With the recent rise in popularity of cryptocurrency, you’ve probably heard about bitcoin, Ethereum, and other types of blockchain-based currencies. But what exactly are they? And why are people so excited about them? Here’s everything you need to know about cryptocurrency and the future of money.
The History Of Currency
Before we get into cryptocurrency, it’s worth taking a minute to understand how currencies are currently issued. The U.S. dollar was initially backed by gold before being slowly phased out in favor of a fiat currency — one that’s not backed by any physical commodity.
What is cryptocurrency?
Cryptocurrencies are digital representations of value that can be exchanged between two parties without using traditional methods. Unlike traditional forms of money, cryptocurrencies are not issued by governments. Instead, they’re created through a process called mining or generated in exchange for another service. The biggest cryptocurrencies right now include Bitcoin, Ethereum, Litecoin, Monero, and Ripple.
Where did cryptocurrency come from?
Cryptocurrencies can trace their origins back to 1998, when Wei Dai published a description of b-money, an anonymous, distributed electronic cash system. In 2009, Nick Szabo created what they call Bit Gold—the first cryptocurrency that used a proof-of-work scheme to validate and authenticate each transaction. The first Bitcoin exchange took place in 2010, but widespread adoption didn’t occur until 2012–2013.
How Does it Work?
A cryptocurrency is a digital currency that operates independently of any centralized bank or authority. Each digital coin contains encrypted information about its origin, allowing each transaction to be verified as unique and valid. While transactions are made public, identities remain anonymous; every user has a public key they can use to accept coins from other users but no one can link a name or identity to it.
What Does This Mean for our Economy
Cryptocurrencies (such as Bitcoin) are digital currency that is not backed by any government. This means that your cryptocurrency, or Bitcoin, will be worth whatever someone else is willing to pay for it. In other words, your Bitcoins are only worth what people say they’re worth (which can fluctuate wildly). As a result, your investment in cryptocurrency has more potential for loss than for gain compared to what you may be used to with traditional investments.
Changing Our Relationship with Money
For many of us, money is a source of stress. We work longer hours so we can earn more, but once that’s done, we realize all we want to do is spend that money. We tend to place value on having as much as possible; being wealthy means having more than everyone else.
Blockchain Technology – The Big Deal
Blockchain technology is on a mission to change how we do business. What many don’t know, however, is that blockchain isn’t just for business. It could also be a major factor in transforming finance, government operations, and how we live our lives…more…
Are There Risks Associated With Crypto?
Cryptocurrencies aren’t always 100% secure. Like any other financial technology, cryptocurrencies can be vulnerable to hacks, scams, and fraud. If a cryptocurrency startup fails or gets hacked, its investors may lose all their money. In many cases, these attacks are coordinated by criminal organizations looking to make a quick buck. As a result, protecting your cryptocurrency from potential threats is your responsibility as an investor.
Why are Governments Worried About Crypto?
If a crypto-currency becomes too popular, governments might lose their ability to control it. This means less freedom for people to trade as they wish. This isn’t necessarily a bad thing, but it does mean that governments are looking at ways to protect themselves from crypto-crypto.
Could Cryptocurrency Become Universal Currency?
One of blockchain’s biggest selling points is its ability to do away with centralized ledgers, which can make transactions virtually instantaneous. It’s entirely possible that a decentralized cryptocurrency could become an international currency accepted anywhere in the world. Bitcoin already has a large following internationally, but it hasn’t achieved universal acceptance yet; many countries are hesitant to embrace it because they don’t have complete control over their own monetary policy.