THE BASICS
Most of you already know about Bitcoin, a cryptocurrency worth thousands of dollars, which has made people rich and has been founded by an anonymous figure named Satoshi Nakamoto. But what is Bitcoin and Cryptocurrency actually?
Cryptocurrency is basically virtual money which you can exchange amongst people. It gets its name from cryptography, which is just a method to secure financial transactions on the currency. To make things simpler, we know that every country has its own currency. For example, the US has the Dollar, India has the Rupee, and China has the Yuan. Just like that, imagine another country, which is the internet, which has its own currency called Cryptocurrency. And in Cryptocurrency, there are many different types as well, which all work together to do one thing, which is exchanging money amongst people.
As mentioned before, Bitcoin is a cryptocurrency created by Satoshi Nakamoto, an anonymous figure, whose Cryptocurrency made other digital currencies possible. Bitcoin was first released in October of 2008. Unlike other Cryptocurrencies at the time, it was successful due to Satoshi Nakamoto finding an idea to solve some problems that did not allow other Cryptocurrencies to exist. After suffering some major drawbacks from 2010-2013, it finally emerged as a clear player in the Cryptocurrency market. At this point in time, many other Cryptocurrencies also emerged, such as Namecoin and Litecoin. And in 2017, Bitcoin gained an all time high of $19,783.06 on December 17.
Bitcoin isn't the only Cryptocurrency, in-fact currently, there are over 1500 Cryptocurrencies in the market. Only a few of them actually are currencies you should invest in. In this site, we'll talk about which Cryptocurrency you should invest in and why.
USES OF CRYPTOCURRENCY
Now that you know the basics about Bitcoin, and other Cryptocurrencies, lets talk about the uses of Cryptocurrency and why they are so popular.
1) Using Cryptocurrency, one can send money to another person anywhere else in the world, with very low transaction fees, fast transactions, and with high security. This makes it a very low cost way of sending money which, unlike banks won't charge you high fees. A person sending $99 million worth of Litecoin only cost him/her 40 cents in fees and took only 2.5 minutes to process. Imagine if one had to do that transaction with a bank, it would be a much more lengthy and time consuming process.
2) On the news, a lot of you have probably heard about many people becoming rich by investing in Cryptocurrencies. A major reason many people buy Cryptocurrency today, is for a short term investment. Since Cryptocurrencies are much more volatile than regular currencies like the Dollar or the British Pound, it is easy to buy a lot of coins on a particular day and sell them after the price of the coin increases. But that is not the only way to earn money from Cryptocurrency, staking and mining are also very common methods.
3) Cryptocurrency can also be used for alternate uses like Buying Clean and Free Energy as well as helping Artists grow. This will be covered in future posts. Not only that, many Cryptocurrencies can be used to purchase items. You can use cryptocurrency for travel transactions, for school fees, and for buying real world objects.
NOT SO GOOD USES OF CRYPTOCURRENCY
1) A critical problem that Bitcoin faces is the illegal activity that gets facilitated through its currency each year. It is estimated that $72 billion dollars of illegal activity per year involves the usage of Bitcoin. Bitcoin can be used to gain access to drugs, and illegal pornography, as well as fund terrorism.
2) Just like I said before, the volatility of Bitcoin or other Cryptocurrencies that allows people to invest in the currency, can also be harmful to its mainstream adoption. This is because every time you put some money into Bitcoin, you can either make more money or even lose some money. Many people are not willing to take this risk and therefore many don't use such cryptocurrencies. This lowers the usage of Cryptocurrency and not many are eager to use it as such.
FAQ
Many people are confused about Cryptocurrency in a few ways, and I will try to explain the basics here.
Q1) How does Bitcoin gain value?
In theory, it seems hard to see why Bitcoin can have any value. But the truth is, how does a US dollar have any value as well? The answer lies in the usage of the currency. If many people are using the Dollar to exchange items, then it has some value and it becomes a currency. Bitcoin or any other Cryptocurrency works in the same way. If any group of people come together and say that they will use Bitcoin for transactions, then Bitcoin gains some value. The more Bitcoin is used, the more value that Bitcoin gets. It is very similar to demand vs cost. The higher the demand, the more the price and vice versa. The demand for Bitcoin is created because it was a pioneer in Cryptocurrency, which brought it many advantages over Fiat Currencies(Currencies issued by the central government).
Not only is demand very important, some other factors lie in the growth of other Cryptocurrencies as well as the legal matters concerning Bitcoin.
Q2) How does a Cryptocurrency Work?
A Cryptocurrency has a pre-determined amount of coins that it will produce. For example, the market cap for Bitcoin will be 21 million coins. Some amount of these coins are released at the start of the Cryptocurrency. The rest will be released using miners.
Miners:
In Cryptocurrencies, you send some amount of your money to others and others will send you some coins as well. To facilitate this exchange, make sure that the transactions are secure and to confirm the record of movements of the coins, miners are used. Miners are simply computers that do calculations for the currency which verify and allow the secure movement of coins from one person to another. This computers then get awarded for their work by getting paid in Bitcoins. To pay these miners, new Bitcoin is "printed" and given to the miners. Like this, more and more coins get added until the Currency reaches its market cap. Then, miners are awarded money through transaction fees.