Occasionally I check what the exchange rate is for Bitcoins, and I’m always surprised how high it stands in comparison to the last time I checked. For example, a year ago the Bitcoin was at around 600 Euro’s for one BTC. At the time of writing it is at 5000 Euro for one Bitcoin.
And afterwards I always have the same thought, why didn’t I buy some last time.
Well this time I bought some crypto coins.
Cryptocurrency is virtual money. Unlike the payment system that we know Cryptocurrency is decentralized.
This means every transaction that has been made or will be made must be known to every peer. If we see in the centralized system the entity that keeps all these records is the bank.
The virtual coin network is a peer to peer network. So when one transaction is made it is put on the network and every peer knows about that one transaction.
At this point the transaction is still unconfirmed.
As long a transaction is unconfirmed, it is pending and can be forged. When a transaction is confirmed, it is set in stone. It is no longer forgeable, it can ‘t be reversed, it is part of an immutable record of historical transactions: of the so-called blockchain.
Only miners can confirm transactions. They take transactions, stamp them as legit and spread them in the network. After a transaction is confirmed by a miner, every node must add it to its database. It has become part of the blockchain.
For this job, the miners get rewarded with a token of the cryptocurrency.
everybody can be a miner, there is no organization that determine the rules. Miners need to invest some work of their computers to qualify for this task. In fact, they must find a hash – a product of a cryptographic function – that connects the new block with its predecessor. This is called the Proof-of-Work. After finding a solution, a miner can build a block and add it to the blockchain.
Coins can only be created if miners solve a cryptographic puzzle. Since the difficulty of this puzzle increases the amount of computer power the whole miners invest, there is only a specific amount of cryptocurrency token that can be created in a given amount of time
They are called CRYPTO currencies because the consensus-keeping process is secured by strong cryptography. Cryptocurrencies are built on cryptography.
1) Irreversible: After confirmation, a transaction can‘t be reversed. By nobody. And nobody means nobody. Not you, not your bank, not the president of the United States, not Satoshi, not your miner. Nobody. If you send money, you send it. Period. No one can help you, if you sent your funds to a scammer or if a hacker stole them from your computer. There is no safety net.
2) Pseudonymous: Neither transactions nor accounts are connected to real-world identities. You receive Bitcoins on so-called addresses, which are randomly seeming chains of around 30 characters. While it is usually possible to analyze the transaction flow, it is not necessarily possible to connect the real-world identity of users with those addresses.
3) Fast and global:Transaction are propagated nearly instantly in the network and are confirmed in a couple of minutes. Since they happen in a global network of computers they are completely indifferent of your physical location. It doesn‘t matter if I send Bitcoin to my neighbor or to someone on the other side of the world.
4) Secure: Cryptocurrency funds are locked in a public key cryptography system. Only the owner of the private key can send cryptocurrency. Strong cryptography and the magic of big numbers makes it impossible to break this scheme. A Bitcoin address is more secure than Fort Knox.
5) Permission less: You don‘t have to ask anybody to use cryptocurrency. It‘s just a software that everybody can download for free. After you installed it, you can receive and send Bitcoins or other cryptocurrencies. No one can prevent you. There is no gatekeeper.
The 10 Most popular currency’s.
The first and most famous cryptocurrency. Bitcoin serves as a digital gold standard in the whole cryptocurrency-industry, is used as a global means of payment and is the de-facto currency of cyber-crime like darknet markets or ransomware. After seven years in existence, Bitcoin‘s price has increased from zero to more than 6000 Dollar, and its transaction volume reached more than 200.000 daily transactions.
There is not much more to say: Bitcoin is here to stay.
The brainchild of young crypto-genius Vitalik Buterin has ascended to the second place in the hierarchy of cryptocurrencies. Other than Bitcoin its blockchain does not only validate a set of accounts and balances but of so-called states. This means that Ethereum can not only process transactions but complex contracts and programs.
This flexibility makes Ethereum the perfect instrument for blockchain -application. But it comes at a cost. After the Hack of the DAO – an Ethereum based smart contract – the developers decided to do a hard fork without consensus, which resulted in the emerge of Ethereum Classic. Besides this, there are several clones of Ethereum, and Ethereum itself is a host of several Tokens like DigixDAO and Augur. This makes Ethereum more a family of cryptocurrencies than a single currency.
Maybe the less popular – or most hated – project in the cryptocurrency community is Ripple. While Ripple has a native cryptocurrency – XRP – it is more about a network to process IOUs than the cryptocurrency itself. XRP, the currency, doesn‘t serve as a medium to store and exchange value, but more as a token to protect the network against spam.
Ripple Labs created every XRP-token, the company running the Ripple network, and is distributed by them on will. For this reason, Ripple is often called pre-mined in the community and dissed as no real cryptocurrency, and XRP is not considered as a good store of value.
Banks, however, seem to like Ripple. At least they adopt the system with an increasing pace.
Litecoin was one of the first cryptocurrencies after Bitcoin and tagged as the silver to the digital gold bitcoin. Faster than bitcoin, with a larger amount of token and a new mining algorithm, Litecoin was a real innovation, perfectly tailored to be the smaller brother of bitcoin. “It facilitated the emerge of several other cryptocurrencies which used its codebase but made it, even more, lighter“. Examples are Dogecoin or Feathercoin.
While Litecoin failed to find a real use case and lost its second place after bitcoin, it is still actively developed and traded and is hoarded as a backup if Bitcoin fails.
Monero is the most prominent example of the cryptonite algorithm. This algorithm was invented to add the privacy features Bitcoin is missing. If you use Bitcoin, every transaction is documented in the blockchain and the trail of transactions can be followed. With the introduction of a concept called ring-signatures, the cryptonite algorithm was able to cut through that trail.
The first implementation of cryptonite, Bytecoin, was heavily premined and thus rejected by the community. Monero was the first non-premined clone of bytecoin and raised a lot of awareness. There are several other incarnations of cryptonote with their own little improvements, but none of it did ever achieve the same popularity as Monero.
Monero‘s popularity peaked in summer 2016 when some darknetmarkets decided to accept it as a currency. This resulted in a steady increase in the price, while the actual usage of Monero seems to remain disappointingly small.
I find the whole world of cryptocurrency very interesting, and think it will evolve quickly.
This can turn 2 ways off course, one is that is will be implemented in general economics and two is that the rise of quantum computing will inflate the whole market.
I bought some different coins to see it evolve and force myself to stay up to date.
Donations are always welcome, ( just to see how it works ), For how to buy and sell coins I will write another entry in a few days…