Bitcoin made it to the headlines this week as the price of one unit of the existing cryptocurrency passed up to $11,500 for the first time.
Although it is considered to be a new financial approach often referred to as new, Bitcoin has existed since 2009 and in fact, technology is indeed built on such roots that go back much further.
Historical genesis of Bitcoin
1998 – 2009 The pre-Bitcoin years
Bitcoin was actually the first established cryptocurrency, there had indeed been previous attempts in the creation of online currencies with ledgers secured by encryption. One can take note of two examples of such financial operatives which are B-Money and Bit Gold, which were thus formulated but were never fully developed.
2008 – The Mysterious Mr. Nakamoto
Bitcoin is referred to as -A Peer to Peer Electronic Cash System- that was posted to a mailing list discussion on cryptography. It was posted by someone by the name Satoshi Nakamoto, whose real identity remains a mystery to this day.
2009 – Bitcoin begins
The Bitcoin software is also made available to the public for the first time and mining – the process through which new Bitcoins are created and Cryptocurrencies, or virtual currencies, are digital means of exchange that has been created and used by private individuals or groups.
One must be aware of the fact that most cryptocurrencies are indeed regulated by national governments. They are indeed considered as alternative currencies which are mediums of financial exchange that do exist outside the bounds of state monetary policy.
Bitcoin is, of course, a preeminent cryptocurrency that has been and still is widely used.
What Is Cryptocurrency?
Cryptocurrencies make use of cryptographic protocols or are extremely complex code systems that do encrypt sensitive data transfers in order to secure their respective units of exchange. Cryptocurrency developers, in fact, build up these protocols on advanced mathematics as well as computer engineering principles that do render them virtually impossible to break. This means duplicating or counterfeiting the protected currencies. These protocols also do cover up the identities of cryptocurrency users thus making transactions and fund flows rather difficult to attribute to specific individuals or groups.
Decentralized Control
Cryptocurrencies are highlighted by decentralized control and cryptocurrencies’ do supply and also value the activities of their users and also highly complex protocols that are built into their governing codes and are not the conscious decisions of central banks or other regulatory authorities.
Exchange With Fiat Currencies
Importantly, cryptocurrencies can be exchanged for fiat currencies in special online markets, meaning each has a variable exchange rate with major world currencies (such as the U.S. dollar, British pound, European euro, and Japanese yen). Cryptocurrency exchanges are somewhat vulnerable to hacking and represent the most common venue for digital currency theft by hackers and cybercriminals.
Finite Supply
Most, but not all, cryptocurrencies are rather characterized by finite supply. Their source codes do contain instructions outlining the precise number of units that can and will also exist.
Benefits and Drawbacks
On account of their political independence and essentially impenetrable data security, cryptocurrency users do enjoy benefits that are not available to users of traditional fiat currencies, such as the U.S. dollar as well as financial systems that those currencies support. For instance, a government can in fact manage easily to freeze or even seize a bank account located in its jurisdiction; it is on the other hand rather difficult for it to do the same with funds that are held in cryptocurrency even if the holder is a citizen or a legal resident.
What are the risks involved in cryptocurrencies?
Issues such as illiquidity and value volatility are there. Also, cryptocurrencies are rather frequently made use of to facilitate gray as well as black market transactions.
How Cryptocurrencies Work?
The source codes cum technical controls that support and secure cryptocurrencies are rather very highly complex.
Functionally, most cryptocurrencies are variations on Bitcoin, the first rather widely used cryptocurrency. Several concepts govern cryptocurrencies such as values, security, and integrity.
Blockchain
A cryptocurrency’s blockchain happens to be the master ledger that does record as well as stores all prior transactions as well as activity, thus validating the ownership of all units of the currency at any given point in time
A cryptocurrency transaction is usually finalized after it is added to the blockchain, which normally occurs within minutes. Once the transaction is over it is never irreversible. Unlike most of the traditional payment processors, such as PayPal and credit cards, most cryptocurrencies do not have any built-in refund or chargeback functions, though some newer varieties of cryptocurrencies have basic refund features.
Private Keys
Every cryptocurrency holder has a private key that does authenticate one’s identity and permits the exchange of units. Users can also come up with their own private keys. Without a key, the holder cannot spend or convert their cryptocurrency, thus making their holdings worthless unless and until the actual key is recovered.
Losing one’s private key is as good as throwing money into a trash incinerator.
Wallets
Cryptocurrency users do have “wallets” with unique information that confirms them as being the temporary owners of their units. Private keys do confirm the authenticity of an existing cryptocurrency transaction whereas wallets do lessen the risk of theft for units are not being utilized. Wallets made used by cryptocurrency exchanges are somewhat vulnerable to hacking. Wallets can, in fact, be stored in the cloud, on an internal hard drive, or even an external storage device.
