldur Odinsson, a pseudonym of an unknown entity, created Auroracoin. This coin was launched in 2014 and uses Scrypt as a hash algorithm and POW for transaction authentication.
The creator of Auroracoin attempted to boost the knowledge of Auroracoin amongst the general public and increase its network effect by distributing 50% of all generated Auroracoins to the population of Iceland. This action was dubbed the “airdrop.” The airdrop was delivered in three phases, after each phase the value of Auroracoin was drastically decreased and after the final stage all remaining Aurora coins were burned by sending them to a non-existing address labeled “AURburnAURburnAURburnAURburn7eS4Rf.” Since April of 2015 and the previous destruction of pre-mined Auroracoin, the value of each coin has stabilized and has been on the rise.