What You Need to Know About Cryptocurrency Before Investing
The Concept made Easy for Investing
We have all heard about cryptocurrency as a virtual currency based on blockchain technology. The primary reason why it is so popular is because of its :
(i) immunization from government interference
(ii) it is difficult to manipulate or counterfeit
(iii) high volatility and price fluctuations.
However, these are some general information regarding cryptocurrency and many of us lack a comprehensive understanding of the system. The most popular cryptocurrency is Bitcoin and it is currently trading at a little over 11k US dollar for a single bitcoin at the time of writing this article. There are other families of cryptocurrency including: (i) Altcoins (ii)Ethereum (iii) LiteCoin and many others.
In order to understand the concept of bitcoin it is important to understand the technology of blockchain.
So what exactly is the blockchain and how is it related to cryptocurrency?
The concept of blockchain is rather simple: it is basically an online record keeping technology. The online ledger of any transaction ( for example an online purchase) stores information such as date, time, transaction amount etc. Each transaction information that is stored is secured and forms the “Block” and a series or multiple such transactions or data ledger forms the “Blockchain”. There are different types of blockchain including (i) private blockchain (ii) public blockchain (that is used by cryptocurrencies) and (iii) hybrid blockchain.
For the sake of this article we would only y focus on public blockchain. It is primarily an open source decentralized system and allows anybody to connect to the “master node”. This decentralization allows the network to be secure because it will be impossible for anybody to change the data in a block across the entire network.
A detailed explanation on the architecture backing the bitcoin technology is explained in my recent article on the same topic.
So how did the concept of cryptocurrency start?
Satoshi Nakamoto was the founder for bitcoin software when it was released in early 2009. The true identity of Nakamoto is still unknown. Analysts estimate that Nakamoto mined approximately 1 million bitcoins. However, Gavin Anderson later became the developer of the Bitcoin Foundation and decentralized the control. This created opportunity for other individuals to participate in bitcoin mining. The process of bitcoin mining produces new bitcoin.
For those of whom who do not understand the concept of bitcoin mining, it is relatively easy to comprehend.Bitcoin mining usually involves solving complex mathematical problems on Bitcoin network to generate new bitcoins. The primary reason for mining is to ensure that the network is secure and trustworthy and ensures that the verification of the transaction is authentic. Each verified block transaction is given an unique identification code called “hash”. Each hashed block is added to the blockchain. Individuals interested in blockchain mining can connect their computers to the blockchain network. Since, there are millions of copy of the blockchain, it becomes almost impossible for a single hacker to manipulate the data in the blockchain. Also it should be noted that the data in the blockchain is usually encrypted. This makes the blockchain data processing is secured.
Different types of Cryptocurrency
There are over 2000 different cryptocurrency and their valuation depends on its associated risk on level of liquidity, acceptance and retention. Ethereum is a cryptocurrency with a decentralized software that operates smart contracts. They are self executing digital contracts between buyers and sellers expressed through algorithms. The data is stored and executed through blockchain network as discussed earlier. Since these contracts cannot be manipulated they do not require any central authority or legal entity. They can be used for execution of derivatives and assets such as bonds and options.
The concept of bitcoin is rather complex and its high volatility and lack of centralization are some of the reasons that hinders its wide spread adoption. However cryptocurrency can help to solve the currency exchange fluctuations and have a global standard monetary exchange platform.
