What are crypto currencies and why you need to know about them

1 Jan


A cryptocurrency (crypto currency) is a digital medium of exchange that functions similar to traditional money, but has no physical equivalent and is only in digital form. The first major cryptocurrency that kind of started it all was Bitcoin in 2009, and since then a lot of other alternative cryptocurrencies have become available thanks to the huge popularity that Bitcoin has managed to generate. Cryptocurrencies are a form of digital currency that uses the principles of cryptography to implement a distributed, decentralized and secure economy where you can mine and trade them. When comparing cryptocurrencies to fiat money, the most notable difference is in how no group or individual may influence significantly the production of money (in the case of crypt it is called mining), instead only a certain amount of cryptocurrency is produced by the entire cryptocurrency system collectively, at a rate which is bounded by a value both prior defined and publicly known.

Dozens of cryptocurrency specifications have been defined, most are similar to and derived from the first fully implemented cryptocurrency protocol, Bitcoin. Within cryptocurrency systems, the safety, integrity, and balance of all ledgers is ensured by a swarm of mutually distrustful parties, referred to as miners, who are, for the most part, general members of the public, actively protecting the network by maintaining a high hash-rate difficulty for their chance at receiving a randomly distributed small fee. Averting the underlying security of a cryptocurrency is mathematically possible, but the cost may be unfeasibly high. For example, against Bitcoin’s proof-of-work based system, an attacker would need computational power greater than that controlled by the entire swarm of miners in order to even have 1 / 2^(# authentication rounds for this cryptocurrency – 1) of a chance, which means directly circumventing Bitcoin’s security may be a task well beyond even a technology company the size of Google.

Most cryptocurrencies are designed to gradually introduce new units of currency, placing an ultimate cap on the total amount of currency that will ever be in circulation. This is done both to mimic the scarcity (and value) of precious metals and to avoid hyperinflation. As a result, such cryptocurrencies tend to experience hyperdeflation as they grow in popularity and the amount of the currency in circulation approaches this finite cap. Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies are less susceptible to seizure by law enforcement. Generally cryptocurrencies are considered a pretty anonymous and untraceable means of payment.

The first cryptocurrency was Bitcoin that was created in 2009 by developer referring to himself as Satoshi Nakamoto (probably not a real person). Bitcoin uses SHA-256 as its proof-of-work scheme, later on the Litecoin appeared which uses scrypt as a proof-of-work, as well as having faster transaction confirmations. Another more notable alternative coin is the Peercoin (XPM) which uses a proof-of-work/proof-of-stake hybrid different from the other two. There are of course a lot more alternative crypto currencies available, but many of them are just clones of the major ones that add none at all or just a few innovations in order to generate a lot of user interest like the major cryptos already mentioned.

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3 Responses to What are crypto currencies and why you need to know about them

Crypto da Mr Bitcoin

July 13th, 2014 at 06:57

I would also add that there are now approaching roughly 1000+ alt coins, including the ones that are coming out this month! A majority (maybe 80%+) are just clones but its amazing to see all the pump & dumping. Anyhow, I would also add that there is always the gamble of mining brand new coins! Some turn out to be flop but others, like URO, turned out to be amazing! I mined about $200 worth after its launch (as an early miner) and already bought myself a 750 ti :)

Scott Maxwell

November 17th, 2014 at 08:08

The development of new types of currencies does help deal with hyperinflation. Another reason why you should get to know cryptocurrencies is because there is a need for caution as some of them are vulnerable to hacking, where an anonymous transaction is no longer guaranteed. The thing is, many varieties are now developed to better suit your preferences (speed, stability, etc). Read more about them here: Check this out


October 7th, 2017 at 16:06

Bitcoin has often been hailed as bringing financial freedom by removing the need of governments, banks and middle men to store and remit money anywhere in the world in a matter of minutes with minimal fees. Its decentralization and the fact that Bitcoin addresses cannot be easily tied to a real life identity has stymied legislators who have sought to combat illicit use and money laundering.Cryptocurrency exchanges usually demand a rigorous verification process and require the installation of additional software alongside an understanding of blockchain technology. eToro’s process is comparatively simpler, enabling you to sign up and start trading quickly on a single platform.

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