Understanding what cryptocurrency is, is not difficult at all. In fact, the definition of cryptocurrency is “a digital or virtual currency that uses cryptography for security.” Since it is a digital currency, cryptocurrency of any kind is going to be difficult to counterfeit. Click here, to learn more about cryptocurrency.
Cryptocurrency is not going to be issued by a central authority, so, it is in theory, immune to any manipulation or interference by the government.
The history of cryptocurrency
During the year 1998, b-money was published by Wei Dai as an anonymously distributed digital currency. It was not too long after that, Nick Szabo, came up with the cryptocurrency bit gold.
Similar to Bitcoin and various other cryptocurrencies, bit gold was a system that would require the users to provide proof of work for the algorithm that they solved along with their solutions so that they could be published together before they were rewarded for the work that they did. A reusable proof of work system was created by Mr. Hal Finney as he followed in the footsteps of Dai and Szabo.
Bitcoin was created in 2009 by Satoshi Nakamoto – this is a pseudonym for the developer -. This digital currency was designed to use a hash function known as SHA-256 as well as the proof of work scheme that was created by Finney.
A few years later, Namecoin was released in an attempt to create a decentralized DNS; the purpose behind the decentralization was to make internet censorship more difficult. In the same year, Lite-coin was released as the first cryptocurrency to use the script as the hash function successfully.
Peercoin was one of the first cryptocurrencies to be able to use proof of stake and proof of work thus making it a hybrid currency. IOTA was another currency, but it was not based on the blockchain. Instead, it used Tangle.
During the year of 2014, the United Kingdom announced the Department of the Treasury was conducting a study on cryptocurrencies and how they would affect the economy. This study was conducted to determine if there needed to be regulations on cryptocurrency or not.
Why should you use cryptocurrency?
Using cryptocurrency is a good step in creating global trade. But, there are some other reasons as to why you should be using cryptocurrency.
- It is risk-free for sellers. Whenever payments are taken by allowing the customer to pay with cryptocurrency, the transaction cannot be reversed. This means that a merchant is no longer going to need to worry about a payment being stopped and them not receiving their money. Therefore, blockchain makes it to where it is almost impossible for a seller to be defrauded.
- Since miners are rewarded for their work in cryptocurrency by the network, then there is not a transaction fee; and if there is a fee, but, the fee is not as much as it typically would if you were using the traditional banking system.
- Almost everyone has access to the internet in some form or fashion. However, not everyone is able to access a bank or a money exchange system. By using cryptocurrency, you are receiving payments electronically and will not need to deal with a bank or worry about a line of credit.
- As long as you have the digital key that you are provided when you set up your cryptocurrency wallet, you can access the currency that is yours and yours alone. This will be different than using a bank because you are not limited in accessing your assets, and they are not able to be frozen by any entity.
- You already know that when you pay with a credit card or a debit card, you are giving the merchant access to sensitive banking information. However, cryptocurrency can be sent directly to the recipient without any information being submitted except for the public key and the amount that you are sending.
The risks of cryptocurrency
Any investment will have a risk tied to it. Cryptocoins hold a host of vulnerabilities that you need to be aware of before you can start investing in cryptocurrency.
- While a hacker is not able to hack the blockchain, they are able to hack your wallet and even the cryptocurrency exchanges. The most recent hack occurred in 2016 where over $50 million in ether was taken from investors in the DAO fund.
- The prices of cryptocurrency will be volatile just like any other stock that you would be trading. With the DAO being hacked, the price of ether fell drastically, and this lead to a market correction that had to happen.
- Do not invest all your savings in cryptocurrency. That is one of the things that people often think that they have to do whenever it comes to investing in any sort of stock. You need to ensure that you are able to survive should you lose everything that you have invested. When it comes cryptocurrency, you will have to worry about someone getting into your wallet and stealing all your coins.
