Cryptocurrency is a currency in digital form in which every transaction is carried out online without any physical exchange. .
Cryptocurrency empowers ordinary people because no centralized power is required to transact with cryptocurrencies, i.e. there is no bank or centralized authority present.
Bitcoin is the first and most popular Cryptocurrency which was invented by Satoshi Nakamoto in 2009. Currently there are over three thousand cryptocurrencies which are classified as tokens or coins. Every other cryptocurrency but Bitcoin is called an Altcoin.
“Price is what you pay. Value is what you get.” - Warren Buffet, American business magnate, investor, and philanthropist..
BLOCKCHAIN TECHNOLOGY
Blockchain is a distributed, decentralized public ledger. We can say, blockchain simply means chain of blocks. This simply means digital information (“the block”) stored in a public database (“the chain”).
Blocks on a blockchain has three parts:
Blocks show information like date, time and amount.
Blocks store information about who carried out the transaction by using digital signature instead of identifiable names.
Blocks store information that makes them different from other blocks by the use of a unique code called HASH.
“We have elected to put our money and faith in a mathematical framework that is free of politics and human error.” Tyler Winklevoss, founder of Winklevoss Capital Management.
HOW CRYPTOCURRENCIES WORK
Cryptocurrencies can be sent directly between two parties through the use of public keys. One interesting thing about this is that this transfer incurs very minimal transaction fees and solves the problem of steep fees charged by traditional financial institutions.
PROPERTIES OF A CRYPTOCURRENCY
Irreversible: After confirmation of a cryptocurrency transaction, it cannot be reversed by anybody. If you send your asset to a wrong address or a hacker stole your asset, the asset is gone forever.
Permissionless: Cryptocurrency transaction doesn’t require a permission from anybody before it is carried out. It just requires software which anybody can download and use without any restriction.
Secured: A blockchain is a series of blocks that records data in hash functions with timestamps so that the data cannot be changed or tampered with. As data cannot be overwritten, data manipulation is extremely impractical, thus securing data and eliminating centralized points that cybercriminals often target. Cryptocurrencies are locked in a public key cryptography which makes it impossible to access without the private keys.
Pseudonymous: Cryptocurrency transfers occur through public addresses which are not connected to the real-world identities of the users.
Fast and across border: Cryptocurrency transactions happen almost instantaneously in the Blockchain network and confirmation occurs in few minutes notwithstanding the distance between the sender and the receiver.
HOW CRYPTOCURRENCY VALUE IS DETERMINED
The price of cryptocurrencies is governed by the law of demand and supply. This simply means that buyers and sellers of these cryptocurrencies control their value. The price of various cryptocurrencies is highly volatile and so, it is a high-risk investment at least for now. If there are more sellers than buyers, the price drops and vice versa. One spectacular aspect of cryptocurrencies is that various cryptocurrencies have a fixed supply called Maximum Supply. This means that a particular amount of a cryptocurrency will ever exist forever as a result, many cryptocurrencies are expected to be scarce in the future as many people will acquire and hold them. For example, Bitcoin has a maximum supply of 21,000,000. Unlike fiat currencies, Bitcoin can not be minted at will by a central body because, it is limited algorithmically. There will ever be 21,000,000 Bitcoin in existence.
BITCOIN HALVING
Every ten minutes, a block of bitcoin transaction is solved by miners and is added to Blockchain network. This is an expensive and hectic task which consumes a lot of electricity and requires sophisticated hard wares. People mine because the algorithm rewards miners with new BTC, which are generated and added to the circulating supply every 10 minutes. The distribution of new BTC is known as “block reward”. At the beginning, block reward was 50 BTC which means that every 10 minutes, new block reward is added to the circulating supply. Every four years, halving occurs in the bitcoin network. This means that when halving occurs, the mining difficulty increases and the mining reward is reduced by half. The first Bitcoin halving occurred on the 28th November, 2012 with block 210000 and Bitcoin mining reward was reduced to 25BTC. On the 9th day of July, 2016, the second halving took Bitcoin mining reward to 12.5BTC, the third Bitcoin halving took Bitcoin mining reward to 6.25BTC that occur in the month of May, 2020.
CRYPTOCURRENCY WALLETS
A cryptocurrency wallet is a software program that stores private and public keys and interacts with various blockchain to enable users to send and receive digital currencies and monitor their balance.
WAYS OF MAKING MONEY WITH CRYPTOCURRENCIES
1. Buying and holding 2. Holding for dividends 3. Mining 4. Serving as Cryptocurrency merchant
5. Day trading and others...
Acknowledgment
Researchgate - Author: Chibuzor Emmanuel,
Simplilearn - Cryptocurrency Explained Video (Youtube)