Cryptocurrencies have become the hottest trend in the market these days and everyone is clamoring to find more about them. What exactly is cryptocurrency?
Brought to you by Guy Galboiz
In simple terms, it is a virtual or digital currency created to work as a medium of exchange. We recently invited Guy Galboiz, a renowned crypto influence, to share his knowledge about cryptocurrencies. As per Guy, Transactions are secured and verified through the use of cryptography and it can also be useful for controlling the creation of more units of a specific cryptocurrency. This means that they are limited entries in a database and they cannot be altered until certain conditions are met.
From its beginning to the current popularity, Guy Galboiz shared almost everything he could, about the cryptocurrencies. Read below to learn all about this new trend:
Background – During the tech boom of the 90s, there were a number of attempts for creating a digital currency and various systems such as Beenz, Flooz and DigiCash being launched, but they inevitably failed. There were several reasons for their failure such as financial problems, fraud and even friction between companies and their employees. A Trusted Third Party approach was used by all these systems, which meant that the transactions were verified and facilitated by the companies behind them.
As these companies failed, it was widely believed that a digital cash system was a lost cause. It wasn’t until 2009 that Bitcoin was introduced by Satoshi Nakamoto. It was described as a ‘peer-to-peer electronic cash system’ by the creator and the beauty of Bitcoin was that it was fully decentralized. Therefore, there was no central controlling authority and no servers were involved and this concept is very similar to the peer-to-peer networks that are used for file sharing.
According to Guy Galboiz, Double spending is a very common problem that can be found in any payment network. It is essentially a fraudulent technique because the same amount is spent twice. A trusted third party was seen as a solution and it would act a central server keeping records of the transactions and balances.
However, the downside of this solution was that there was an authority controlling your funds and personal information. A decentralized network such as Bitcoin eliminates this third party and every participant is responsible for their own funds and information. Why?
This is because a public ledger called the Blockchain is used, which keeps the record of every transaction that takes place within the network and it can be accessed by everyone. Hence, everyone in the network can see the balance of every account. Guy Galboiz explains that the file of every transaction comprises of the public keys (wallet addresses) of both recipient and sender, along with the amount transferred. The sender also needs to sign off the transaction with their private key. This is all part of basic cryptography and the transaction is eventually broadcasted, but needs confirmation first.
In a cryptocurrency network, transactions can only be confirmed by miners as a cryptographic puzzle has to be solved. They mark the transactions as legitimate and then broadcast them across the network. After the confirmation of the transaction, it cannot be reversed and the miner gets a reward and transaction fee. In this network, the legitimacy of transactions is proved with the absolute consensus of everyone involved and if there is a disagreement between the nodes of the network on even a single balance, the system would fail. This process of consensus-keeping is maintained via strong cryptography, which has earned cryptocurrencies their name. All these factors combined have ensured that blind trust and third parties are completely redundant.
Uses of Cryptocurrency
As explained by Guy Galboiz, Cryptocurrencies can now be used in multiple ways in today’s world. Some of the purposes they can fulfill are:
- Purchasing goods – Previously, it was very difficult to find a merchant willing to accept cryptocurrencies, but the situation has changed now. You can find plenty of merchants, both online and offline, who are more than willing to accept Bitcoin and other cryptocurrencies as a form of payment. These range from massive retailers to small restaurants, local shops and bars. You can also use them to pay for jewelry, flights, hotels, computer parts, apps and even your college tuition. Ripple, Litecoin and Ethereum are the other currencies that are being accepted, though not as widely as Bitcoin. One biggest example of adoption is Apple’s decision to accept 10 different cryptocurrencies as a form of payment on its App Store.
- Making investments – As aforementioned, cryptocurrencies are one of the most popular investment vehicle available nowadays. Indeed, there are a lot of investors who became millionaires thanks to their investment in Bitcoin. In November 2017, the price of a single Bitcoin exceeded $7,000 and it is the most recognizable cryptocurrency.As per Guy Galboiz, the second most valued cryptocurrency is Ethereum and it recorded the fastest rise ever demonstrated by a currency. However, it is also important to note that these cryptocurrencies are regarded as high-risk investments because their market value fluctuates constantly.Furthermore, as it is partly unregulated, they carry the risk of being outlawed in some jurisdictions and cryptocurrency exchanges can also be hacked. If you are thinking of making an investment, you will first need to select a cryptocurrency exchange also choose the cryptocurrency you want to invest in. Bitcoin remains the dominant one, but its market share has fallen dramatically as new ones are being introduced and accepted.
- Mining – The single most important part of any cryptocurrency network are the miners and mining is also an investment like trading. Put simply, miners provide a bookkeeping service and they use their computing power for solving cryptographic puzzles, which are essential for confirming a transaction and recording it in the Blockchain. An interesting thing about mining is that the puzzles’ difficulty increases constantly, depending on the number of people trying to solve it.Thus, when a cryptocurrency becomes popular, more people attempt to mine it and the process gets more difficult. Numerous people made their fortunes by mining Bitcoin in the initial days of the cryptocurrency and substantial profits were made from mining with a PC or a powerful laptop. Nowadays, mining can only be profitable with industrial-grade mining hardware, which is expensive and can lead to huge electric bills. Currently, the most cost-effective currencies for beginners are Litecoins, Feathercoins and Dogecoins.
- Accepting payments – Those who are running a business can introduce cryptocurrencies as a form of making payments on their platform. The public’s interest in cryptocurrencies is on the rise and offering them this option is more likely to bring the business more customers. Crypto-ATMs are also being introduced, which is an indication of their growing popularity. Brick and mortar stores can use hardware terminals for accepting payments in cryptocurrencies whereas online businesses can go with simple wallet addresses via QR codes or touch screen apps. There are plenty of services that can be used for accepting payments in cryptocurrencies like CoinPayments, which takes 0.5 percent commission for every transaction.
Legal Status of Cryptocurrencies
In the last few years, cryptocurrencies have gained recognition and are becoming more and more mainstream. Therefore, tax authorities, law enforcement agencies and legal regulators all around the globe are trying to understand their concept in order to see where they fit in existing legal frameworks and regulations. As per the analysis of Guy Galboiz, a whole new paradigm was created with the launch of Bitcoin, the first of its kind. Self-sustained, decentralized digital currencies that don’t exist in any physical form or shape and are not under the control of any entity were always bound to create an uproar amongst the regulators.
The decentralized nature of these cryptocurrencies has raised a lot of concerns, along with their ability of allowing users to enjoy complete anonymity. Authorities worldwide are concerned that criminals and illegal traders will take advantage of this nature of cryptocurrencies and there are also worries that they will be used for tax evasion and money laundering schemes. As a result, some prominent countries have outlawed cryptocurrencies, some are on the verge of doing so while others are still contemplating.
Bitcoin may have been the first cryptocurrency to be introduced, but it is no longer alone in the market. Since then, a wide array of cryptocurrencies have been launched in the market. Guy Galboiz arranged some of the popular ones as per their reliability and ease of use below:
- Ethereum: This programmable currency can be used by developers for building technologies and apps that are not compatible with Bitcoin.
- Ripple: As compared to other cryptocurrencies, Ripple doesn’t use Blockchain for recording and approving transactions. It implements an iterative consensus process due to which it is faster than Bitcoin, but also more vulnerable to attacks.
- Bitcoin Cash: It has the support of the biggest Bitcoin mining firm and is a fork of Bitcoin that rose to popularity very quickly.
- Litecoin: This cryptocurrency was created for becoming ‘digital silver’ to the ‘digital gold’ of Bitcoin. Another fork of Bitcoin, Litecoin is four times faster at generating blocks and has four times more coins than its predecessor.
- Dash: You will find a two-tier network with this cryptocurrency the first of which is the miners responsible for securing the network and recording transactions. The second tier includes ‘masternodes’ for relaying transactions and enabling PrivateSend and InstantSend type of transactions. The former provides anonymity whereas the latter is a lot faster than Bitcoin.
- Qtum: This is a combination of technologies of Ethereum and Bitcoin and targets business applications. In this network, users can see the reliability that Bitcoin is renowned for and can also use smart contracts and distributed apps, which are associated with Ethereum’s network.
- Monero: The privacy-focused and open ideals of Monero has ensured that it has one of the most active communities and this cryptocurrency also boasts capabilities of private transactions.
- IOTA: ‘Tangle’ is the breakthrough ledger technology associated with this particular cryptocurrency. Senders in a transaction are required to do Proof of Work that can approve two transactions. Hence, dedicated miners have been removed from the process by IOTA.
- NEO: All kinds of third party apps and financial contracts can be developed on this smart contract network. A number of goals of NEO are very similar to that of Ethereum, but the former has been developed in China. This can give it considerable advantage because of its better relationship with local businesses and Chinese regulators.
How to Store Cryptocurrencies?
As compared to traditional currencies, cryptocurrencies are a virtual currency, which means that a completely different approach is to be used for storing it. In technical terms, you are not actually storing the units of your particular cryptocurrency; instead, you possess a private key that’s used for signing for transactions and it is this key that needs to be stored securely. There are a myriad of cryptocurrency wallets that can be found these days and they all cater to different needs.
According to Guy Galboiz, hardware and paper wallets are more suitable for those people for whom privacy is a major priority. These are regarded as the more secure way of storing your cryptocurrency funds. You can also find cold or offline wallets that are stored on your hard drive. Online wallets are also an option and they are offered by exchanges, but independent options can also be found.
How to Buy Cryptocurrencies?
There are a horde of options at your disposal when you are interested in purchasing Bitcoins. For instance, there are nearly 1,800 Bitcoin ATMs that can be found in more than 58 countries. Apart from that, you can also buy this major cryptocurrency through investment trusts, on online cryptocurrency exchanges, via gift cards or you can also opt to trade face-to-face. Every day, more and more options are being introduced.
Moving onto the other and less popular cryptocurrencies, the buying options may not be as diverse as the pioneer, but they are definitely increasing gradually as awareness continues to spread. You can buy other cryptocurrencies through numerous exchanges as they are selling crypto-coins for fiat currencies or even Bitcoins. Another popular way of acquiring other cryptocurrencies is through face-to-face trading. The buying options can also vary as per your location and also the popularity of the particular cryptocurrency you are interested in.
Suffice it to say, cryptocurrencies are rapidly becoming an important aspect of various industries and are going to have a major impact in the world of cryptocurrencies and trading.