Where Do Cryptocurrencies Come from Anyway? 0 6149

So you’ve gotten your head around the idea of digital money. You know the difference between Bitcoin and the blockchain. And maybe you even have some credit in your virtual wallet. But have you ever found yourself asking the question – where do cryptocurrencies come from anyway? Here’s a little crash course:

Bitcoin came out in 2009, but the technology was around many years before that. As the first cryptocurrency, Bitcoin was released as an open source project, right around the time of the financial crisis. The identity of Bitcoin’s creator is still not completely certain, although it’s generally believed to be Satoshi Nakamoto, the author of a 2008 white paper describing the cryptocurrency.

Whether or not Nakamoto was the true creator of Bitcoin is somewhat a moot point. For a system to be truly decentralized, with no owners, the creator’s idea was to let the technology evolve and be open to all.

At a time when the financial institutions could no longer be trusted or even accessed, the purpose of cryptocurrency was to bring about a transparent economy. Every individual could manage their own wealth outright. They also had the freedom to make transactions globally, without the intervention or permission of any central authority.

The History of Cryptocurrencies

2009 may have been the year that Bitcoin launched, but the theoretical construct of cryptocurrencies existed long before that. The ideology was the same–that math and computer science could solve problems associated with our traditional fiat currencies.

Few people know this, but it was American cryptographer, David Chaum, who invented the “blinding” algorithm in the 1980s. This is the central algorithm to modern web-based encryption today. It’s thanks to this invention that data can be exchanged between parties securely and without being altered. This paved the way for digital currency exchanges (blinded money).

By the late 1980s, Chaum had mustered a team of supporters for his invention, and founded DigiCash, a for-profit company that mined units of currency based on Chaum’s blinding algorithm. Unlike the decentralized Bitcoin, Chaum had the monopoly on digital cash, making it to all intents and purposes, the same as with financial institutions and fiat currency.

While DigiCash started out dealing direct with individuals, rather than institutions, the Netherland’s Central Bank (where Chaum was now located) banned the idea, forcing DigiCash to sell to licensed banks only.

In what could have been the partnership of the century, Microsoft wanted to team up with DigiCash to allow Windows users in the early days to make digital purchases. The terms were never agreed upon, though, and in the late 1990s, DigiCash went bust.

Cryptocurrencies After DigiCash

There wasn’t a lot of movement in cryptocurrencies after DigiCash. The main focus shifted to electronic financial transactions that were more conventional, but still a breakthrough in convenience and speed. Pioneers, such as PayPal and other similar Alternative Payment Methods (APMs) took up most of the resources and investment.

There were a few DigiCash imitators, such as Russia’s WebMoney, but nothing that really stuck until the late 1990s, when e-gold came out. e-gold wasn’t like DigiCash, in the sense that it was owned by a company that bought gold online. Users sent their old trinkets and jewelry to the e-gold warehouse and received digital currency back. This could be changed for actual gold or US dollars.

e-gold reached millions of active accounts, processing billions of dollars annually. But the company had lax security protocols and was subject to frequent hacking and phishing scams, leaving its users out of pocket. Moreover, the company’s transaction activity fell into the legal spotlight, as its laidback policies made it a tool for money launderers and Ponzi schemes. They finally ceased operations in 2009, by which time, Bitcoin was on the market.

Opening to the public in 2009, supporters quickly began to exchange and mine the currency. By the next year, altcoins began to appear on the market, most notably, Litecoin, and the first public Bitcoin exchanges started to appear as well. By 2012, major merchants began accepting Bitcoin as a legitimate method of payment, including WordPress, Expedia and Microsoft.

Flash forward to 2018, and it’s hard to say if Nakamoto or anyone could have predicted Bitcoin’s meteoric rise. But it would take the powers of Nostradamus to say what place cryptocurrencies will have in our lives in the future.

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Christina is a technology and business communicator who has worked with high profile ICOs and blockchain influencers to break industry news.

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Let’s Talk Straight – What is Bitcoin? 0 25

Unless you’ve been living in a cave lately, you’ve heard the B word uttered more than a few times. But what is all this talk of Bitcoin, and why is it causing so much hype? And while we’re on the subject… What is Bitcoin anyway?

Chances are, you’ve asked yourself or someone else that question on more than one occasion, but probably with unsatisfactory results. You know by now that it’s a currency, just like the dollar, except… nothing like the dollar.

You can’t physically hold Bitcoins, as they live only in cyberspace, and you probably wouldn’t be able to hold a handful of them anyway, since each Bitcoin is worth around $10,000.

If you keep hearing about people winning the cryptocurrency lottery and turning a few cents into millions of dollars, you might be tempted to take part.

Until you hear the other stories saying the Bitcoin bubble is about to burst and you decide to hold back.

So, let’s start at the very beginning.

What is Bitcoin?

Bitcoin is a digital currency, otherwise known as cryptocurrency. It was invented under the alias of Satoshi Nakamoto in 2009, with several goals. One, to cut out the middlemen (banks), as transactions can take place online from Bitcoin to Bitcoin with no fees and no delays. Small businesses don’t have to pay credit card transaction fees and we can do business internationally without converting currency.

Sounds pretty smart, right? Yes, but Bitcoin is not without its problems. Its decentralized nature means that no bank or institution controls the level of inflation, which means it’s highly volatile to peaks and troughs in value. What started out as a few cents on the dollar shot to a record high of almost $20,000 in December 2017 and then slumped back down to half of that within a few days.

Clearly, this makes stable business with Bitcoin currently impossible. And you may be asking, if one Bitcoin is so expensive, how are regular people getting involved?

Anyone can buy into Bitcoin because you don’t have to buy a whole Bitcoin; you can buy fractions of a Bitcoin, called Satoshi. Its skyrocketing value has led to many to call it “digital gold,” as most people treat Bitcoin as an investment and not a currency–at least, for now.

Types of Cryptocurrencies

Bitcoin isn’t the only cryptocurrency out there. You probably already know that. What you may not know is that there are now close to 5,000 different cryptocurrencies available! Why? Each cryptocurrency is created for a different purpose. For example, Agrecoin is for agricultural transactions, Audiocoin for buying music, and so on.

But instead of analyzing every coin on this growing list, let’s give you a general idea. Cryptocurrencies can be broken down into three different types:

1. Coins

“Coins,” make up the first group of cryptocurrencies, (albeit digital ones). Coins use encryption techniques to regulate the generation of units of currency and verify fund transfers. The original crypto coin? You guessed it, Bitcoin. Instead of using these as coins though, Bitcoin has become more of an investment vehicle, with people investing and holding, rather than buying and selling.

2. Utility Tokens

If you’re looking to get the real use out of crypto, make a transaction and daily purchases, utility tokens are the best option. Ethereum is the best example of a utility token that helps waiver transaction costs and move money without fees. It still has a volatile value, but markedly less so than Bitcoin.

3. Tokenized Securities

Call them tokenized securities, or security tokens. Basically, the idea is the same. They represent shares in a business. Like buying into a project (such as the two currencies mentioned above, agrecoin and audiocoin).

Coins, utility tokens and tokenized securities, when it comes to investing, are presented to the public as an ICO, or initial coin offering, to raise funds in the same way as an IPO, but with a crypto twist, and, of course, without the regulation.

The Takeaway

You’re probably realizing by now why you haven’t had a straight answer to your question about what is Bitcoin yet. That’s because it isn’t easy to explain! Here are the main things you should know:

  • Bitcoin is a digital currency with no regulatory body and no banks.
  • It’s good for making Bitcoin to Bitcoin transactions
  • Lack of regulation is getting continuingly banned in countries like China
  • It’s extremely volatile and subject to huge fluctuations

So, if you want to jump on the Bitcoin train, are you too late? Some people may think so, others remain quietly confident that it’s not over yet. But one thing you should keep in mind–never invest more than you can afford to lose.

According to the European Union, The Bubble’s About to Burst 0 29

It’s been a choppy few weeks for crypto since the sharp rise and fall of Bitcoin value in December last year. And if that wasn’t bad enough, things have steadily gotten worse, with the China full cryptocurrency ban and large banks, including Citi and Bank of America, refusing to allow clients to buy crypto with their credit cards.

Next up for the struggling digital currency, is a scathing attack from the European Union, averting investors of Bitcoin and other digital currencies that the bubble will soon burst and that they could lose most, or even all of their money.

Bitcoin Value Sinks Like a Stone

Famous for its extreme price volatility, Bitcoin’s value rose by more than 1000 percent throughout 2017, causing a huge stir in the crypto world and awakening interest from the public at large. But despite UBS Chairman and other industry experts warning about the risk, saying Bitcoin is “not an investment we would advise,” many have still jumped on board.

Facing further possible government bans around the world, or at least, some fairly heavy regulation, Bitcoin’s value has sunk like a stone since the start of this year, with the price collapse being described as a “bloodbath” and a “cryptopocalypse.”

The Market is Rife with Misinformation

The European Union’s Banking, Securities and Insurance Watchdog yesterday said that the cryptocurrency and ICO world is ripe with misinformation. They added that the advice given is “in most cases incomplete, difficult to understand, does not properly disclose the risks… and may therefore be misleading.”

“Virtual currencies such as Bitcoin, are subject to extreme price volatility and have shown clear signs of a pricing bubble, and consumers buying VCs should be aware that there is a high risk that they will lose a large amount, or even all, of the money invested,” the warning stated.

This warning comes out at the same time that an article in China’s Beijing News reported a rise in professional copywriters offering their services to write ICO whitepapers, which may include fabricated information.

Despite the domestic ban on ICOs in September of last year and the full ban on international cryptocurrency trading earlier this month, keyword searches using “blockchain,” “ICO,” and “white paper,” bring up numerous stores that offer white paper copywriting and fundraising consultancy services for ICOs.

White paper copywriting is sold for around $600 and may include false claims about the viability and credibility of a project.

A Magnet for Unlawful Behavior

This examination into cryptocurrency investing was requested by Valdis Dombrovskis, Vice-President of the European Commission, amidst concerns that digital currencies could be used as a “token for unlawful behavior.”  

With European governments now turning a serious eye to what’s going on in the crypto word, that may spell out bad news for Bitcoin. Just last week, France and Germany requested that cryptocurrency regulation be a topic of discussion at the next Group of 20 Economies (G20). They are anxious to assess the long term viability of cryptocurrency, looking beyond the current rollercoaster markets.

Too Little, Too Late?

If the warning is to be heeded and the cryptocurrency bubble will soon burst, the warning comes overdue for many unfortunate investors. Markus Ferber, Vice Chair of the European Parliament’s Economic Affairs Committee, pleaded for regulation, just as with any financial currency.

He said, ‘I expect the Commission to take the warnings by the three supervisory authorities seriously and issue a legislative proposal in this regard as soon as possible.”

But imposing regulation on these untamed markets will be challenging at best. Regulators will be looking to strike a healthy balance between allowing for market innovation and growth while protecting consumers and preventing money laundering and other criminal activity.

Bitcoin, Litecoin, Ripple and Ethereum are not issued by any central bank, neither are exchange rates regulated by EU law. That means that European investors won’t be covered by any type of national investment scheme insurance should the apocalypse come.

Things certainly don’t look good right now for crypto, with major players on the scene including the Wolf of Wall Street and Goldman Sachs claiming the Bitcoin bubble will be bigger than the dot-com era.

But then again, government bodies and financial institutions have been wrong about many an economic crash in the past. Perhaps this is just a sea change, rather than a tidal wave for digital money.

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