When you hear of cryptocurrency or crypto coins the first thing that will pop up in your mind is Bitcoin. Well, I guess you know about Bitcoin. But have you ever thought why Bitcoin is most preferred for black market online activities as a method of payment. One good reason is the presence of cryptic currency on their platform. Well, cryptocurrency is a medium of exchange that uses cryptography to control creation of additional currency and secure transactions.
It is a form of digital currency or asset that was first introduced by Bitcoin in 2009 as a decentralized mode of payment thus they use decentralized control as opposed to centralized control used by banking systems and electronic money (e-cash). Though the emergence of cryptocurrency has come with some merits but not without a share limitations and criticism.
According to Bitcoin this is how the madness works; first you install a Bitcoin wallet on your computer or mobile phone, you will be issued with your first Bitcoin address, thereafter you can create more. This is the address people will use to pay you but they are used once. All the confirmed transactions are included in the block chain, which is a shared public ledger on which the entire Bitcoin network relies. This helps Bitcoin wallets to calculate their spendable balance and verification of new transactions for spending.
The chronological order and by far the integrity of the block chain are enforced with cryptography. Bitcoin wallets hold a secret piece of data called a private key or seed that is used in signing transactions for authentication purposes and to prevent any form of altercation. A transaction implies to transfer of value between Bitcoin wallets. Through a process called mining, in 10 minutes transactions are confirmed by the network and then broadcasted between users.
Mining is a distributed consensus system that confirms waiting transactions by including them in the block chain. It prevents any one from adding new blocks consecutively in the block chain by creating the equivalent of a competitive lottery, to allow individuals have control over what is included in the block chain or replace parts of the block chain to roll back their own spends. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system.
In order to be confirmed transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevents previous blocks from being modified, to avoid invalidation of following blocks. To earn the Bitcoins you can either sell goods or services through bitcoin marketplaces, mine for bitcoins or simply use exchange services that can allow you to buy and sell bitcoins for your local currency.
According to Bitcoin founders, “…all that is required for a form of money to hold value is trust and adoption. In the case of Bitcoin, this can be measured by its growing base of users, merchants, and startups. As with all currency, Bitcoin’s value comes only and directly from people willing to accept them as payment.” With the Bitcoin price peaking at more than $20,000, millions have been minted, making it a viable venture for other prospectors.
Some of the alternative digital coins that have emerged include; Mastercoin, MazaCoin, Namecoin, NuBits, Peercoin, Titcoin, Ethereum, Litecoin, Reddcoin, Hayek, zCash, Dogecoin, Monero, Peercoin, Ripple, Shadowcash, Bytecoin, Dash, Devcoin, among others. The embracement of cryptocurrencies pose a significant challenge to central banks’ ability to influence the price of credit for the whole economy and crippling their control over monetary and exchange rate policies.
Statistical agencies have also lamented that the spread of cryptocurrency has been a major hindrance in gathering data on economic activities. Since the introduction of cryptocurrency by Bitcoin, there have been rising concerns about an unregulated global economy as the demand and popularity of online currencies, transactions and modes of payment increase. The threats of such currencies range from web crimes, high risk, thin markets and volatility, evasion of taxes to money laundering etc.
Even to invest in any form of cryptocurrency, it’s not that simple as you think. The values fluctuates widely and quickly. It requires a deep analysis and monitoring of these cryptic currencies and be be prepared for the consequences that might follow. The process has been hardened in that, for you to earn anything you have to join a mining pool.
The rewards were also designed to be halved after every four years in order to keep the total number of bitcoins in circulation to 21 million at most, so as to prevent inflation. At the moment, the reward for each block mined is 12.5 bitcoins (BTC) per block (approximately every ten minutes) until mid 2020, which will be reduced to 6.25 BTC per block for 4 years until next halving in 2024. This halving continues until 2110–40, when 21 million bitcoins will have been issued.