The rise in the price of bitcoin and other similar cryptocurrencies has attracted investors, financial companies, regulators, and the media. A lot of people are now interested in using bitcoin to invest, but it can be challenging to grasp the basics.
There’s a lot of technical jargon involved before you can start choosing a crypto exchange. A lot of cryptocurrencies are experimental open-source projects, and there is disagreement among developers, miners, and investors on how they should evolve. Cryptocurrencies have been called everything from the future of currency to scams and Ponzi schemes.
Cryptocurrencies are digital currencies that are secured through cryptography, the enciphering, and deciphering of messages in secret code or cipher. A lot of them use blockchain technology, which is a distributed ledger of all transactions that are decentralized and cannot be changed under most circumstances as long as nobody controls more than half of the computing power on the network.
Unlike other currencies, they aren’t controlled by a central government or authority. The supply of new coins is controlled by mining, where computers compete against each other to secure the network by solving mathematical equations, collecting bitcoins as a reward if they are first to create a valid block.
Other coins are pre-mined, where the mining occurs before the launch of the coin. Pre-mined coins are sometimes seen negatively, as they are often promoted to drive up demand the price, allowing developers to cash out.
As many cryptocurrencies were created as open-source software, they continue to evolve as more developers implement solutions to address problems that come up. Some of the common issues are scalability and security.
Bitcoin is the best-known cryptocurrency. The original developer, Satoshi Nakamoto aimed to create a peer-to-peer electronic cash system. It’s though that he holds roughly 1 million bitcoin, worth around $18.6 billion based on recent prices. Strangely, it looks as though a minimal amount of his bitcoin has been moved or spent.
One of the big purposes of Bitcoin was making a system that didn’t rely on a third party to process electronic payments. Instead, it relies on the consensus of the nodes on the network. This makes a currency where the supply couldn’t be altered by a central bank or government. In countries like Zimbabwe or Venezuela that have been through hyper-inflation due to excessive money printing by corrupt governments, this is a real interest.
As well as bitcoin, there are 27 other coins that have a market cap of $1 billion or more. These examples include Ether, Ripple, Litecoin, Dash, Monero, Zcash, and IOTA.
Each type of coin has varied features and purposes. Several cryptocurrencies were created by developers who were aiming to solve the shortcomings of other coins or provide different features that aren’t present in existing coins. For example, Bitcoin is not completely anonymous. Anyone can look at the ledger, and the flow of funds can be traced to and from different Bitcoin addresses. Other coins have been developed in order to give full anonymity.