Financial Technology and Arising Digital Currencies
A cryptocurrency is a digital currency that is designed to serve as a medium of exchange. In other words, a cryptocurrency is a form of money that can be used in making transactions online. Cryptocurrencies are designed such that they use cryptography to secure and validate transactions.
The prefix crypto- stands for “cryptography.” Cryptography is the process of converting clear information into an unintelligible text which is hard to crack. Asides helping to authenticate transactions, cryptography also protects data from theft or alteration.
Cryptography was used by the Allied Forces to send and receive secret messages during the Second World War. However, it has since evolved into a tool which developers now incorporate into cryptocurrency to help secure information.
The difference between cryptocurrencies and fiat currency such as the US Dollar or Great British pound is that governments do not support digital currencies in the same way that they do conventional currencies.
Bitcoin was the first cryptocurrency to be introduced and remains the gold standard for digital currency, as the value of all other digital coins are based on and tied to the price of Bitcoin. Consequently, a change in the price of Bitcoin can bring about a change in the price of other cryptocurrencies. These other currencies are generally referred to as “altcoins.”
How Do Cryptocurrencies Work?
Cryptocurrencies work by using decentralized technology to enable adopters to execute transactions and store funds online without revealing their private information such as name or use a bank. Users save their money in “cryptocurrency wallets.” Each wallet has an address which can be used to send funds into it.
Cryptocurrency transactions are recorded on a distributed ledger known as the blockchain. The blockchain stores information regarding transactions between two crypto adopters in a secure, verifiable, and permanent way.
Units of digital currencies are created using a process known as “mining,” which involves the use of sophisticated computer software to solve complicated math puzzles. Coins aren’t generated until a problem is answered correctly.
What Are the Most Common Cryptocurrencies?
The most common cryptocurrencies today include:
• Bitcoin: Developed in 2009 by an individual who assumed a fake identity under the pseudonym, Satoshi Nakamoto, Bitcoin was the first cryptocurrency to be created and is the most common cryptocurrency on the market today.
• Ethereum: Ethereum was initially released in July 2015. Currently, it is the second most well-known digital currency after Bitcoin. The underlying currency of the Ethereum network is the ether.
• Litecoin: Litecoin is one of the top cryptocurrencies in the world today by market capitalization. The currency was released in October 2011 and has since gone on to prove its mettle as a faster and cheaper alternative to Bitcoin, the currency around which it is modeled.
• Ripple: Ripple was released in 2012 as a fast money transfer network and cryptocurrency. The system is intended to serve as a global settlement network that allows users to send funds in any currency to any currency within seconds.
• Bitcoin Cash: Bitcoin cash was initially released in August 2017. The currency is built upon the Bitcoin model and is designed to offer faster transaction speeds and lower fees.