For the last ten years, we've heard so much about the name Cryptocurrency and Bitcoin, but never truly know what it is.
In this blog, we put some basic information about Cryptocurrency and Bitcoin together, and try to make it easier for you to understand.
We hope it will be helpful, and enjoy all the knowledge we brought to you guys.
So, let's get to the point!
- History of Bitcoin
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| source: Bitcoin Price - CryptoCrimson.com |
Historically, U.S. currency has been based on gold - you could give a dollar to the bank, and receive a set amount back in gold. In contrast, Bitcoin isn’t based on silver or gold - it’s based on mathematical proofs.
Bitcoin is generated through a complex sequence of mathematical formulas that run on computers; the network shares a public ledger using blockchain technologies that record, and validate, every transaction processed.
We’ll never know who created Bitcoin. It started with a pseudonym - Satoshi Nakamoto. His accounts are no longer active; the coins in his wallet have never been spent. Satoshi Nakamoto has disappeared from the world, or so it would seem.
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brief history of Bitcoin and Cryptocurrency
1998 – 2009 The pre-Bitcoin years
There had been previous attempts at creating online currencies with ledgerssecured by encryption. Two examples of these were B-Money and Bit Gold.
2008 – The Mysterious Mr Nakamoto
A paper called Bitcoin – A Peer to Peer Electronic Cash System was posted by someone calling themselves Satoshi Nakamoto, whose real identity remains a mystery to this day.
2009 – Bitcoin begins
The Bitcoin software is made available to the public for the first time and mining – the process through which new Bitcoins are created and transactions are recorded and verified on the blockchain – begins.
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- Is Bitcoin a Currency?
Before we get to decide whether Bitcoin is a currency or not, we’d better know what it is. |
| source: Bitcoin . . . Future Global Currency? - Huffingtonpost.com |
Firstly, we need to separate Bitcoin into two components. On the one hand, you have bitcoin-the-token, a code that represents ownership of a digital concept. On the other hand, you have bitcoin-the-protocol, a distributed network that maintains a ledger of balances of bitcoin-the-token. Both are referred to as “Bitcoin.”
The system enables payments to be sent between users without passing through financial intermediary. It is created and held electronically. Bitcoins aren’t printed, like dollars or euros – they’re produced by computers all around the world, using free software. So,
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" Is Bitcoin the currency of the future? "
- the answer is no -
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Bitcoin is not the currency because the most important feature of a currency is that it be a stable store of value. This is vital for a developing country economy to attract the investment it needs. Even in developed countries, a stable currency value is the key to investment because those who invest are expecting a stream of future earnings to earn back their investment plus some profit.
Instability in currency values mean that an investor cannot accurately predict the value of those future earnings. This uncertainty makes investments less valuable; thus, less investment happens.
In what ways is it different from traditional currencies?
Bitcoin can be used to pay for things electronically, if both parties are willing. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.
But it differs from fiat digital currencies in several important ways:
1 – Decentralization
Bitcoin’s most important characteristic is that it is decentralized. No single institution controls the bitcoin network. It is maintained by a miner – group of volunteer coders, and run by an open network of dedicated computers spread around the world. Bitcoin solves the “double spending problem” of electronic currencies (in which digital assets can easily be copied and re-used) through an ngenious combination of cryptography and economic incentives.
2 - Limited supply
Fiat currencies (dollars, euros, yen, etc.) have an unlimited supply – central banks can issue as many as they want, and can attempt to manipulate a currency’s value relative to others.
With bitcoin, on the other hand, the supply is tightly controlled by the underlying algorithm. A small number of new bitcoins trickle out every hour, and will continue to do so at a diminishing rate until a maximum of 21 million has been reached. This makes bitcoin more attractive as an asset – in theory, if demand grows and the supply remains the same, the value will increase.
3 - Pseudonymity
While senders of traditional electronic payments are usually identified, users of bitcoin in theory operate in semi-anonymity. Since there is no central validator, users do not need to identify themselves when sending bitcoin to another user. When a transaction request is submitted, the protocol checks all previous transactions to confirm that the sender has the necessary bitcoin as well as the authority to send them. The system does not need to know his or her identity.
In practice, each user is identified by the address of his or her wallet. Transactions can be tracked this way. Also, law enforcement has developed methods to identify users if necessary.
4 - Immutability
Bitcoin transactions cannot be reversed, unlike electronic fiat transactions. This is because there is no central “adjudicator” that can say “ok, return the money.” If a transaction is recorded on the network, and if more than an hour has passed, it is impossible to modify.
5 - Divisibility
The smallest unit of a bitcoin is called a satoshi. It is one hundred millionth of a bitcoin (0.00000001) – at today’s prices, about one hundredth of a cent. This could conceivably enable microtransactions that traditional electronic money cannot.
- What is the purpose of distributing ledger?
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| source: Distributed Ledger |
People should know Cryptocurrency since it is a step in the right direction for global trade where everyone can be involved. To neglect the idea of Cryptocurrency on a decentralized network today is like neglecting the idea of Internet and the Hypertext Transfer Protocol (http) back in the early nineties. People who understand this technology or people who can get a clear picture how it works can easily see the benefits for mankind. This is because Cryptocurrency is popular now and tend to be more popular in the future than these days. One day, they may be the main medium for product and service exchange we generally use in our daily life. So the purpose of distributing ledger is to let everyone know the information and prepare themselves for the upcoming future.
- How does Bitcoin payments work?
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| source: Bitcoin accepted here - qz.com |
Bitcoin is a decentralized digital currency. This means that Bitcoin isn't controlled by any particular financial institution, and can be used by customers in any country. Bitcoins are transferred directly from person to person over the internet without going through a bank or another institution.
Bitcoin is defined as a chain of digital signatures. Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. A payee can verify the signatures to verify the chain of ownership.Bitcoin was created to function as peer-to-peer electronic cash.
Bitcoin transactions are messages, like email, which are digitally signed using cryptography and sent to the entire Bitcoin Network for verification. Transactions are public and can be found on the digital ledger known as the blockchain. The history of each and every bitcoin transaction leads back to the point where the bitcoins were first produced.
- The advantages and disadvantages of Bitcoin
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| source: The Pros and Cons - WebPT.com |
A coin has two sides, so Bitcoin does too. Bitcoin has many pros and some cons as you can see below:
ADVANTAGES |
1 - Massive potential for returns
One of the statistics that makes everyone consider investing in cryptocurrency is that $1,000 invested in Bitcoin in 2013 would be worth over $400,000 today.
Recent ICOs have created a number of huge returns in a short amount of time. Stratis raised $600,000 during their ICO in June 2016, and has since seen a 63,000 percent rise in the price. Spectrecoin raised $15,000 in January 2017 during their ICO, and has since risen over 13,000 percent.
Recent ICOs have created a number of huge returns in a short amount of time. Stratis raised $600,000 during their ICO in June 2016, and has since seen a 63,000 percent rise in the price. Spectrecoin raised $15,000 in January 2017 during their ICO, and has since risen over 13,000 percent.
2 - Shorter time horizon
Since cryptocurrencies are riskier investments, it is best to compare them to angle investing and venture capital investing. Datum launched their ICO in late October 2017, having already raised $1.5 million in pre-ICO funds.
Since cryptocurrencies are network-based and Datum has already received a groundswell of support, investors know it is likely that they can begin cashing out their investments relatively quickly.
Since cryptocurrencies are network-based and Datum has already received a groundswell of support, investors know it is likely that they can begin cashing out their investments relatively quickly.
3 - Increased liquidity
When you purchase equity in a startup, in order to realize a profit, you need to find someone to buy the equity from you or wait for an acquisition or IPO to occur. However, none of these options allow you to control when you cash out your investment. If a cryptocurrency ICO is able to build a solid enough network, such as the 56,000-member Datum network, investors immediately have much more liquidity and can sell their cryptocurrency for ether or dollars almost instantaneously.
4 - Clear direction for execution
Perhaps the biggest advantage of investing in cryptocurrency ICOs over startups is the fact that startups often need to pivot multiple times and overcome initial speedbumps. When you see a set of founders asking for initial capital, you should recognize that the company they eventually take public will look drastically different. With a cryptocurrency ICO, when you invest you know exactly what the network does and will be doing. As such, you are able to more accurately evaluate the product–market fit for the platform, and can use that insight to determine your investment.
DISADVANTAGES |
Firstly, there is no guarantee for prices in bitcoin. So prices will be fluctuate. Many people may keep in this asset in short term otherwise they have to deal with their volatility. Secondly, bitcoin is hardly reversible. It can only be refunded by the person receiving the funds. Lastly, nowadays, every bitcoin holder can access demand and supply of bitcoin. It implies that there is less secret transaction for bitcoin.
- Cryptocurrency VS Traditional Bank
If we are going to talk about Finance trend in 2018, everybody will think of Cryptocurrency, but what is the difference between Cryptocurrency and Traditional Bank? As you may know, Cryptocurrency value is not be guaranteed and very fluctuating unlike cash that is guaranteed from banks and its value refers to economic situation and gold price. Furthermore, Cryptocurrency doesn’t have ability to charge your money back in the event of fraud while Traditional Bank can charge your money back. Now, Cryptocurrency is be accepted by the majority of merchants currently. But Acceptance of gradually Cryptocurrency increasing. If Cryptocurrency is acceptable around the world that will be the future of finance because we will move to Cashless society with blockchain.
The biggest advantage of Cryptocurrency is the Transaction Fee. Traditional banks can charge high fees for transactions between countries, while bitcoin can do it for very little cost anywhere in the world. Moreover, it’s free from the manipulation which plagues the traditional baking system.
source: Financial trend Diagram - shutterstock.com
In sight of Traditional Bank, if Cryptocurrency is more acceptable, cash will be worthless because Cryptocurrency transaction doesn’t need intermediary and its transaction fee is very low when compared to the traditional bank. Nowadays, many banks around the world like Switzerland’s UBS, Canadian Imperial Bank of Commerce, HSBC, MUFG and State Street try to create their digital currency.
In summary, both systems are here to stay for the foreseeable future, although Cryptocurrency has the potential to change commerce, and the financial system as we know that. Both systems have advantages and disadvantages. Cryptocurrency is an advance in technology, and potentially one that puts more power in the hands of the people. The main question is, are we ready for it?
References
THE HISTORY OF BITCOIN. genesis-mining.com/the-history-of-bitcoin/- Cryptocurrency VS Traditional Bank
Marr, Bernard. (2017, 6, December). A Short History Of Bitcoin And Crypto Currency Everyone Should Read. forbes.com/sites/bernardmarr/2017/12/06/a-short-history-of-bitcoin-and-crypto-currency-everyone-should-read/
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