WHAT IS CRYPTOCURRENCY
A Cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency. Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled.
There have been many attempts at creating a digital currency during the 90s tech boom, with systems like Flooz, Beenz and DigiCash emerging on the market but inevitably failing. There were many different reasons for their failures, such as fraud, financial problems and even frictions between companies’ employees and their bosses.
Notably, all of those systems utilized a Trusted Third Party approach, meaning that the companies behind them verified and facilitated the transactions. Due to the failures of these companies, the creation of a digital cash system was seen as a lost cause for a long while.
Then, in early 2009, an anonymous programmer or a group of programmers under an alias Satoshi Nakamoto introduced Bitcoin. Satoshi described it as a ‘peer-to-peer electronic cash system.’ It is completely decentralized, meaning there are no servers involved and no central controlling authority. The concept closely resembles peer-to-peer networks for file sharing.
Within a cryptocurrency network, only miners can confirm transactions by solving a cryptographic puzzle. They take transactions, mark them as legitimate and spread them across the network. Afterwards, every node of the network adds it to its database. Once the transaction is confirmed it becomes unforgeable and irreversible and a miner receives a reward, plus the transaction fees.
Essentially, any cryptocurrency network is based on the absolute consensus of all the participants regarding the legitimacy of balances and transactions. If nodes of the network disagree on a single balance, the system would basically break. However, there are a lot of rules pre-built and programmed into the network that prevents this from happening.
Cryptocurrencies are so called because the consensus-keeping process is ensured with strong cryptography. This, along with aforementioned factors, makes third parties and blind trust as a concept completely redundant.
What can you do with cryptocurrency
There are a lot of merchants – both online and offline – that accept Bitcoin as the form of payment. They range from massive online retailers like Overstock and Newegg to small local shops, bars and restaurants. Bitcoins can be used to pay for hotels, flights, jewelery, apps, computer parts and even a college degree.
Other digital currencies like Litecoin, Ripple, Ethereum and so on aren’t accepted as widely just yet. Things are changing for the better though, with Apple having authorized at least 10 different cryptocurrencies as a viable form of payment on App Store.
Of course, users of cryptocurrencies other than Bitcoin can always exchange their coins for BTCs. Moreover, there are Gift Card selling websites like Gift Off, which accepts around 20 different cryptocurrencies. Through gift cards, you can essentially buy anything with a cryptocurrency.
Finally, there are marketplaces like Bitify and OpenBazaar that only accept cryptocurrencies.
Most common cryptocurrencies
•BITCOIN— The first ever cryptocurrency that started it all.
Ethereum — A Turing-complete programmable currency that lets developers build different distributed apps and technologies that wouldn’t work with Bitcoin.
•RIPPLE— Unlike most cryptocurrencies, it doesn’t use a Blockchain in order to reach a network-wide consensus for transactions. Instead, an iterative consensus process is implemented, which makes it faster than Bitcoin but also makes it vulnerable to hacker attacks.
•BITCOIN CASH — A fork of Bitcoin that is supported by the biggest Bitcoin mining company and a manufacturer of ASICs Bitcoin mining chips. It has only existed for a couple of months but has already soared to the top five cryptocurrencies in terms of market cap.
•NEM — Unlike most other cryptocurrencies that utilize a Proof of Work algorithm, it uses Proof of Importance, which requires users to already possess certain amounts of coins in order to be able to get new ones. It encourages users to spend their funds and tracks the transactions to determine how important a particular user is to the overall NEM network.
•Litecoin — A cryptocurrency that was created with an intention to be the ‘digital silver’ compared to Bitcoin’s ‘digital gold.’ It is also a fork of Bitcoin, but unlike its predecessor, it can generate blocks four times faster and have four times the maximum number of coins at 84 mln.
•IOTA — This cryptocurrency’s breakthrough ledger technology is called ‘Tangle’ and it requires the sender in a transaction to do a Proof of Work that approves two transactions. Thus, IOTA has removed dedicated miners from the process.
•NEO — It’s a smart contract network that allows for all kinds of financial contracts and third-party distributed apps to be developed on top of it. It has many of the same goals as Ethereum, but it’s developed in China, which can potentially give it some advantages due to improved relationship with Chinese regulators and local businesses.
How to buy
There are a lot of different options when it comes to buying Bitcoins. For example, there are currently almost 1,800 Bitcoin ATMs in 58 countries. Moreover, you can buy BTC using gift cards, cryptocurrency exchanges, investment trusts and you can even trade face-to-face.
When it comes to other, less popular cryptocurrencies, the buying options aren’t as diverse. However, there are still numerous exchanges where you can acquire various crypto-coins for flat currencies or Bitcoins. Face-to-face trading is also a popular way of acquiring coins. Buying options depend on particular cryptocurrencies, their popularity as well as your location.