What is cryptocurrency, how does it work and why do we use it?
How do cryptocurrencies work?
Cryptocurrencies use decentralised technology to let users make secure payments and store money without the need to use their name or go through a bank. They run on a distributed public ledger called blockchain, which is a record of all transactions updated and held by currency holders.
What are the most common cryptocurrencies
Bitcoin: Bitcoin was the first and is the most commonly traded cryptocurrency to date. The currency was developed by Satoshi Nakamoto in 2009, a mysterious figure who developed its blockchain. It has a market capitalisation of around $45 billion as of July 2017.
Ethereum: Developed in 2015, ethereum is the currency token used in the ethereum blockchain, the second most popular and valuable cryptocurrency. Ethereum has a market capitalisation of around $18bn as of July 2017. However, ethereum has had a turbulent journey. After a major hack in 2016 it split into two currencies, while its value has in recent months reached as high as $400 but crashed briefly to as low as 10 cents.
Ripple:: Ripple is another distributed ledger system that was founded in 2012. Ripple can be used to track more kinds of transactions, not just of the cryptocurrency. It has been used by banks including Santander and UBS and has a market capitalisation of around $6.3 billion.
Litecoin:: This currency is most similar in form to bitcoin, but has moved more quickly to develop new innovations, including faster payments and processes to allow many more transactions. The total value of all Litecoin is around $2.1 billion.
What is it?
A digital currency, used to make payments of any value without fees. It runs on the blockchain, a decentralised ledger kept running by “miners” whose powerful computers crunch transactions and are rewarded in bitcoins
Who invented it?
Satoshi Nakamoto, a secretive internet user, invented bitcoin in 2008 before it went online in 2009. Many attempts to identify Satoshi have been made without conclusive proof
What’s it for?
People see value in money free from government control and the fees banks charge; as well as the blockchain, to verify transactions. Bitcoin has been seen as a tool for private, anonymous transactions, and it’s the payment of choice for drug deals and other illegal purchases
Is it worth anything?
Yes. As of July 2017, there were around 16.5m bitcoins in circulation. In March 2017, the value of a Bitcoin, at $1,268, exceeded that of an ounce of gold ($1,233) for the first time.
What is Bitcoin Cash?
In August 2017, the blockchain forked to support another cryptocurrency, Bitcoin Cash, which is optimised slightly differently. People who held Bitcoin received an equal value of Bitcoin Cash following this ‘hard fork’.
How Bitcoin Created ?
Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated maths problems that generate coins. Users can also buy the currencies from brokers, then store and spend them using cryptographic wallets.
What is Mining?
Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain, and also the means through which new bitcoin are released. Anyone with access to the internet and suitable hardware can participate in mining. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle. The participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards. The rewards, which incentivize mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin.
Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built and run without any downtime, fraud, control or interference from a third party. Ethereum is not just a platform but also a programming language (Turing complete) running on a blockchain, helping developers to build and publish distributed applications. The potential applications of Ethereum are wide ranging.it was Launched in 2015 .
There are two types of accounts:
Externally owned account (EOAs): an account controlled by a private key, and if you own the private key associated with the EOA you have the ability to send ether and messages from it.
Contract: an account that has its own code, and is controlled by code.
What is Ripple?
Ripple is a payments protocol and a cryptocurrency that were created by San Francisco-based Ripple Labs in 2012. Ripple Labs is a venture capital-backed startup that has develops global payments solutions for financial institutions. In the past five years, Ripple Labs has created a real-time gross settlement system (RTGS), a currency exchange, and a payment network called RippleNet.
According to Ripple Labs, “Ripple connects banks, payment providers, digital asset exchanges and corporates via RippleNet to provide one frictionless experience to send money globally,” and all of its transactions are recorded on the decentralized XRP Ledger.
Ripple is also a digital currency and is native to the RippleNet payment network. Ripple carries the ticker XRP, is currently the fourth largest cryptocurrency in the market with a market capitalization of over $6.5 billion. Ripple is used in the Ripple payment network to make transitions, pay for transaction fees and is necessary to be kept as a reserve in wallet addresses that uses the network. Ripple transactions take less than four seconds and over 1000 transactions per second can be processed on the network.
What Can Ripple Used For ?
Ripple can be used asinternational payment method for goods and services .
For Example :
If a company in the U.S. wants to pay a supplier in Mexico, it would normally need to pre-fund an account in Mexico or use an expensive money transfer operator that will take several days to complete the payment. Using ripple, however, the U.S.-based company, upon agreeing with the Mexican supplier to accept this form of transaction, can make the payment instantly and at a very low cost. The supplier then receives the ripples that can be turned into Mexican pesos using a ripple gateway.
Where to Buy And Store Ripple?
Ripple be bought and sold on most major cryptocurrency exchanges, including Kraken, Bitfinex, Poloniex, and BitStamp. The digital currency can also be bought cryptocurrency brokerage platforms such as Changelly or through the wallet provider and exchange GateHub.
GateHub is probably the most popular wallet for ripple holders as it not only allows you to store your coins but also provides an exchange where users can buy and sell ripples against a range of fiat and digital currencies. GateHub is used by both companies and individuals.
Other ripple wallets include Rippex, which is a desktop wallet for Linux, Windows, and iOS and the hardware wallet Ledger Nano S, which has been supporting ripple since May 2017. The latter is the most secure option for private individuals looking to buy and hold ripple as an investment as it allows for cold storage.
It is important to note that if users want to activate a ripple wallet, at least 20 XRP need to be deposited in the wallet for that to happen.
What is Litecoin?
Litecoin is a peer-to-peer Internet currency that enables instant, near-zero cost payments to anyone in the world.
Litecoin also is a decentralized digital currency like Bitcoin. It uses the same encryption techniques to transfer and create funds and to confirm transactions. The main difference between Bitcoin and Litecoin is that Litecoin has a larger amount of coins that can be created and it has faster transaction rates.
Litecoin is an open source, global payment network that is fully decentralized without any central authorities. Mathematics secures the network and empowers individuals to control their own finances.
Litecoin features faster transaction confirmation times and improved storage efficiency than the leading math-based currency.
Mining for Litecoin
The incentive for mining is that the first miner to successfully verify a block is rewarded with 50 litecoins (currently valued at about $100 U.S. dollars). The number of litecoins awarded for such a task reduces with time. In October of 2015 it will be halved, and the halving will continue at regular intervals until the 84,000,000th litecoin is mined.
But could one unscrupulous miner change the block, enabling the same litecoins to be spent twice? No. The scam would be detected immediately by some other miner, anonymous to the first. The only way to truly game the system would be to get a majority of miners to agree to process the false transaction, which is practically impossible.
Why would you use a cryptocurrency?
Cryptocurrencies are known for being secure and providing a level of anonymity. Transactions in them cannot be faked or reversed and there tend to be low fees, making it more reliable than conventional currency. Their decentralised nature means they are available to everyone, where banks can be exclusive in who they will let open accounts.
As a new form of cash, the cryptocurrency markets have been known to take off meaning a small investment can become a large sum over night.
But the same works the other way. People look to invest in cryptocurrencies should be aware of the volatility of the market and the risks they take when buying.
Because of the level of anonymity they offer, cryptocurrencies are often associated with illegal actvity, particularly on the dark web. Users should be careful about the connotations when choosing to buy the currencies.