If people around you by now haven’t started talking about the cryptocurrency rage, predominantly about bitcoin then I’m sorry to say you live in an outlandish world. Stay tuned, Stay updated.
This is the first blog post for The Financial February month. A month dedicated to spreading financial literacy. A lot of research, time and effort have gone in writing this post. I hope you like it and if you garner even 1% knowledge from it, my mission behind writing this blog post will surely be accomplished.
So, let’s get started!
Before delving into the historical records, for this post let me elucidate on what exactly is Cryptocurrency.
A google search of the word cryptocurrency will show:
“A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.”
However, cryptocurrency in a layman’s language could be understood as a digital currency that has no centralized authority. A currency through which anyone can buy/sell commodities by eliminating the use of financial institutions like banks. Furthermore, the reason it uses the prefix crypto is that it uses cryptography (the art of writing or solving codes) as a medium to secure transactions, control the creation of additional units and verify its transfer.
Divulging from the topic but it’s interesting to note here that all the major developments regarding cryptography have taken place during the times of crisis.
The first major advancement in the field of cryptography took place during the II World War when Germans used the electronic router-based cipher called Enigma to communicate information. The movie Imitation Game could be taken as a reference.
After that 2008 financial crisis paved the way for the creation of cryptocurrencies relying heavily on cryptography, the most common one being Bitcoin.
It is important to note here that Bitcoin is a type of cryptocurrency and not the only cryptocurrency available in the market.
Anyways coming back to the topic, as per www.coinmarketcap.com dated 11 February 2018, there are 1516 cryptocurrencies present in 8714 markets across the world. Some of the most famous being: Bitcoin, Ethereum, Ripple, Bitcoin Cash, Litecoin, Dash etc.
The Concept of Blockchain:
It’s is because of the concept of Blockchain technology that cryptocurrencies make up such an intriguing area of study.
Blockchains are the base on which cryptocurrencies work. It’s a decentralized ledger that records payments and transactions in a safe manner. These transactions need to be verified and blockchains need to be regularly enlarged so that it can account for new transactions and payments. This job is bestowed upon a group of people called “miners” or “cryptocurrency miners”.
Crypto-mining involves using high powered computer to solve mathematical equations (mostly hash problems) to add transactions to the Blockchain, a public ledger. The first miner to solve the problem is entitled to a reward which is either in the form of cryptocurrency coins or transaction fees associated with a block.
But blockchain has one major issue, something which is forcing the Chinese govt. to shut down miners. At present, according to Forbes magazine, China produces the most bitcoins in the world using Bitcoin Mining.
So, what is the problem exactly?
One major issue with Crypto-Mining is that it is an energy-intensive process. It consumes too much electricity. Bitcoin mining is estimated to use up to 4 gigawatts of electricity, equivalent to three nuclear reactors’ production level which is an insane amount of electricity wastage.
Looking from this perspective one might not like cryptocurrency much but it does have a lot of awesome advantages to it which we will unleash in the upcoming blog posts.
That’s it guys! I hoped you liked it and gained something out of it.
In the next blog post, we’ll be digging the historical roots of Bitcoin majorly about the man behind its creation and its current status too.
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