Nowadays, the most notably virtual currency or cryptocurrency is Bitcoin. Cryptocurrencies have distracted many people, struck fear and confused both individuals and organizations, especially in the investment and trading sectors.
Over the last few years, cryptocurrency terms such as virtual currency and digital currency are increasingly being heard. Perhaps you more familiar with terms like Bitcoin and Ethereum. These cryptocurrencies use Blockchain technology to keep their currencies and technologies secure.
The public has also begun to wonder and find out to understand the value cryptocurrencies and how to use them. Certainly, this new trend seems odd and somewhat frightening for the people who only heard cryptocurrency. It was like when the first appearance of credit cards on the market.
Currently, there are many types of cryptocurrency. The popular trends Google search indicate the beginning of the growth and where it takes us. However, before we discuss cryptocurrency, we will first discuss what are the digital currency, virtual currency, and cryptocurrency. Here we are going to discover the differences among these three frequently used terms.
Although the digital currency term has been still in recent years become, some cryptocurrencies have existed for a long time. Digital Currency is a currency that is savable and transferable electronically. One of them is E-Gold, which is a digital currency that uses gold for transactions started from 1996. Besides, Liberty Reserve also started in 2006. This system allows users to exchange dollars or euros into Liberty Reserve Dollars or Liberty Reserve Euros at a cost of 1%. Unfortunately, they got a bad reputation as many people use both services for money laundering. Not only that, many people with great income use digital currency to manipulate taxes. Finally, both digital currencies were closed by the United States government.
Originally, Virtual Currency is a type of currency that was originally created for online entertainment. The thing that distinguishes between digital currency and virtual currency is the value of those two currencies. The virtual currency has no value as they are not created for real-life use. Examples of virtual currency are points or coins you get when you win a game. Then, you can swap those points or coins for certain features in the game. Those are of the earliest forms of virtual currency.
The meaning of Cryptocurrency is a form of a digital money designed to be a safe and mostly anonymous currency. It’s also an internet-related currency that uses cryptography. The process of the information changes in cryptocurrency is almost unbreakable for tech-savvy people to track purchases and transfers.
Initially, Cryptography was first made during World War II. However, with the development of the digital technology year after year, cryptography has become increasingly sophisticated with its mathematical theory and computer science elements to create a secure system for online information and money exchange activities.
How Does a Cryptocurrency Works
Cryptocurrency uses decentralized technology so that users can make payments safely and save money without having to use their name or through a bank. You can distribute a cryptocurrency through a public ledger.
Public ledgers are the storages for all confirmed transactions since the onset of cryptocurrency creation. The identity of the owner of the coin will be encrypted and the system will use other cryptocurrency techniques to ensure the legitimacy of the records. Then, the ledger ensures that an appropriate digital wallet can calculate the balance to be used accurately. In addition, new transactions can be checked to ensure that each transaction only uses coins which are currently owned by its users. Bitcoin is one of the cryptocurrencies which calls such booklet as blockchain.
The unit of a cryptocurrency is made through a mining process. Simply put, mining in cryptocurrency scope is a transaction confirmation process and adds an additional balance to the ledger (public ledger). To add a transaction to the ledger, a miner must solve a computational problem (like a math puzzle).
Mining is open source, which means anyone can confirm the transaction. The first miner that can solve the puzzle adds a “block” transaction to the ledger. This helps ensure that transactions, blocks, and blockchains work together to ensure there’s no single individual can easily add or change blocks at will. Once a block is added to the ledger, all correlated transactions are permanent and a small transaction fee is accumulated to the miner’s wallet (along with the newly created coin).
Such mining process that gives value to coins and is known as a proof-of-work system. Users can also buy currency from the broker, then save and spend it using a cryptography wallet. That scheme makes it possible for people trade cryptocurrencies on the market.
Advantages of Using Cryptocurrency
You may be wondering how cryptocurrency can help you. The following are some advantages of using cryptocurrency:
Digital currency can help you to avoid online fraud. Individual cryptocurrencies are digital items and people can fake or steal them like credit card bills.
Buying real property usually involves delay, payment fee, and several third parties such as a lawyer, notary public, etc. In many ways, blockchain cryptocurrency is similar to a “large property database”. Bitcoin contracts can be designed and enforced to eliminate or add third party approval, refer to external facts, or be resolved in the future at a lower cost and a shorter time to complete traditional asset transfers.
For now, there is no transaction fee for cryptocurrency exchange because the miners are compensated by the network. Although there is no transaction fee for the cryptocurrency, many expect the users would like to engage third-party services, like Coinbase, to create and maintain their bitcoin wallet. This service acts like Paypal for credit and debit card users, which provides an online exchange system for Bitcoin. Therefore, it tends to charge a fee. Keep in mind that Paypal doesn’t accept or transfer Bitcoin.
With so many of digital threats, security is becoming one of the most important things in online activities. When you do an online transaction using a credit card, you give to the seller a full access to your credit card. Even a small transaction as well. A credit card works on a “pull” basis, where the store begins the payment process and pull the specified amount from your account. Meanwhile, a cryptocurrency uses a “push” mechanism that allows the cryptocurrency holder to send exactly what he wants to the merchant or recipient without further information.
Access to All
There are about 2.2 billion individuals who have access to the Internet or mobile phones that currently don’t have access to traditional exchanges, These people are “set up” for the cryptocurrency market. With the help of Kenya’s M-PESA system, a mobile money-based transfer system, and microfinancing service are recently announcing a special device for Bitcoin. As a result, one of three Kenyans now owning bitcoin wallet.
The global computer network uses blockchain technology to manage a shared database that record Bitcoin transactions. It means that Bitcoin is managed by its network, and there is no central authority. Decentralization means that the network operates on a peer-to-peer basis (or) user-to-user.
Cryptocurrency is not bound by exchange rates, interest rates, transaction fees or other fees from any country. It means that you can use cryptocurrency internationally without any issues. This saves a lot of time and cost of any type of business that sometimes spends fee charge to transfer money from one country to another. Cryptocurrency operates at a universal level and therefore makes transactions becomes very easy.
7 Types of Cryptocurrencies
You may also familiar with BitCoin. It’s one of the most popular cryptocurrencies. But currently, BitCoin isn’t the only available cryptocurrency. Here are 7 types of cryptocurrencies that are often used on the market.
Bitcoin is the first and is the most commonly traded cryptocurrency to date. Bitcoin is not only a trendsetter that delivers cryptocurrency wave built on a decentralized peer-to-peer network, but also a de facto standard for the cryptocurrency.
Bitcoin-inspired currencies are collectively called as Altcoins and have tried to present themselves as the modified or improved versions of Bitcoin. While some of them are easier to be diminished than Bitcoin.
Bitcoin was developed by Satoshi Nakamoto in 2009, a mysterious figure who developed his blockchain. Bitcoin has $ 45 billion of market capitalization in July 2017.
The first launch of Ethereum was in 2015. Ethereum is a currency token that allows Smart Contracts and Distributed Applications (Dapps) to be created and executed without downtime, fraud, control, and interference from third parties.
In 2014, Ethereum launched a pre-sale that is reputable. The Ethereum app runs with a cryptographic token that is created specifically for a specific platform which is called as the Ether name. Ether moves like a vehicle to move around the Ethereal platform, and most developers are looking to develop and run an application inside Ethereal.
The Ethereum, it can be used to secure, decentralize, codify, and trade anything.” After the attack on DAO in 2016, this cryptocurrency was split into Ethereum Classic (ETC) and Ethereum (ET). The market capitalization of Ethereum (ET) reached of minimizes network latency and computing power. This currency assures that distributing value is an effective way to incentivize certain $ 18 billion in July 2017.
XRP or Ripple is a real-time global settlement network that offers instant, definite, and inexpensive international payment. Ripple allows banks to complete cross-border payments in real time with transparency from end-to-end and at a lower cost. Ripple was released in 2012 and this currency has a market capitalization of $ 6.3 billion.
Ripple’s consensus book and its conformation method don’t require mining. This is one of the features that deviate from bitcoin and altcoins. Because the Ripple structure does not require mining, there is a reduction in the use of computing power and minimizes network latency. Ripple believes that distributing value is a powerful way to incentivize certain behaviors and therefore currently plans to distribute XRP primarily through business development agreements, incentives to liquidity providers that offer tighter payment spreads and sell XRP to interested institutional buyers to invest in XRP. This type of cryptocurrency has been used by many banks including Santander and UBS.
The first launch of Litecoin was in 2011. Litecoin is one of the cryptocurrencies that follows how Bitcoin works. Cryptocurrency was created by Charlie Lee, an MIT graduate and a former of Google engineer. Litecoin is based on a global open source payment network that is not controlled by any central authority and uses “script” as the proof of work, which can be translated with the help of consumer-grade CPUs. Although Litecoin is like Bitcoin in many ways, it has a faster block generation rate and therefore offers faster transaction confirmation. In addition to the developers, there are a number of merchants who accept Litecoin. The total value of Litecoin is currently about $ 2.1 billion.
Another cryptocurrency, Zcash is a decentralized open-source cryptocurrency which launched at the end of 2016. Zcash offers transparency of personal and selective transactions. Thus, Zcash claims to provide extra security or privacy where all transactions are recorded and published in a blockchain.
Zcash offers users a ‘protected’ transaction option, which allows content to be encrypted using an advanced cryptographic technique or the construction of zero-knowledge evidence called zk-SNARK which developed by the team.
Monero is a safe, personal, and non-trackable currency. This open-source cryptocurrency was launched in April 2014 and immediately gained great interest from among the cryptographic community.
This cryptocurrency development is truly community-based and donated. It has been launched with a concentration on scalability and decentralization and allows complete privacy by using a specific technique named ring signature. Due to this kind of technique, a cryptographic signature group emerged including at least one real participant. However, as everything looks valid, it can not actually be isolated.
A cryptocurrency, Dash is originally known as Darkcoin, which is a more secretive cryptocurrency. Dash offers more anonymity because it works on a decentralized master code network that makes transactions virtually untraceable.
Dash launched in January 2014 and has an increasing number of followers in a short span of time. This cryptocurrency was created and developed by Evan Duffield and people can mine Dash using a CPU or GPU. In March 2015 Darkcoin was renamed become Dash, which stands for Digital Cash and operates under the name DASH. Rebranding does not change its technological features like Darksend and InstantX.
The Final Thought
There is no other electronic cash system where your account does not belong to any company or another individual. To illustrate, we take an example of electronic cash system, Paypal. If Paypal decides for some reason that your account has been abused, they have the power to freeze all existing assets in the account, without consulting you. To get your account back, you need to clear your name first.
With cryptocurrency, you have a private key and a corresponding public key that forms your cryptocurrency address. No one can take it from you. Unless you lose it yourself, forget, or go through it with a web-based purse service that eliminates it.
Overall, cryptocurrency still has a long way to go before they can replace credit cards and traditional currencies as a tool for global trade.
In fact, many people still do not know cryptocurrency. People still need to learn about cryptocurrency that can make them interested in applying it in their daily transaction activities. Businesses also need to start receiving it. They need to make the registration process easier to start using cryptocurrency.
The future attractiveness of cryptocurrency lies in its excess in freeing you into a full control of your money, fast and secure global transactions, and lower transaction costs when compared to all different currencies.
When many people use it correctly and fully understood, cryptocurrency could change our global economic system.