When I hear the word cryptocurrency, I automatically think of Superman and his weakness, kryptonite. Cryptocurrency certainly sounds like a currency you could spend on the planet Krypton, but fortunately, it is not. I’m sure you have heard of the instant millionaires due to investing in cryptocurrency. But are you sure it is right for you, may be the question you are asking yourself? Hopefully, we can answer some of your nagging questions right here.
What is Cryptocurrency?
Many people don’t know, but cryptocurrency blazed on the scene as a side product of something else. The mysterious inventor of Bitcoin, the first and most important cryptocurrency, Satoshi Nakamoto, never really intended to invent a currency of sorts. His main goal was to create something many people failed to create before digital cash.
In the nineties there were many attempts to create digital cash, sadly they all failed. The single most important part of Satoshi Nakamoto’s invention was that he found a way to build a decentralized digital cash system. After seeing all these prior centralized attempts fail, Nakamoto tried to build a cash system without a central identity. This is like a peer to peer network for file sharing. This decision by Nakamoto became the birth of cryptocurrency.
Realizing Digital Cash
To realize digital cash you need a payment network with accounts, balances, and transaction. One major problem every payment network has to solve is to prevent double spending: to prevent that one entity spends the same amount twice. Usually, this is done by a central server who keeps record about the balances.
In a decentralized network, you don‘t have this server. So you need every single entity of the network to do this job. Every peer in the network needs to have a list of all transactions to check if future transactions are valid or an attempt to double spend.
If you take away all the noise around cryptocurrencies and reduce it to a simple definition, you find it to be just limited entries in a database no one can change without fulfilling specific conditions. This may seem ordinary, but, believe it or not: this is exactly how you can define a currency.
But how can these entities keep a consensus about this records?
If the peers of the network disagree about only one single, minor balance, everything is broken. They need an absolute consensus. Usually, you take, again, a central authority to declare the correct state of balances.
But how can you achieve consensus without a central authority?
Nobody did know until Nakamoto emerged out of nowhere. In fact, nobody believed it was even possible. Nakamoto proved it was. His major innovation was to achieve consensus without a central authority. Cryptocurrencies are a part of this solution – the part that made the solution thrilling, fascinating and helped it to roll over the world.
Cryptocurrency To Watch
Besides the famous, trendsetting cryptocurrency Bitcoin, here are six cryptocurrencies worth watching. The currencies inspired by Bitcoin are collectively called altcoins and have tried to present themselves as modified or improved versions of Bitcoin.
Litecoin, launched in the year 2011, was among the initial cryptocurrencies following bitcoin and was often referred to as ‘silver to Bitcoin’s gold.’ It was created by Charlie Lee, an MIT graduate, and former Google engineer. Litecoin is based on an open source global payment network that is not controlled by any central authority and uses “scrypt” as a proof of work, which can be decoded with the help of CPUs of consumer grade. Although Litecoin is like Bitcoin in many ways, it has a faster block generation rate and hence offers a faster transaction confirmation. Other than developers, there are a growing number of merchants who accept Litecoin.
2) Ethereum (ETH)
Launched in 2015, Ethereum is a decentralized software platform that enables Smart Contracts and Distributed Applications (ĐApps) to be built and run without any downtime, fraud, control or interference from a third party. During 2014, Ethereum launched a pre-sale for ether which received an overwhelming response. The applications on Ethereum are run on its platform-specific cryptographic token, ether. Ether is like a vehicle for moving around on the Ethereum platform, and is sought by mostly developers looking to develop and run applications inside Ethereum. According to Ethereum, it can be used to “codify, decentralize, secure and trade just about anything.” Following the attack on the DAO in 2016, Ethereum was split into Ethereum (ETH) and Ethereum Classic (ETC). Ethereum (ETH) has a market capitalization of $41.4 billion, second after Bitcoin among all cryptocurrencies.
3) Zcash (ZEC)
Zcash, a decentralized and open-source cryptocurrency launched in the latter part of 2016, looks promising. “If Bitcoin is like http for money, Zcash is https,” is how Zcash defines itself. Zcash offers privacy and selective transparency of transactions. Thus, like https, Zcash claims to provide extra security or privacy where all transactions are recorded and published on a blockchain, but details such as the sender, recipient, and amount remain private. Zcash offers its users the choice of ‘shielded’ transactions, which allow for content to be encrypted using an advanced cryptographic technique or zero-knowledge proof construction called a zk-SNARK developed by its team.
Dash (originally known as Darkcoin) is a more secretive version of Bitcoin. Dash offers more anonymity as it works on a decentralized master code network that makes transactions almost untraceable. Launched in January 2014, Dash experienced an increasing fan following in a short span of time. This cryptocurrency was created and developed by Evan Duffield and can be mined using a CPU or GPU. In March 2015, ‘Darkcoin’ was rebranded to Dash, which stands for Digital Cash and operates under the ticker – DASH. The rebranding didn’t change any of its technological features such as Darksend, InstantX.
5) Ripple (XRP)
Ripple is a real-time global settlement network that offers instant, certain and low-cost international payments. Ripple “enables banks to settle cross-border payments in real time, with end-to-end transparency, and at lower costs.” Released in 2012, Ripple currency has a market capitalization of $1.26 billion. Ripple’s consensus ledger — its method of confirmation– doesn’t need mining, a feature that deviates from bitcoin and altcoins. Since Ripple’s structure doesn’t require mining, it reduces the usage of computing power, and minimizes network latency. Ripple believes that ‘distributing value is a powerful way to incentivize certain behaviors’ and thus currently plans to distribute XRP primarily “through business development deals, incentives to liquidity providers who offer tighter spreads for payments, and selling XRP to institutional buyers interested in investing in XRP.”
6) Monero (XMR)
Monero is a secure, private and untraceable currency. This open-source cryptocurrency was launched in April 2014 and soon spiked great interest among the cryptography community and enthusiasts. The development of this cryptocurrency is completely donation-based and community-driven. Monero has been launched with a strong focus on decentralization and scalability, and enables complete privacy by using a special technique called ‘ring signatures.’ With this technique, there appears a group of cryptographic signatures including at least one real participant – but since they all appear valid, the real one cannot be isolated.
So now that you know a little more about cryptocurrency, how likely are you to purchase some if you haven’t already? Leave your answer in the comments below, and don’t forget to like and share.