What is Cryptocurrency ~ Everything You Ever Wanted to Know
Been more than a month, I did not post something insightful on Hackers Den, but today let’s discuss more in-depth what is Cryptocurrency is in simple terms!
Cryptocurrency, one small word with a significant meaning behind it! Cryptocurrency leads to the new technology terms known as Blockchain which will be discussed in this post later on.
Short Answer – A Cryptocurrency is a form of digital currency which allows you to transact money virtually without any physical cash being involved.
Got the idea? Yes? Shall I stop writing? No 😛 I highly doubt if people read a 2000 word guide on any topic, because in this fast world everyone needs a shorter,quicker explanation, thanks to Inshorts which keeps up updated with all news like that! No am not being paid by inshorts to endorse, they already are a big company, why they will pay me to endorse them on my platform! Anyway, though people may like short answers, we have some excellent readers at Hackers Den who read the whole guide and provide insightful comments, so this one is for them!
Coming to a long answer, as usual, we will divide this answer into various side headings, so you could jump to whatever you want to read directly!
What is Cryptocurrency?
As stated earlier in the short answer, it is a virtual currency which is being used as a medium of exchange in return for any goods, very similar to our day to day life rituals, like buying groceries, paying them in cash, Cryptocurrency is same like that, but in a virtual way and it leaves no traces behind as who bought it and to whom is the money transacted, everything is done in a simple, secure and anonymous way! Many people already started claiming Cryptocurrency as future of money transactions, and some think it is not good enough to be used in the alternative to hard cash and it is anonymous, so a bit risky, so this is what a Cryptocurrency is! Let’s move on to next.
History of Cryptocurrency!
Well, many people have heard the name Cryptocurrency just because of the bitcoin being boomed and people got to know about Cryptocurrency only in 2017, but it was introduced a long time ago, but it failed miserably, in the early 90s lot of tech companies like DigiCash, Beenz tried its hand on digital currency which we know now as Cryptocurrency, but they failed miserably, as tech was not fully developed in the 90s compared to 2018 which lead to frauds, financial problems and lots of stuff.
Due to a massive failure in the 90s digital currency was considered a huge loss and no one tried its hand until in early 2009, where a group of anonymous programmers or an individual anonymous programmer bought Bitcoin in the market and Bitcoin became the first Cryptocurrency and followed by that lot of other Cryptocurrencies were born like Ethereum, Ripple and lot others, so let’s learn more in detail about Bitcoin
Bitcoin- Birth, Its Rise, and Downfall!
Bitcoin got very popular in 2017 when it reached to $19,505 on 16 December 2017, and the market has gone crazy, the Winklevoss brothers (who sued Facebook) became first bitcoin billionaires. So we will discuss what exactly is a bitcoin, why was it created and what is its future?
Well, in 2008, bitcoin.org was registered, and in 2009, a group of programmers or an individual programmer under the name Satoshi Nakamoto launched the first decentralized cryptocurrency popularly known as the BITCOIN
The founder who is to be assumed as Satoshi Nakamoto wrote a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System. We have an excerpt of what he wrote in his paper “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” This was the core idea behind the creation of bitcoin.
It is to be believed that the founder who is still anonymous holds 1 million bitcoins which accounts for $10033995000 (as of the BTC price on 1st February 2018 which is $10,034) which is ten billion thirty-three million nine hundred ninety-five thousand dollars, that’s huge, and if he cashed out all his bitcoins on 16 December 2017 where the price of one bitcoin was $19,505, then I could not calculate. Cmon Satoshi reveal your identity or are you afraid that all your money is going to be stashed :p
Bitcoin in its first year of existence was never traded and remained 0$ in 2009 and did not come up more than 1$ in the whole of 2010. You can never really predict the future, can you?
Bitcoin saw its rise since 2011 when Wikileaks (from deep web) started accepting donations on their websites in the form of bitcoins, seeing WikiLeaks doing it, many other sites in deep web began providing services and used transactions of bitcoins as a medium which made it widely famous in deep web and was coined as “illegal” is surface web.
Slowly from serving in the deep web, bitcoins made its way to the surface web when websites like OkCupid started using bitcoins to accept payments, later in 2014 Zynga told in a report that they were testing bitcoin transactions in their in-app purchases. In December 2014, Microsoft started accepting bitcoins for its Windows software and Xbox games. This made it widely popular, which helped bitcoin raise funding of 116 million in venture funding from 21 INC in March 2015, highest funding for any digital currency-related company.
Bitcoin from the deep web to surface web to retail stores, everyone started accepting payments in the form of bitcoins which made its market price go at its peak, it was estimated that nearly 160,000 merchants were accepting bitcoins as of August 2015.
Bitcoins was on the peak, and it became more legitimate as so many people were using it because it was way too safe, secure, and anonymous and it was going well until a popular bitcoin exchange known as BitFinex was hacked and nearly 120,000 BTC (around $60m) was stolen.
There are bitcoin ATMs too where you can cash out BTC; there are nearly 771 BTC ATMs worldwide!
Bitcoin, as many think it is a bubble and it will burst soon, did burst and many people incurred massive losses due to investing large amounts of money in BTC. Right now the market cap of BTC is $146.3 Billion with $208.8 Thousand Daily Transactions staggering with $8573 per bitcoin; we don’t know what 2018 awaits for Bitcoin.
How CryptoCurrency Works?
To know how Cryptocurrency works, you need to know about digital currency, blockchain as well as concepts of cryptography, because in simple terms Cryptocurrency is a Digital Currency whose every transaction is recorded in a public digital ledger called Blockchain and the idea of Cryptography secures all the process. So let us learn about all those concepts in detail.
Let us again clear the concept of Cryptocurrency; it is a digital currency which is stored electronically and can only be accessed from a working internet connection. Let me give an example which will help you to understand how cryptocurrency works!
Let us take Bitcoin as our Cryptocurrency and also use an online money transfer example and will make you understand the difference.
Well, you visit a site where both bitcoins and online money transfer is available. You like a product, and you are about to make a purchase.
The Scenario for purchasing your product via bitcoin would be something like this
- You go to a website to convert your currency into bitcoins and store them in BTC Wallet online if you have not already
- Then a request to Bitcoin Network is made, you are provided with 34 Digit of Alpha Numeric String which is known as Public Key, to whom you have to transact the money. To prevent any fraud, they give you a private key or a seed which is used to sign a transaction that the money has come from its owner and it cannot be altered
- It takes ten minutes to verify the transaction you made, and the waiting process is known as mining
- After being confirmed, the transaction is updated in the public master ledger known as blockchain along with all the other transactions made, the reason it being called as blockchain is due to each block contains a data, a hash from the previous block which forms a chain eventually known as Blockchain
- All the transactions made is held up in a public ledger which is being updated after every new transaction made, but BTC is a decentralized currency, right? Who updates it? It is updated by people voluntarily, just like in a game of poker when you don’t have chips or money, how you going to play, you simply take up a paper and write every transaction made, it works similarly and you cannot cheat the system as it holds all the record in public ledger and you will get caught. This is why Blockchain is considered as the most secure technology and the reason why bitcoin is enjoying its lavishness :p
Now, let’s take the bank scenario.
- You make a payment either via card or net banking or mobile wallet
- The amount of money to be transacted is written and to whom it has to be transferred is mentioned
- You reach the payment gateway page, and you receive an email or an SMS to confirm that you make the transaction.
- The information remains only with the banks
- Banks are centrally controlled whereas BTC is decentralized
Well, where is cryptography used in BTC transaction, remember the private key I mentioned, this is where it works. You can share the public key with the world but not the private key; if someone else gets your private key, then they can sign transactions too. Well, the private key is an encrypted key which uses the concept of cryptography. The concept of cryptography is something like this
- You want to send someone a message say, like “My password is hackersdenabi” (Don’t try anywhere, this is not our password :p)
- You encrypt the message with a key and get some other hash characters; then you send that ciphertext to your friend
- He receives your cipher text which he decrypts to obtain your original text by using the encrypted key you used. It is a bit tedious process, but if you want to learn more about cryptography in detail, I will link you a page which explains more about cryptography in detail Cryptography in Cryptocurrency
So, public keys can be generated by private key, thus the reason behind asking for private key while transacting, is to add an extra layer of security to verify that it is you and then when you send the bitcoin to someone, the private key is decrypted and is shown as signed off with your public key and then the transaction is complete. Well, if you still unclear on how the transactions work, then below is an infographic created by BlockGeeks, which explain more effectively.
So understood the concept? Well, you don’t need to remember this while transacting in bitcoins, all you have to do is just setup a coinbase account and start to accept or to send payments, as simple as that and the rest work mentioned here will be taken care by coinbase!
Why are CryptoCurrency popular these days?
People didn’t even hear the terms bitcoin, or ripple two years back, because no one was using it, because no significant personality or public figure commented on it, in May 2010, a guy mined 10,000 BTC for two pizzas, because he did not know that seven years down the lane, he could open his own pizza company if he had those 10,000 BTC.
The main reason why it is in trend is because it got a lot of worldwide coverage, and people actually started using cryptocurrencies as a medium to buy commodities, and as a lot of people started using it as well as many prominent brands also started accepting payments in the form of digital currency, it became bigger and had no stopping. I personally felt it as a bubble because people who had no clue about cryptocurrencies started investing because it had crazy return and they had a belief that they could be filthy rich if they invested on cryptocurrencies. In 2017, the prices of BTC went higher and higher people could not be happier if they invested in it. A lot of people invested, the market of BTC grew exponentially and people being crazy about it.
What happened to Cryptocurrencies?
Thank God! I had not invested in BTC, just because a lot of people were investing and thanks to my inner gut feeling which made me stop when I was tempted to buy BTC when it was around 3 Lakh INR. Right now, the condition of BTC and other cryptocurrencies is so very unstable, that you can not even predict what is going to happen the next moment. A lot of my friends lost lakhs of rupees just like that and had no clue what just happened. I may not be correct in assuming BTC as a bubble, but hey, I am just a human and that’s my personal view, so let’s break in points that What exactly made cryptocurrencies fall?
- The world is not ready yet to use digital currency as a medium to buy/sell services/commodities. (My personal view)
- RBI opposing it which caused a lot of distortion in India. Officials released a statement that cryptocurrencies are used by frauds, criminals, and money launderers. Finance minister Arun Jaitley told parliament last week the Indian government does not consider cryptocurrencies as a legal tender and aims to eliminate the use of cryptocurrencies in financing illegal activity or as part of a payment system. So cryptocurrencies are soon going to be illegal in India. Those who are caught trading in it will face some consequences, but BTC being too secure, it will be tough to crack who transacted to whom
- China has been in the news for a lot of big announcements lately. It has proposed a universal ban on all ICOs as well as all exchanges to be termed as illegal except for one coin which is OKCoin. Due to this BTC and other cryptocurrencies are seeing a significant drop
- More Sellers than Buyers
- Mobile Payment system Stripe said in January 2018; it will no longer accept BTC as an exchange. Top companies like Microsoft also stopped accepting BTC
- Jordan Belfort, (the wolf of the wall street) said in an interview with Fox on December 18, 2017, that Bitcoin is a bubble which is soon going to burst and that eventually became true when we saw the downfall of BTC in 2018. Bitcoin is creating a massive bubble: ‘Wolf of Wall Street’ Jordan Belfort
- Facebook banned the ads for Cryptocurrency and ICOs.
- Bank of America, Citigroup, Capital One, JP Morgan, and Discover have also banned their customers from purchasing cryptocurrencies on the exchanges.
- South Korea made to news regarding banning cryptocurrencies
A lot of this news and announcements undoubtedly created a negative impact on cryptocurrencies, and that might be the reason for the downfall of it. Still, many experts believe that it will be stable in future and is not a bubble, well let’s leave that to the experts.
Pros and Cons of using Cryptocurrency!
Every coin has two sides, so does every product. Even cryptocurrencies have two sides, so let me list out the pros and cons, and then you decide whether or not to invest or trade in it!
Let us start with pros.
Pros of using cryptocurrency
- It is TRANSPARENT
With an open ledger, known as Blockchain, it monitors all the transaction and can be accessed by anyone, and once the ledger is updated, no one can change it. Transactions can be verified by anyone which reduces online fraud and theft
It is actually for people who are involved in money laundering as they can transfer a large number of cryptocurrencies without being detected. It is possible to carry billions of dollar worth bitcoin in drives and can be transferred to person easily without being detected, unlike physical money. That is the main reason why cryptocurrencies are used in illegal activities.
- Protection from Identity Theft
Unlike bank transactions which can reveal a lot about you including your name, age, address, phone numbers and what not? As far as Bitcoins are concerned, you can transact independently without revealing your names, just your public key and you are good to go.
It can be both pro and con as no one could trace who transacted money to whom and you can just view the memory block in the blockchain. Pretty scary and fun at the same time.
- No Third Party Interference
Unlike credit card transactions, in which bank act as the third party, bitcoin being a decentralized currency, you will be directly dealing with the seller and will be directly sending the money to the seller, and no third party would interfere between your transaction
I don’t think to highlight this point. Way too secure!
Cons of Using Cryptocurrency
- Non-reversible transactions
Once transferred is transferred, you cannot get it back as you don’t know to whom you have transacted which might be risky sometimes. So if you send to some wrong person, all you can do is sit tight and pray. You can’t even file a complaint; even if you file a complaint, you won’t be able to recover your money back as the hacker needs to hack the core of blockchain which is nearly impossible.
- Limited Supply
It is estimated that only 21 million bitcoins will be made, and the mining will be stopped after the 21 million mark, but then there are other currencies which can be used
- Losing your wallet
If you have stored your Cryptocurrency on your device, then make sure you don’t forget your password, as you don’t have an option of “Forgot Password” and can use the new password. If you can’t remember your password, you have to forget the amount of BTC you had. Biggest Flaw.
- Not accepted everywhere
Cryptocurrencies are not accepted everywhere nor are legal everywhere. So before buying or investing in it, check whether it is legal in your country.
- Lack of Knowledge
Most people are not aware on how cryptocurrencies work and how to use and technology is a bit complicated for non-technical users, due to little knowledge and overhype which has been in the market, many people buy it without any proper knowledge and are on the verge of getting hacked. So understand it first before trying hands. It is not stock market which many people assume.
- Increase in criminal activities
Due to its anonymity and powerful security, many illegal activities can happen more easily as you can launder billions of dollars without even being caught. There are scam coins which are introduced in market, so beware
So, I guess this is it, a 3000-word guide comes to an end! Phew. A lot of efforts were put to bring forth this article.
My personal view is that I don’t find much excitement for digital currencies as I would like something to remain as they are and not go way too digital, that is undoubtedly going to affect everything. Bitcoin might be a bubble as it is overhyped like the Indian media is doing for Taimur (Saif Ali Khan and Kareena Kapoor Khan’s son) so yeah, as soon as some people stop using it, the bubble will burst!
So I have mentioned everything, if I have missed anything then do let me know in comments. If you have any doubts regarding anything about Cryptocurrency or Blockchain technology or Bitcoins, do comment, I will dive in and would clear if I can. Thanks for reading guys <3