Explaining Crypto-currency through Bitcoin



Crypto-currency→ “A crypto-currency is a digital or virtual currency that is secured by cryptography. Cryptography, a series of techniques that provide secrecy and integrity to one’s data, makes it almost impossible to counterfeit (forge) or double-spend (spend a token more than once). Many crypto-currencies are decentralized networks based on blockchain technology — a distributed ledger (a database of all transactions) enforced by a network of computers. A defining feature of crypto-currencies is that they are generally not issued by any central authority (governments, central banks), rendering them theoretically immune to government interference or manipulation.” Bitcoin Bitcoin was created in January 2009. The identity of the mastermind(s) behind it remains unknown. However, the whitepaper that inspired the launch was written by one pseudonymous Satoshi Nakamoto.

1. General Information

  • Bitcoin offers lower transaction fees than the traditional online payment mechanisms.

  • There are no physical bitcoins, only balances kept on a public ledger that everyone has access to.

  • All bitcoin transactions are verified by a massive amount of computing power.

  • Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity.

  • Bitcoin is used by businesses, individuals including criminals.

  • Bitcoin isn’t anonymous and it cannot offer the same safety as cash.

  • There are only 21 million bitcoins that can be mined in total. Once bitcoin miners have unlocked all the bitcoins, the planet's supply will essentially be tapped out.

  • Even though it is not a legal tender (cash), bitcoin has inspired hundreds of other cryptocurrencies, aka altcoins. Some of them are: Litecoin, Peercoin, and Namecoin, Ethereum, Cardano, and EOS.

  • Today, the aggregate value of all the cryptocurrencies in existence is around $1.5 trillion—Bitcoin currently represents more than 60% of the total value.

2. Bitcoin Mining


Bitcoin mining is the process of creating new bitcoin by solving a computational puzzle. This is necessary to maintain the proof of transaction upon which bitcoin is based and thus stop double-spending. Over the last few years mining has become increasingly harder and needs sophisticated computers. To be specific, due to the difficulty of the puzzles and the launch of ASICs hardware (Application Specific Integrated Circuit) that functions solely for bitcoin mining, it has become almost impossible to profitably mine bitcoin at home using a regular PC.

3. Bitcoin price swings

The extreme volatility of Bitcoin is demonstrated in the chart. Mainstream finance people argue that the rise of the bitcoin price constitutes a bubble that will eventually burst leading to significant losses for late investors. Bitcoin’s extreme price swings are mainly attributed to liquidity, publicity and speculation.

  • Liquidity

The price of bitcoin increases during periods of high liquidity, because people are more prone to invest in speculative assets.

  • Publicity

When a crypto-currency gains attention, traders start to buy that token and eventually drive its price up. Equally the opposite can occur. Recent tweets from Elon Musk, CEO of Tesla, on whether Tesla would accept bitcoin or not for the purchase of automobiles have created extreme swings to the price of Bitcoin.

  • Speculation

Speculators often take advantage of the unregulated crypto-currency markets to manipulate their price and profit.


Advantages and Disadvantages of crypto-currency


Advantages

  • Payment freedom (it is possible to send and receive bitcoins anywhere in the world at any time.)

  • Choice of fees (There is no fee to receive bitcoins, and many wallets let you control how large a fee to pay when spending.)

  • Fewer fraud risks (Bitcoin transactions are secure, irreversible, and do not contain customers’ sensitive or personal information.)

  • Security and control (Bitcoin users are in full control of their transactions)

  • Transparent and neutral (No individual or organization can control or manipulate the Bitcoin protocol because it is cryptographically secure.)

Disadvantages

  • Degree of acceptance (many people are still unaware of how crypto-currency works)

  • Volatility (price swings)

  • Ongoing development (it is still developing and has many incomplete features.)

  • Criminal network

Conclusion

Even though crypto-currencies have both multiple advantages and disadvantages, it remains unclear if the former outweighs the latter. Market forces will eventually determine if the crypto-currencies are here to stay.


 

Sources

https://www.investopedia.com/terms/c/cryptocurrency.asp

https://www.investopedia.com/terms/b/bitcoin.asp

https://www.investopedia.com/terms/b/bitcoin-mining.asp

https://bravenewcoin.com/insights/crypto-assets-you-can-mine-from-a-home-computer

https://bitcoin.org/en/faq#what-if-someone-creates-a-better-digital-currency

GRAPH: https://www.coindesk.com/price/bitcoin


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