Bitcoins, digital currency, cryptocurrency, Blockchain, these are all words that ring a bell, aren't they? In recent times, they appear in the news, in newspapers, on television, in blogs... And they are talked about by everyone, but... Do you know everything you need to know about cryptocurrencies??
What are they?
Cryptocoins or cryptocurrencies are virtual currencies with which electronic transactions for the purchase and sale of goods and services can be carried out without the need for an intermediary. Unlike physical currencies, such as the euro or the dollar, cryptocurrencies are not issued by any State or central bank. They only exist on the Internet, i.e. they are only generated and stored digitally.
How did they come about?
The first cryptomoney that existed and that began to be used was the famous Bitcoin, 11 years ago, in 2009. This was the first network between decentralised payment pairs, without any central authority or intermediaries. Behind the creation of this protocol was an anonymous person (or group of people) known as Satoshi Nakamoto. If you are interested in learning more about Bitcoin, you can watch the documentary "Banking on Bitcoin" on Netflix.
Since then, a number of other cryptocurrencies have appeared, some more familiar than others, which are taking over a market that is growing every day.
What cryptocurrencies exist?
As we mentioned, Bitcoin is widely known but it is not the only cryptocurrency in existence. XRP (formerly known as Ripple), Ethereum, Litecoin or Dash are some of today's most widely traded cryptocurrencies. All of them have been developed using different cryptographic functions and have different values depending on their date of creation, the number of users or the volume of transactions.
Below, we review some of the best-known ones on the market:
- Bitcoin (BTC): is the world's best known digital currency, created in 2009. It became so popular because of its decentralised nature and its open code created, as we have already seen, bySatoshi Nakamoto.
- Bitcoin Cash: is a division of the world's most famous cryptocurrency (Bitcoin, as its name suggests), which took 478558 as the last block of Bitcoin. From there, Bitcoin Cash generated its own blocks, much larger than Bitcoin, from 1MB to 8MB at first and then to 32MB. It is a recent cryptocurrency, created in August 2017, with the intention of continuing Bitcoin's original vision of using the Internet as the effective peer-to-peer system for its operation without depending on third party solutions, such as Bitcoin with e.g. Lightning Network (a P2P network that works as a second layer system for micro-payments with Bitcoins).
- XRP (formerly known as Ripple): is derived, as are all of them, from Bitcoin, and in this case it is the second digital currency in terms of market share. It was created by the RippleNet platform in 2012 and is a major competitor of Bitcoin.
- Ethereum: is a Blockchain or a Distributed Accounting Technology. It was conceived as an improved version of Bitcoin to overcome the limitations of its programming language. Ethereum was proposed by Vitalik Buterin, a cryptocurrency developer.
- Dash: also known as Darkcoin or XCoin, the Dash cryptocurrency offers the same features as Bitcoin but also has some more advanced functionalities.
- Litecoin (LTC): was inspired by and is identical in technical terms to Bitcoin and is designed for low-value transfers. It differs from Bitcoin in three main respects:
- Litecoin's processing network takes just 2.5 minutes per block instead of 10.
- The Litecoin network will produce approximately four times more units than Bitcoin (84 million Litecoins).
- It uses the Scrypt function in its algorithm to facilitate mining (obtaining Litecoins), not requiring other more complex systems as is the case with Bitcoin.
- Peercoin (PPC): also known as PPCoin and Peer-to-Peer Coin is the first cryptocurrency based on a combined implementation of proof-of-stake (PoS) / proof-of-work system (PoW) that makes the verification of transactions with this cryptomoney easier, consuming much less computing resources, than with other digital currencies.
- Dogecoin (DOGE): is the cryptocurrency based on the Litecoin logo that has a Shiba Inu dog as its logo from an internet meme, created by the IBM programmer, Billy Markus, with the intention of reaching a much larger number of users than Bitcoin, overcoming the controversy that arose with Bitcoin because of the Silk Road online black market issue.
- Namecoin (NMC): This was the first Bitcoin spin-off but with minor modifications, to pre-empt scalability problems. It is limited to 21 million units and can be divided into up to 8 decimal places.
- QuarkCoin (QRK): created by the economist, Bill Still, this cryptocurrency is designed so that it can be created and/or used by anyone, without the need to have special equipment, with greater transaction security and speed than Bitcoin.
- Iota (IoT): a cryptocurrency that is 100% focused on the internet of things. Currently ranks 7th in terms of market share.
How is it different from Blockchain?
Blockchain, is a fundamental part of Bitcoin or any other cryptocurrency because it functions as a non-modifiable "notary public" of the entire transaction system. Blockchain prevents a virtual currency from being spent twice and ensures that payments and receipts with Bitcoin are secure.
How do cryptocurrencies work?
Cryptocurrencies use a series of state-of-the-art technologies, combining P2P services (peer to peer exchange) with cryptography.
From the users' point of view, transactions are carried out from electronic wallets, by means of which they can send or receive Bitcoins or the cryptocurrency in question. The appearance of any of these digital wallets is that of a mobile application and it works in a very similar way to online banking, although without an intermediary body to control the transaction.
As for their "guts", cryptocurrencies are encrypted files that work in a similar way to a bank account. Bitcoin (or other cryptocurrency) transactions are carried out when public codes match, which are related to the passwords (or cryptographic keys) created by the users. This transaction is then registered in Blockchain, which guarantees its security.
How are cryptocurrencies created?
In principle, anyone with sufficient programming knowledge can create a cryptocurrency from an existing one, as most cryptocurrencies are open source and can be downloaded and modified. You can also do this, in an easier way, through the platforms that exist to create cryptocurrencies, such as Wallet Builders.
But if what you want to do is get units from an existing cryptocurrency, the possibilities are twofold:
- Manufacturing new Bitcoin or other cryptocurrency units through a process that is commonly referred to as "mining". The problem is that the more Bitcoins you mine, the harder it is to get new Bitcoins, so you need, in most cases, special computers that are very powerful and consume a lot of energy. That's why this process of generating Bitcoins is practically only done through server farms.
- Accepting cryptocurrency as a method of payment for goods or services, by buying them from an exchange house, or buying them from someone. The number of sites that accept Bitcoins as a payment method is limited, and is changing over time, such as Microsoft or some Subway restaurants that now accept them. Other companies, such as Amazon, do not accept Bitcoin payments directly, but they do accept them through payment gateways that act as intermediaries, such as Bitrefill and Fold.
Are cryptocurrencies dangerous?
Cryptocurrency is a relatively recent technology that is being studied by experts and banks around the world. Generally speaking, the idea that this is a scam or a fraud, as many people believe, is ruled out for two reasons: firstly, because cryptocurrencies do not promise false returns and, secondly, because they have the Blockchain technology supporting them. Although it is true that they are not free from the stigma of volatility and fear of the unknown.
An example of the change in attitude towards cryptocurrencies over the years is that of the European Central Bank (ECB), which has gone from warning about cryptocurrencies, because of their volatility, the lack of legal protection and the lack of support from a public authority, to considering the creation of a digital currency.
All in all, before taking any steps in the world of finance, be it with real currency or with cryptocurrencies, it is advisable to gather as much information as possible in order to understand the pros and cons and to seek the advice of specialists.
Related sites of interest:
- You can view their real-time trading information at Coin Market Cap.
- However, you will find the Ethereum stock information here.
- At CryptoLife you can arrange for the creation of cryptocurrencies at a reasonable price.
- BitcoinTalk: forum of people who are dedicated to the topic of cryptocurrencies, from sellers to buyers as well as freelancers who offer their services cloning open source cryptocurrencies.
- If you want to acquire / trade with Bitcoins, at The College Investor you will find the main websites dedicated to this.
- To earn interest with Bitcoins you may be interested in Poloniex, Magnr, Bsave and Bter.
- Pages where you can get Bitcoins online: BtcClicks, BtcVIC, RefBit and Coinbulb.
- Other sites offer loans in Bitcoin, such as BTCJam and Bitbond.