The number of cryptocurrencies has risen dramatically over the past few years – there were more than 10000 as of 2022! There is a constant increase in the number.
An Overview of Cryptocurrencies
A barter system was used by cavemen to exchange goods and services among several people. Seven apples could be traded for seven oranges, for example. There were some obvious flaws with the barter system that led to its disuse:
- Having something to trade requires someone else to want it, and having something to trade requires that you want the other person’s offer.
- Value cannot be measured by a common standard – you must decide how many items you are willing to trade for another, and some items cannot be divided. Live animals, for instance, cannot be divided.
- In contrast to our modern currency, which can be carried around in a wallet or stored on a smartphone, the goods cannot be easily transported.
A few attempts were made at improving the currency after people realized the barter system wasn’t very effective: In 110 B.C., an official currency was minted; in the year 1250, gold-plated florins were introduced in Europe; between 1600 and 1900, paper currency became widely used throughout the world and gained widespread popularity. The modern currency we know today was born from this process.
There are many types of modern currency, including paper money, coins, credit cards, and digital wallets, such as Apple Pay, Amazon Pay, Paytm, PayPal, and others. Banks and governments control everything, so credit cards and paper currency are regulated by a centralized authority.
The difference between traditional currencies and cryptocurrencies
Sending money online to the account of someone who bought you lunch would be a good way to repay the friend. This could go wrong in several ways, including:
- It is possible that the financial institution has a technical issue, such as a downed system or a malfunctioning machine.
- The account you have or the account of your friend may have been hacked, for example, through a denial-of-service attack.
- It is possible that your or your friend’s account has exceeded the transfer limits.
Banks are responsible for the failure.
It is for this reason that cryptocurrency is the currency of the future. Take a look at what happens if two people use the bitcoin app to conduct a similar transaction. When a person is ready to transfer bitcoins, a notification appears asking whether they are sure. As soon as the user confirms that the request is valid, the system authenticates their identity, checks their balance, and so on. As soon as this is done, the money is transferred and lands in the account of the recipient. Minutes later, everything is done.
As a result, cryptocurrency eliminates all the problems of modern banking: There are no limits to the amount of money you can transfer, no chance of your account being hacked, and no central point of failure. Bitcoin, Litecoin, Ethereum, and Zcash are some of the most popular cryptocurrencies available in 2018. The number of cryptocurrencies keeps growing every day. It’s likely that there will be more growth on the way, considering how much they’re experiencing currently!
As we move forward, let’s discuss what cryptocurrency is.
Cryptocurrencies – what are they?
Cryptocurrencies represent currency units by coded strings of data. As well as serving as secure ledgers, blockchains assist in monitoring, organizing, and recording cryptocurrency transactions. In addition to serving as a currency and accounting system, cryptocurrencies also rely on encryption technology.
Cryptocurrencies are digital or virtual currencies that are used as a medium of exchange. Although it has no physical embodiment, it uses cryptography to function, making it comparable to real-world currency.
In order to add new units to cryptocurrency units, certain conditions must be met, since cryptocurrency works independently and is decentralized, without the involvement of a bank or other central authority. The only way new bitcoins can be generated is by adding blocks to the blockchain and rewarding the miner with bitcoins. Bitcoins can only be produced up to 21 million; thereafter, they cannot be produced.
Cryptocurrency has many benefits
Bitcoin transactions are low to free compared to the cost of transferring money between a digital wallet and a bank account, for example. There are no limits on purchases or withdrawals, and you can make them anytime of the day or night. Unlike traditional bank accounts, which require paperwork and documentation, anyone can use cryptocurrency.
As well as being faster than wire transfers, cryptocurrency transactions over the internet are also faster. The money is transferred from one place to another via wire transfer in about half a day. A cryptocurrency transaction can be completed in minutes or even seconds.
Cryptography: what does it mean?
In cryptography, data is encrypted and decrypted to ensure security against eavesdropping, theft, and intrusion from intruders with ill intent. As part of cryptography, users create a public key and a private key, which are digital signatures or identities that are not shared with others. Bitcoin uses SHA-256 as the hashing algorithm, which is similar to the hashing algorithm.
Bitcoin transactions and cryptography
To send bitcoins, first, you need to specify who you are sending them to and how many bitcoins you are sending. A hashing algorithm is then applied to the information. SHA-256 is the algorithm used by Bitcoin, as mentioned previously. A signature algorithm using the user’s private key is then performed on the output, allowing it to be uniquely identified. Upon digital signature verification, the output is distributed to other users across the network. The sender’s public key is used to accomplish this.
A miner is a user who checks whether a transaction is valid. A few other transactions are also added to the blockchain, where the details cannot be changed. As you can see in the image below, SHA-256 is a cryptographic algorithm.
Considering how complex it is, it’s safe to say that it’s very difficult to crack the encryption.
What is the difference between Bitcoin and Ethereum?
By now you have learned that Bitcoin works on blockchain technology, is decentralized, and uses a peer-to-peer network to conduct transactions. It is also accepted in the Ethereum network as an alternative digital currency. With Ethereum, you can build and deploy decentralized applications using blockchain technology.
There are similarities
Cryptocurrencies such as bitcoin are currently the most valuable. In both technologies, transactions are recorded in blocks, which are linked to each other in a chain, so that no data can be altered in the chain between blocks. Adding a block to the blockchain requires solving a mathematical puzzle; proof of work is used to mine both currencies. The use of ether and bitcoin is widespread across the globe as well.
Sending money to anyone is easy with Bitcoin. In a similar way to real currency, it works similarly.
Transactions using Ethereum can take place in real life, as it also serves as Ethereum’s currency.
Whenever you want to perform Bitcoin transactions, you must personally carry out these transactions. Ether allows you to program transactions to take place when certain conditions are met, so you can make them manual or automatic. Bitcoin transactions typically take around ten minutes to complete because a block needs to be added to the blockchain before it is processed. ETH transactions take about 20 seconds.
The number of bitcoins that can exist is limited to 21 million. By the year 2140, this number is expected to be reached. ETH will not exceed 100 million units for a while and is expected to be around for a long time. Ethereum uses blockchain technology to create a ledger of transactions when certain conditions are met, and bitcoin is used for transactions involving goods and services. Ethereum uses the ethash algorithm, while Bitcoin uses SHA-256.
As of Oct 2022, 1 bitcoin equals $19987.70 dollars, and 1 ether equals $1354.37
How Cryptocurrencies Will Change the World
When it comes to cryptocurrencies, there is a clear divide in the world. Cryptocurrencies are supported by people such as Elon Musk, Bill Gates, Al Gore, and Richard Branson. Warren Buffet, Paul Krugman, and Robert Shiller, on the other hand, are against it. Nobel prize winning economists Krugman and Shiller call it a Ponzi scheme and a criminal scheme.
Regulation and anonymity will clash in the future. It makes sense for governments to regulate cryptocurrencies since several have been linked to terrorist attacks. As opposed to this, cryptocurrencies put a lot of emphasis on ensuring anonymity for users.
The number of people who believe in cryptocurrency as a means of transacting is predicted to rise to 25 percent by 2030, which means a large chunk of the world will start using cryptocurrencies to transact. Merchants and customers will increasingly accept it. Since it has been volatile for the past few years, prices will continue to fluctuate.