Cryptocurrency is a form of digital money designed to be secure and, in many cases, anonymous.
It is a currency associated with the Internet that uses cryptography, the process of converting readable information into an almost non-traceable code, to track purchases and transfers.
Cryptography was born from the need for secure communication in World War II. It has evolved in the digital era with elements of mathematical theory and computer science to become a way to secure communications, information and money online.
The first cryptocurrency was bitcoin, which was created in 2009 and is still the best known. There has been a proliferation of cryptocurrencies in the last decade and now there are more than 1,000 available on the Internet. Bitcoin soared as high as $ 20,000 at the end of last year before falling back to around $ 6,000 now.
Here you have everything you need to know about cryptocurrencies.
Why does it matter that it is decentralized?
In the background, cryptocurrencies are basically sophisticated databases. Bitcoin, for example, is a large database of who owns what bitcoin and what transactions were made between those owners. In its own way, that's little different from a conventional bank, which is basically just a large database of who owns what pounds and what transactions were made between those owners.
But the distinction with bitcoin is that no central authority runs that large sophisticated database. Your bank can unilaterally edit your database to change the amount of money you think you have, and you do it often. Sometimes it is for your benefit (if your debit card is stolen and used, for example, your bank will only return the money) and sometimes not (if your bank believes that you are a money laundering, it will freeze your account, which it could paralyze your business).
With bitcoin, nobody can do any of those things. The only authority on the network is what most bitcoin users agree on, and in practice that means that the basic rules of the network are never enforced.
How do cryptocurrencies work?
Cryptocurrencies use decentralized technology to allow users to make secure payments and store money without the need to use their name or go through a bank. They are executed in a distributed public ledger called blockchain, which is a record of all transactions updated and maintained by the holders of currencies.
Cryptocurrency units are created through a process called mining, which involves using the power of the computer to solve complicated mathematical problems that generate coins. Users can also buy coins from brokers, then store and spend them in cryptographic wallets.
Cryptocurrencies and applications of blockchain technology are still incipient in financial terms and more uses should be expected. Transactions that include bonds, stocks and other financial assets could eventually be negotiated using the technology.
What are the most common cryptocurrencies?
• Bitcoin: Bitcoin was the first and is the most commercialized cryptocurrency to date. The coin was developed by Satoshi Nakamoto in 2009, a mysterious figure who developed his blockchain. It has a market capitalization of around $ 128 billion in May 2018.
• Ethereum: developed in 2015, ether is the currency card used in the chain of blocks of ethereum, the second most popular and valuable cryptocurrency. Ether has a market capitalization of around $ 56 billion in May 2018. However, ether has had a turbulent journey. After a major attack in 2016, it was split into two currencies, while its value at one stage reached $ 1,300, but previously it crashed briefly at only 10 cents. It has proven to be very popular as a launch pad for other cryptocurrencies in 2017, which use the code of the chain of blocks ethereum.
• Ripple: Ripple is another distributed accounting system that was founded in 2012. Ripple can be used to track more types of transactions, not just the cryptocurrency. The company that supports it has worked with banks and financial institutions, including Santander. It has a market capitalization of around $ 24 billion.
• Litecoin: this currency is more similar in bitcoin form, 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 $ 6 billion.
Why would you use a cryptocurrency?
Cryptocurrencies are known to be safe and provide a level of anonymity. The transactions in them can not be falsified or reversed and tend to have low rates, which makes them more reliable than conventional currency. Its decentralized nature means that they are available to everyone, although they can be complicated to configure and few stores accept them to spend.
As a new form of cash, it is known that cryptocurrency markets plummet suddenly, which means that a small investment can turn into a large sum at night.
This has led to encouragement from professional and amateur speculators who invest in bitcoins and other cryptocurrencies, as they see them as a quick way to make a profit or as part of an investment portfolio.
But the same thing works the other way around. People seeking to invest in cryptocurrencies should be aware of the volatility of the market and the risks they incur when buying. They have fallen significantly several times, which has cost investors millions of dollars.
Because of the level of anonymity they offer, cryptocurrencies are often associated with illegal activities, especially on the dark web. Users should be careful with the connotations when choosing to buy coins.
