Cryptocurrency is a type of digital money which is not controlled by a centralised bank or financial institution. The process is designed to be very secure and in some cases, anonymous. It is a form of online or digital currency which uses cryptography to prevent third parties from seeing any transactions, whilst still keeping a record of them in an account book known as a ledger.
Currently there are an estimated 900 available types of cryptocurrencies out there online with Bitcoin being the most famous and well-known in the industry.
What is cryptography?
Cryptography originated in World War II and was used as a secure form of communication so that the enemy on either side could no intercept secret messages.
It has continued into the current, digital era with elements of mathematical theory and computer science. It has now become a way to secure communications, money and information on the internet.
The initial and original cryptocurrency was ‘Bitcoin’. Bitcoin was created in 2009 and is still the most famous and most used form of cryptocurrency.
Bitcoin is a digital currency which is used to make payments of any goods or services and there are no fees charged for using it. The Bitcoin currency is run on the blockchain, which is a large database managed by individuals all over the world. The individuals are required to manually approve every transaction that happens through a process known as ‘mining’. The more they mine by completing complex mathematical problems, the more bitcoins they are rewarded.
The Bitcoin is considered a strong currency. As of 2017, there were about 16.5 million Bitcoins in circulation overall. The value of the Bitcoin in March 2017 was at $1,268, which actually exceeded for the first ever time that of an ounce of gold which was valued at $1,233. As of September 2017, it was worth $3,889.
Uses of Bitcoin
People use the Bitcoin for a variety of different reasons. For many years, Bitcoin has been a convenient way to do private and anonymous transactions. It can sometimes be the choice of currency for illegal transactions such as money-laundering and drug-trafficking, since it is not government protected or controlled. In the future, it could be a real alternative to normal paper money and be used for buying anything online such as clothes or groceries. There are already some gambling sites that have adopted Bitcoin as a form of payment and Bitcoin ATM’s (including one in the Londis on London’s King’s Road).
There is not an infinite number of Bitcoins available as it has been capped at 21 million coins. The coins can be divided into parts so you can purchase one tenth or one fifth of a Bitcoin if you wish.
Other forms of cryptocurrency
This was developed in 2015 and is a currency token which is used in the Ethereum blockchain. Ethreum is the second most popular and valuable form of cryptocurrency, next to Bitcoin. As of July 2017, the market capitalisation for Ethereum was around $18 billion.
Ripple is another type of distributed ledger system which was founded in 2012. It can be used to conveniently track more kinds of transactions, not just ones which are part of the cryptocurrency category.
Ripple has actually been used by banks such as UBS and Santander, with a market capitalisation of an estimated $6.3 billion.
This currency is the most like Bitcoin. However, its innovations include faster payments and processes which allow a range of transactions. The value of Litecoin is around $2.1 billion in total.
Why use cryptocurrency?
A benefit of using cryptocurrencies is that they are considered to be secure and provide the user with a level of anonymity. The transactions cannot be faked or reversed, making it more reliable than traditional government controlled and conventional currency. There also tends to be no or low fees for using it.
In addition, opportunities have existed to invest in cryptocurrencies and make a healthy profit. The value of Bitcoin and similar currencies fluctuate based on trends and demand, similar to a normal currency. Whilst they may fall at any time, the overall trend continues to be upwards.
The nature of the currency being de-centralised means that it is available to everyone. By contrast, banks may be exclusive or picky with who is allowed to open an account.
However, please be aware that the level of anonymity offered by cryptocurrencies means that it is often associated with illegal activity and the dark web. As a user, you must be aware and careful of this.