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The world of cryptocurrency began roughly ten years ago, on 31st October 2008, when a mysterious person, only known as Satoshi Nakamoto wrote the white paper on Bitcoin. In the world of cryptocurrency, the white paper operates as a business proposal and details the philosophy behind the currency proposed by the developer. Through the white paper titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System,’ Nakamoto floated the idea of a digital currency operated through what he called a Bitcoin Blockchain network. It was on this premise that the first form of electronic currency known as Bitcoin, was born.
The concept of virtual currency had previously been suggested in 1998 by computer engineer Wei Dai and Blockchain pioneer Nick Szabo; who both recognized the challenges faced during the production of Fiat currency, such as the need for metals upon which to print the Fiat. While their ideas failed to take root immediately, Dai and Szabo served as the inspiration behind Bitcoin, whose market capitalization presently stands at a whopping $144 Billion. The market valuation of a single Bitcoin presently stands at $8,055.22.
Following Bitcoin’s success, several more cryptocurrencies have come into existence since. Regardless, the sector has not been without its challenges. In this article, we review the cryptocurrency market and all it entails; the good and the bad.
Classification Of Cryptocurrencies
To date, there are over 1600 cryptocurrencies in operation. These come in different values, and with each having its unique functions. The Bitcoin Blockchain was the first to come on board. Given the myriad cryptocurrencies now on offer, the equally many Blockchains now fall into three main categories:- Bitcoin, Altcoins and Tokens/dApps.
While Bitcoin runs on its independent Blockchain, the other cryptocurrencies operate under slightly different frameworks.
For starters, altcoins is a portmanteau (a derivative of ‘Alternative Coins’), so-called because most of the other cryptocurrencies are modifications of the Bitcoin. One of the most formidable Altcoins is Bitcoin cash, which is a fork-off the Bitcoin platform. Given the heavy monetary value attached to Bitcoin, Bitcoin cash came to cater to transactions involving smaller sums of money, which were previously impossible to transact given Bitcoin’s massive price. The Bitcoin cash, however, operates on the Bitcoin Blockchain.
Unlike Bitcoin cash, other Altcoins use different algorithms and Blockchains, uniquely tailored for the purpose they serve. Therefore, while some altcoins may closely resemble Bitcoin (such as the Litecoin), others are as far removed from the Bitcoin as can be. The most prolific of these altcoins are Ethereum and NEO, whose primary purpose is to provide a platform for the creation of other forms of cryptocurrency. They do this by having apps which users can use to develop new Blockchains and fashion new currencies.
In other words, Ethereum and NEO do not operate as currency per se but as sites upon which developers can formulate new forms of cryptocurrency and contracts. Such altcoins are what led to the cryptocurrency boom we are witnessing at the moment.
As for Tokens or d’Apps, these do not have a blockchain at all. They are designed to act as legal tender for the purchase of apps on the Ethereum and NEO blockchains. In other words, Tokens d’Apps is a digital currency with which currency developers can purchase the altcoin apps.
How Cryptocurrencies Work
As stated earlier, cryptocurrencies are tremendously different from traditional fiat money. While governments issue fiat money, for which banks provide safekeeping, cryptocurrency is developed online by private individuals and stored online on a Blockchain.
The currency developer makes a white paper proposal detailing what the currency is about, he then designs the currency and invites Investors to finance it through tokens bought using fiat money. These investors deposit their tokens at the cryptocurrency’s Initial Currency Offerings (ICOs). Later, the Blockchain converts the tokens into cryptocurrency blocks in favour of the respective investor. The currency is then stored online with the respective initial investor receiving a decryption key with which to access their digital assets when they wish.
Users can create new Bitcoins through a process called ‘mining,”whereby Blockchain periodically floats a mathematical problem on the platform, and the first person to resolve it is awarded a given amount in Bitcoin Tokens. Each ‘mined’ block introduces 12.5 new Bitcoins into circulation. Presently, there are 17,964,775 Bitcoins in circulation and 3,035,225 Bitcoins yet to be ‘mined.’
Since the ‘mining’ is akin to a gold- rush, it is an energy-intensive affair, with the ‘miners’ needing specially designed computers or ‘Nodes’ with which to do the mining. Not only that, but these special computers also need a lot of power to run.
To assure its users of the security of their virtual assets, the Blockchain operates on a heavily encrypted system running on a series of computer servers. Each of the users has an updated copy of the Bitcoin movements, and this guarantees that the currency information can never be lost or hacked.
The trading goes as follows: When someone trades online using Bitcoin, the transaction is verified, encrypted, and recorded on the Bitcoin Blockchain. The new owner of the Bitcoin receives a ‘private key’ with which to decrypt the Bitcoin when he wishes to use it.
Due to the open Blockchain network, all the users on that Blockchain are privy to all the movements that the Bitcoin makes, but only the new owner of the Bitcoin can decrypt or use it at any given time. However, even as this information is made public on the database, the Blockchain never reveals the identities of the transacting parties.
Under this scheme of arrangement, users deal with each other directly but confidentially, meaning the transparency of the Bitcoin marketplace, coupled with the confidentiality of the users’ identities is what makes cryptocurrency an attractive alternative.
How To Trade
For a user to join in and trade, the first step is to open a forex trading account through a licensed broker. The user must ensure they chose a broker who accepts Bitcoins. The next step is to purchase two Bitcoins using fiat money. The Bitcoins so purchased are then deposited in the broker’s digital wallet. Unlike traditional money markets, the beauty with cryptocurrencies is that the trading floor is open at all times of the day.
Highest Ranking Cryptocurrencies
- BITCOIN (BTC):
As with most new inventions, peoples’ trust in Bitcoin took a while to build. Consequently, Bitcoin was Initially mainly used as currency on the dark web. Today, not only does Bitcoin dominate over 40% of the currency market, but it is also the most valuable of all the cryptocurrencies with a market capitalization of $144 Billion and a single unit value of $8,055.22 with 85.547% of Bitcoins already issued, leaving only $3,035.225 worth of Bitcoins still for grabs. More shops such as KFC Canada are accepting Bitcoin as legal tender, with Bitcoin ATMs also coming up.
- ETHEREUM (ETH):
Standing at a market capitalisation of $18,314,784,591is, the altcoin launched in 2015 by several founders. Presently, the currency’s trading price stands at $166.9659. Ethereum is an open-source platform with its Blockchain network and apps, serving all users who wish to try their hand at smart trading without third parties as well as users who develop new currencies. While Bitcoin offers only one medium of exchange, Ethereum has several and experts predict it as the most likely to overtake Bitcoin soon.
- RIPPLE (XRP):
Ripple is yet another promising altcoin. It presently boasts a market capitalization of $10,359,421,937. However, compared to its counterparts, its trading price per unit is on the lower side, at $0.2404. Nonetheless, it has an impressive unit circulation of $ 43,080,011,224.
Tether is the one cryptocurrency which pegs its value to that of the US Dollar. Consequently, it has been well received by Chinese traders, who prefer it as a medium of exchange. This development was a reaction to the United States government’s sanctions against the coinsmarket, forbidding their dealings with Chinese banks. With that buzz of activity, the tether’s market capitalisation presently stands at $4,128,139,210 with a unit trading price of $1.00
- BITCOIN CASH (BCH):
The Bitcoin cash, which is a fork-off the Bitcoin platform, came to the fore in 2017 and served to diversify the Bitcoin market even further by offering users an opportunity to trade in smaller sums. Presently, its market capitalisation is $3,952,942,168, with a trading price of $219.23 per unit.
Pros and Cons of Cryptocurrencies
- Likelihood of Massive returns: Taking the example set by Bitcoin between 2013 and now, a person who invested in the tokens then at $1,000 is worth close to half a million dollars today. That is a big return on investment.
- No intermediaries: Cryptocurrencies exclude the participation of banks or any other intermediaries, thus leading to fast permanent transactions. This absence of intermediaries also makes the coinsmarket cheaper in the sense that there are no bank commissions and fees incurred on transactions.
- Clear Blueprint: Unlike other startups, which have a lot of unforeseen hindrances to navigate before they stabilize in the market, the cryptocurrencies are a fairly predictable startup straight from the time of the Initial Coin Offer. That predictability enables potential investors to make more informed choices, having been given adequate knowledge in the white paper regarding the currency’s planned trajectory.
- Secure: The Blockchain technology heavily encrypts the transactions, making the digital asset secure unlike the case with fiat currency which is easily prone to theft.
- Cross border: Traders can easily participate in cross border transactions without worrying about the forex rates, as is the case with fiat currency.
- Immunity to inflation: Pundits have argued that cryptocurrency is immune to inflation. Citing Bitcoin as an example, experts argue that owing to the limited Bitcoins available; the currency cannot suffer inflation.
- Ignorance: Compared to fiat money, the majority of the populace is fairly ignorant of what cryptocurrency entails. This ignorance has a negative impact on the rate at which people use digital currency.
- Non-acceptance: Closely related to the preceding point, is the fact that save for a few outlets such as KFC Canada, most shops are unwilling to accept digital money as payment for their products.
- Price fluctuations: Virtual currency is highly volatile, which renders the investment in crypto a high-risk endeavour. This Whales compound this risk further. Since the Whales in the crypto market are the holders of the largest stakes, other traders watch and base their trading decisions on the whales’ decision, which in turn largely affect how the market behaves.
- Unregulated: The coinsmarket is largely unregulated, beginning with the process of the Initial Coins Offer (ICO). The lack of regulation may breed uncertainty and unpredictability.
- Technical: Ideally, the accepted legal tender should be easy to use and should not require a lot of elaborate measures on the part of the users. With cryptocurrency, huge segments of the general population are unable to comprehend how it works.
Though unlikely to replace the traditional fiat currency anytime soon, the Coinsmarket looks promising. With the increased digitization of most of the world’s services and sectors and with more regulation, cryptocurrency appears set to scale great heights. Compared with the hostility and suspicion that the populace had towards Bitcoin barely ten years ago, the current climate enjoyed by the coinsmarket can most likely only get better.
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