Last updated on 13 May 2021 at 01:38 byBob Dijks.
Cryptocurrency: what is it? Cryptos are a virtual means of payment, which means that the money is not available in physical form – such as coins or notes. The circulation of cryptocurrencies, unlike traditional currencies, is not managed by the banking system. The cryptocurrency transaction system runs through a technology called blockchain . IT experts from all over the world are calling for blockchain to be the most important digital invention since that of the internet. In this article, we’ll tell you all about the history of cryptocurrencies.
Please note: This article is written for informational purposes only. If you are planning to buy cryptocurrency, it is entirely at your own risk.
Cryptocurrency: This Is How It Works
Cryptocurrency is completely digital. The imaginary coins consist of nothing but a simple series of letters and numbers. The ownership of cryptocurrencies can be transferred from one person to another in no time, without the intervention of banks and other third parties.
All information regarding the value, ownership and transactions of crypto is stored in blockchain and encrypted via cryptography. As you can see, there is a lot of computer science involved in the operation of this digital money.
In digital transactions of traditional money , we are always dependent on third parties, or the bank. When you transfer money to someone from your banking app, several things happen before the other person receives the amount. This way your bank verifies whether there is sufficient balance in your account. The data of the receiving party is also checked. The recipient’s financial institution then checks whether all data is in order before the transaction can be accepted. A few hours later, the amount transferred will be in the account of the receiving person.
How did cryptocurrencies come about?
Bitcoin is without a doubt the most well-known digital currency out there. However, it is not the only and certainly not the first cryptocurrency in history.
The beginning of cryptocurrency
The first steps towards cryptocurrencies start with the American computer scientist David Chaum. In the year 1983 Chaum came up with an article in which he describes a ‘blind’ encryption technique, which is very similar to today’s blockchain system. In 1990 he founded the company DigiCash, which in 1994 made the world’s first digital payment via computer networks.
In the second half of the 90s, two important events took place. The first is the publication of the report How to Make a Mint: the Cryptography of Anonymous Electronic Cash by the U.S. National Security Agency. That article describes a cryptocurrency system in detail. The second event is a contribution by the Chinese computer engineer Wei Dai. Dai introduced the virtual money system b-money in 1998. Although b-money never saw the light of day, the knowledge from Wei Dai’s article is at the basis of the development of many contemporary cryptocurrencies.
In the same year 1998, the American Nick Szabo created the decentralized and virtual currency BitGold. This crypto, which should work entirely via blockchain, was never made publicly available.
In the year 2009, the cryptocurrency Bitcoin made its first appearance: a decentralized peer-to-peer currency. The brainchild behind BitCoin is Satoshi Nakamoto. Incidentally, this is a pseudonym. No one knows what the exact identity of the inventor of Bitcoin is. Many people believe that in reality it could possibly be Wei Dai or Nick Szaba (see above).
Nakamoto and his ilk sent a white paper on Bitcoin to a mailing list of people interested in cryptocurrencies in late 2008. Thanks to features such as decentralization, anonymity, built-in scarcity, and transaction history, Bitcoin is considered the first modern virtual currency. In the years after the appearance of BItcoin, more and more alternative cryptocurrencies came onto the market, such as Litecoin, Peercoin, Namecoin and Ethereum.
How Bitcoin Conquered the Market
Bitcoin’s first years on the foreign exchange market were relatively uneventful. The first major increase in value was in 2012, when WordPress announced that it was going to accept Bitcoin as a form of payment.
Since a few years ago, a real hype has arisen around Bitcoin and other cryptocurrencies. For example, it is a popular theme among influencers and there are thousands of videos and podcasts that talk about the ‘digital gold’.
As a result of the growing popularity of cryptocurrencies, there are several governments that have started to regulate the use of virtual money. On the one hand, this is to protect their own centralized monetary system. On the other hand, the countries want to reduce the risks for consumers and investors. There are even countries, such as Bolivia, Morocco, China and North Macedonia, that have completely banned Bitcoin.
The dark side of the growing demand for cryptocurrencies is that fraud and scams are increasingly being reported. For example, there are websites that supposedly trade in these digital coins, but ultimately do not transfer anything to the buyer. If you are considering investing in cryptocurrencies, it is essential to delve into this world in advance.
According to Wikipedia, a Cypherpunk (and not Cyperpunk) is an individual who advocates for strong cryptography and privacy-enhancing technologies in the quest for social and political change. The movement has existed since the 80s and members of the group often communicate with each other via mailing lists. Cypherpunks idealize a digital currency over which the government has no control. Wei Dai and Nick Szabo are seen as true legends by the Cypherpunk community.
Examples of cryptocurrency
As we mentioned earlier in this article, Bitcoin is far from the only cryptocurrency. In fact, there are more than 4,000 virtual coins today. Below are some of the most popular of these:
- bitcoin
- Ethereum
- Litecoin
- Stablecoin
- Binance Coin
- Ripple XRP
- Dogecoin
- Bitcoin Cash
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