Fundamentals Of Cryptocurrencies & Bitcoin
I want to share with you some tips I receive by mail from BitcoinExchangeGuide I think it's interesting to have a better understanding of this new world of technology.
- Why bitcoin is the world’s top cryptocurrency (hint: it’s mostly due to “first mover” advantage)
- How the mysterious Satoshi Nakamoto created bitcoin
- Why bitcoin is still in its infancy with plenty of room for growth
- Why cryptography and decentralization are so important for cryptocurrencies
What Are Cryptocurrencies?
The term “cryptocurrency” is short for “cryptographic currency”. It refers to a new type of digital money.
Bitcoin was the world’s first cryptocurrency. Today, there are over 1500+ cryptocurrencies – including well-known tokens like Ethereum and silly ones like Weedcoin.
Cryptocurrencies are similar to regular currencies. They can be used as a medium of exchange or a store of value. You can buy products and services with cryptocurrencies. Or, you can store your wealth in cryptocurrencies.
Why Cryptocurrencies Are Valuable
Why did we need to launch an entirely new wave of currencies? What’s the value behind cryptocurrencies? The value lies in three core principles: Decentralization, Fixed Supply, and Transferability.
Decentralization
Traditional currencies – like the US Dollar – are controlled by institutions like the US Federal Reserve System. Other countries have their own central banks – like the Bank of Canada or the Bank of England. These institutions allow governments and banks to control the supply of currency. They can “print” units of this currency whenever they like.
When a government prints money, that money is called a fiat currency. “Fiat” simply means “by decree”. A piece of paper only has value “by decree” when the US government puts their stamp on it and calls it a $100 bill, for example.
Cryptocurrencies work differently. Cryptocurrencies are not controlled by anyone. They’re not controlled by any specific person, nor are they controlled by a government or bank. Cryptocurrencies like bitcoin are “decentralized” because control is spread across the entire network of bitcoin users.
Fixed Supply
Cryptocurrencies also work differently because their supply is capped. There can only ever be 21 million bitcoins in existence, for example. Meanwhile, traditional fiat currencies like the USD have no fixed supply: the government can print off more US Dollars whenever they like. That’s why we have inflation. The total amount of USD bills in circulation is increasing every year, which means the value of each USD bill in circulation is gradually decreasing. Bitcoin and other cryptocurrencies have a fixed supply that leads to deflation instead of inflation – which is why the value of bitcoin has steadily increased over time.
Transferability
The other unique thing about cryptocurrencies is their transferability. Cryptocurrencies can easily be transferred anywhere in the world without the need to rely on a third party – like a bank. You can send bitcoin anywhere in the world without needing to verify your identity or attach personal information to a transaction.
Most cryptocurrencies also have comparatively low fees. It might cost $50 to transfer $200 with Western Union, for example, but only $0.05 to transfer $2 million in Bitcoin. This is a huge benefit to anyone in the world – whether you’re a millionaire seeking to transfer money securely and cheaply or you’re a migrant worker sending money to friends and family overseas.
Cryptocurrency transfers have another advantage: transfers are irreversible and secure, which means merchants don’t have to worry about the cost of fraud or chargebacks.
Why Bitcoin Is a Big Deal
Bitcoin was introduced online in October 2008. By January 2009, the bitcoin blockchain had released its first bitcoin. So began the age of cryptocurrencies.
Bitcoin was the first to introduce the concept of a distributed ledger – something we know as the blockchain. Today, bitcoin remains the largest and most popular cryptocurrency by market cap. In fact, bitcoin has not been dethroned once since 2009 – despite challengers like Bitcoin Cash (BCH), Ethereum (ETH), and Litecoin (LTC) coming close at various points in history.
Bitcoin grew in popularity for all the reasons listed above: it’s easy to transfer. It’s decentralized and censorship-resistant. And it can be accessed without the need for traditional banks.
In terms of cryptocurrencies, however, bitcoin isn’t the best cryptocurrency in the world today. It’s not the fastest cryptocurrency. In fact, a bitcoin transaction takes about 10 minutes to complete – compared to milliseconds for other cryptocurrencies. Bitcoin is also plagued by relatively high fees – transactions can cost several dollars compared to fractions of a penny on other blockchains.
Bitcoin clearly has drawbacks. Bitcoin, however, remains popular because of its first mover advantage. Bitcoin was the first cryptocurrency to emerge on the scene – and that’s why it remains so popular.
Satoshi Nakamoto: The Mysterious Creator of Bitcoin
Bitcoin, like a good superhero, has an intriguing origin story. You may have heard about Satoshi Nakamoto. Satoshi created bitcoin.
Satoshi isn’t some Japanese computer programmer. Instead, Satoshi Nakamoto is an anonymous individual – or an anonymous group of people – responsible for the creation and early development of bitcoin. Nakamoto first published bitcoin’s research paper online on October 31, 2008. The paper was titled, “Bitcoin: A Peer-to-Peer Electronic Cash System.”
Satoshi continued to develop bitcoin until mid-2010. Satoshi actively communicated with other bitcoin developers while contributing to the bitcoin source code. Then, Satoshi suddenly disappeared. Satoshi handed control of the bitcoin source code repository to another core developer named Gavin Andresen. Satoshi also transferred several domains to various prominent members of the bitcoin community. Then, Satoshi was never heard from again.
The main innovation in Satoshi’s Bitcoin invention was the development of a distributed computation system known as the “proof-of-work algorithm” that conducts global transaction validation every 10 minutes, allowing the network to validate and come to consensus agreement about the state of each transaction.
Bitcoin was the first decentralized digital currency to use the blockchain technology and after its proven record of success and practicality it has gain acceptance among both merchants and consumers.
The Growth of Bitcoin
The bitcoin network launched in January 2009. In the early days, you could “mine” bitcoin with any ordinary computer. You could also purchase bitcoins for a fraction of a penny. The value of the currency grew over the years. Eventually, people recognized the value of a decentralized, global currency. Retailers began accepting bitcoin and software developers started creating bitcoin tools. The value and usability of bitcoin continued to grow.
The day bitcoin hit parity with the USD was a huge deal. Bitcoin users celebrated like they had just won the lottery. Finally, one bitcoin was worth $1 USD. Bitcoin reached parity with the USD in February 2011.
A few short years later, bitcoin hit an all time high of $1400 USD. Then, it crashed back down to $300 or $400 after the Mt. Gox hack. In 2017, bitcoin hit a new all time high of $20,000 before settling back to $10,000.
The exciting news If you are reading this today is that the digital currency have not reach mass adoption yet. Is safe to say we are just scratching the surface for the potential of Bitcoins and cryptocurrency.
With cryptocurrencies transactional value going up everyday, a pre fix market cap and the produce supply of cryptocurrency decreasing over time, the value of Bitcoin should continue on a rising trend. As opposed to fiat currency that usually decreases and loses value over time.
Recent Comments
27
Good to hear a clear story of this amazing new currency story, Jean-francois. Who knows the future, but thank you for what seems an accurate presentation of the history.
Hi, i've followed you JF. I'm kinda skeptical about crypto-currencies, mainly because I don't really see them as a risk controlled way of making money. But i'm willing to read what you write because I always need to educate myself further.
Dave
Great information - very useful!
Thanks so much for sharing!
Wish you smashing success!
Bob
I currently have $12 worth of bitcoins that grew from .70c last year...in a wallet. I am fascinated by its growth although it has slowed down a lot. Do you think it will phase out?
hi, thanks for your comment, to answer your question regarding the bitcoin, i think it's a referencial cryptocurrency and stabilizated now probably grow in 2019 and after. Anyway, if bitcoin fall down, all crypto do the same and reverse!!
in 2019 arrive new technology name is STO, security Token offering, based on crypto and physical assets...so crypto is the future on my point of view
The main problem with Bitcoin is speed..he can handle max 10 transactions per second...What?? Really promising currency for online payment..lol.
Bitcoin and fiat currency are..numbers on computers.
. Before 1970, the money had value in gold. After 1970 the money in banks became numbers on the computer. There are no differences.
The second problem is...security...If you have a bank card, the money is not on the card. While bitcoins are on a PC, laptop or mobile phone or hard offline wallets.
If a hacker comes to the bitcoins on your iPhone. You lose the bitcoins.
hi Leonardo,
the only problem with people actually is the lake of linancial literacy...
Actually every people use debt and credit card, the bank generate money to cover your need, and you have to work to sold your debt, with real money coming from your salary or revenues...
Crypto exchange is just peer to peer exchange, without big fees, and not based on debt...
for security, do you think your money in your bank account is in security?
We can discuss on topics, anyway thanks a lot for your comment, i wsih you the best!!
JF
Very interesting post. I like cryptocurrencies because it is very simple payment method in compare with PayPal for example. No matter where are you live you can use crypto. But problem is about security. Too many people are using online wallets and that is very unsafe. Recently I have bought hardware wallet and now I sleep well. I have also blog about crypto but I dont like to give predict what will be with BTC and other crypto price. Security should be focus - not just a price.
thanks for comment,
about security, the serious wallets ask you KYC, and this help you for tracability and security exchange.
I am agree with you focus on security, the price for bitcoin is more or less at the right value now and probably up in 2019 but the question is how... can't predict!!
Thank you for this. Very clear.
Just one question
Does it mean, I can uh.. create my own bitcoin?
thanks for your comment, you can, but you have to know technology behind,... write a whitepaper for your project and we can discuss this topics!!
LOL...you've got your thinking cap on.
I like it.
Good thinking...I might just do the same.
And then we're RICH...lol.
Got my own money...that I own...sounds good!
All the best.
What your opinion of how the market will be by end of this year. So many opinions at the moment I been scared to write about crypto in the last few months
hello Sam,
for me crypto is for tomorrow, we have to stay focus on the value, security, and check bitcoin evolution, because now it's a reference now, probably the bitcoin is at the right level now, and should be grow up a little during this year.
Be focus and follow the new technology about Security Token Offering, STO, based on physical asset, it's will be the future of the new market!!
it's a pleasure to share about this topics here!!
have a great day!!
JF
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I suggest you remove that external link....
ok i will do, i just want to give my source, it's not a commercial link!! thanks for your advert!!