Cryptocurrency is a name that leaped into modern vocabulary about a decade ago and it is still evolving. Some people already think of it as Bitcoin, and others wonder what it means. There are more insights in this article about cryptocurrency, and here is how two notable authorities define it:
“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. ‘Decentralized cryptocurrencies such as Bitcoin now provide an outlet for personal wealth that is beyond restriction and confiscation”- Oxford Dictionaries.
“Any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions” – Merriam-Webster.
Students, teachers, and practitioners of modern economics and finance only had cause to refer to national currencies in their discourse until 2017. Out of the blues, Bitcoin took the world by storm, and it became the leading light of cryptocurrencies. BTC price is one of the leading search terms on the Internet and it is represented as the price of Bitcoin to the dollar.
Bitcoin and Cryptocurrency
The idea of cryptocurrencies was first mooted in the aftermath of the 2008 global financial upheaval, and this is a glaring standpoint. The anonym, Satoshi Nakamoto is reputed to have come up with the initial framework on the workings of cryptocurrencies. His body of work is documented in “The Cryptography Mailing List.”
The very first cryptocurrency known to mankind is Bitcoin, and it was the outcome of a collaborative research by Satoshi Nakamoto and a community of scholars. Bitcoin was launched in 2009, and since then, more than 1,000 altcoins have evolved from it.
Bitcoin was innovated to circumvent the control of the world financial systems by a few people who manipulate it for their own good. The groundswell of informed opinion was that Central Banks have become incompetent and self-serving. Cryptocurrencies emerged as an alternative to modern banking as we know it.
The Crypto Windfall
The surge in the trade/use of cryptocurrencies got into a fast gear in 2017 in an unbelievable manner. Bitcoin traded at $18,737.60 on December 18, 2017, to set an all-time high for the hitherto relatively unknown crypto. One of the immediate fallout of the price surge was the interest in Bitcoin mining.
Bitcoin is not created like fiat money, which is printed on paper or some synthesized plastic. Every Bitcoin that gets mined is recognized when a community of miners assents to its validity. It results from the resolution of some mathematical difficulty, which cannot be feigned but verified.
Other cryptocurrencies have followed the Bitcoin algorithm so much so for some exceptions that bypassed the mining requirement. You can read more on mining cryptocurrencies and other approaches to altcoins.
What Can You do With Cryptocurrencies?
Cryptocurrencies have several uses cases that provide a note of interest to followers of Bitcoin and the avalanche of altcoins. Let us look at the following:
1. As an Investment
A review of cryptocurrencies in 2017 provided evidence that they turned the most fabulous rate of return on earth. Imagine numbers in the range of 100%, 200%, 10,000% to 18,000%- simply incredulous.
Apart from sounding bizarre, these were real returns posted by cryptos in the year 2017. In simple terms, cryptocurrencies can be used as a medium of exchange, investment, and store of value, among others.
In referring to cryptocurrencies as an investment, many schools of thought come to the party. Judging by the rate of income shown above, there is no doubt that you can do crypto leverage trading as an investment and reap the gains.
2. Buy and Hold Out for a Price Surge
To buy any cryptocurrency and hold out for a rise in price is not a new phenomenon. Across the globe, people buy fiat currencies and trade it against several pairs. USD to JPY, USD to GBP, USD to AUD, among others, are commonly traded across forex markets.
Cryptocurrencies can be bought and held unused or unsold for any period in the expectation that prices would rise. For example in 2017, Bitcoin started the year at a low of $1,023 but closed at $14,129. In profit terms, this translated to a 14,000% rate of profit.
Ethereum started 2017 at $10, and at the close of the year’s trading, it peaked at $714 to record a 7,000% return. Similar indices were recorded for Bitcoin Cash while Ripple had a fabulous rate of return with more than 30,000 percentage surge to close at $2.50 from an opening of 0.006506 USD.
3. Buy a Mining Gadget
The crypto mining process requires active competition by miners. The miners put to use the computational power of their gadgets and systematic guesswork to produce a specific hash. A hash results when you feed some data that conforms to the specification of a specific algorithm into the Blockchain.
When miners in any network such as Bitcoin search for a solution to the mathematical difficulty, they use the computational power of their mining rigs. Mining gadgets are available in different specifications depending on the cryptocurrency of interest. When a miner succeeds within the average time frame of ten minutes to get a solution, they are rewarded with a block.
Block rewards entitle the miner to about 12.5 BTC as at Q1 2018, but, this is halved at the interval of 210,000 blocks. At the next 210,000 blocks mined, the reward becomes 6.25 BTC. As an investor in mining rigs, a price surge of the cryptocurrency you mine provides you with an added incentive.
4. Trade on a Crypto Exchange
Cryptocurrencies are traded in a number of ways. You can decide to sell cryptos to a friend informally, use a P2P platform like LocalBitcoins, or trade in an exchange. Just like you have a stock exchange for trading in equities, debts, and futures, crypto exchanges trade in cryptocurrencies.
To trade in a crypto exchange, you need to open an account and in most cases verify your identity. Once this is done, you can buy the listed cryptos on the exchange and sell as you wish. There are presently at least 500 crypto exchanges globally as shown in this report.
By trading online on the exchange of your choice, you have a chance to make money if you understand the market. Bitcoin is still the most traded cryptocurrency on most exchanges. Coinbase is the most popular crypto exchange, and Binance is the largest by transaction and global spread.
5. Start a Business and Build it around a Cryptocurrency
You can start a business and build it around a token or coin. A token is described as a crypto that is issued on an existing platform, while coins are variants of Bitcoin with a distinct platform. Most cryptocurrencies are built on the Ethereum platform, and that makes them tokens.
The prominent tokens include the likes of ERC20 examples such as EOS, Tronix, OmiseGo and BNB, etc. You can decide to build a business of ride-sharing that is powered by a token. And this means that people will pay for the service with the token.
Many examples exist like Oak, developed by Acorn for crowdfunding, EOS for a Blockchain Operating System, and Tron by Tronix for online gaming. You can actually develop a business idea and shield it from fiat currency limitations with a crypto driving the transactions.
6. To Fund Your Business
One of the innovative fallout of the emergence of cryptocurrencies is the rise of ICOs. Initial coin offerings are essentially a creation of this decade, as nothing existed by that name till the year 2013. Mastercoin and Ripple XRP tokens became the first ICOs known to mankind.
Several hundreds of ICOs have debuted since 2013 with varying success rates. As it stands, ICOs leverage on the decentralization of the Blockchain for a global reach. Unlike stock exchanges with a central clearing house, ICOs answer to no one.
You have the world at your feet if you know your game plan. A worthy business idea can make you utilize cryptocurrencies as a vehicle to raise funds. ICOs have become one of the glaring landmarks of the Blockchain age. There is no restriction as to who can be a participant, and this gives you a global reach.
In putting cryptocurrencies to use as a business funding mechanism, an entrepreneur has to present a business plan. Providing an underlying Minimum Viable Product gives the ICO a greater chance of success. As the world opens up to cryptocurrencies, many people are becoming more informed and scrupulous with ideas they support with their money.
Our digital age is one that has witnessed exponential changes within the last decade that looks totally unbelievable. As newer technologies unfold, more disruptions will occur across all human frontiers. Cryptocurrencies already provide a signpost to future where digital payments reign.