Cryptocurrency and Bitcoin: Here is what you should know
A Bitcoin is a digital token that can be sent electronically from one user to another, anywhere in the world.
A Bitcoin can be divided up to eight decimal places, so you can send any 0.00000001 Bitcoin. This smallest fraction of a Bitcoin – the penny of the Bitcoin world – is referred to as a Satoshi, named after the pseudonymous creator of Bitcoin.
Bitcoin is also the name of the payment network on which this form of digital currency is stored and moved. Unlike traditional payment networks such as Visa, the Bitcoin network is not run by a single company or person. The system is powered by a decentralized network of computers around the world that keeps track of all Bitcoin transactions, just as Wikipedia is maintained by a decentralized network of writers and editors.
Bitcoin was introduced in 2008 by a creator known as Satoshi Nakamoto, who communicated with the rest of the world via email and social messaging only. While several people have been identified as possibly Satoshi, the identity of the real Satoshi has not been confirmed.
Satoshi created the original rules for the Bitcoin network and then shared the software with the rest of the world in 2009. The inventor largely disappeared from the public eye two years later. Once Satoshi released the software, anyone could download and use it. This means that Satoshi has no more control over the network now than anyone else.
Bitcoin mining refers to the process by which new Bitcoins are created and given to computers that help maintain the network.
The computers involved in Bitcoin mining are in a kind of computational process to process new transactions entering the network, and solve complex mathematical problems that require quintillions of numerical guesses per second. The winner of that race – usually the person with the fastest computers – gets some new Bitcoins. Since miners can earn rewards but are independent, this process is meant to stimulate participation and maintenance.
There is generally a new winner about every 10 minutes, and this will continue until there are 21 million Bitcoins in the world. At that time, no new Bitcoins will be created. The network is expected to reach this limit in 2140.
Every Bitcoin that exists was created through this method and was originally given to a computer that helped maintain the records. In the early years of Bitcoin, a crypto enthusiast could mine coins by running software on a laptop. But as digital assets have become more popular, the amount of power needed to win the race and generate Bitcoins has increased. A single Bitcoin transaction now requires more than 2,000 kilowatt hours of electricity, or enough energy to sustain the average U.S. household for 73 days, according to some estimates.
A blockchain is a database that is maintained together and that stores digital information reliably.
The original blockchain was the database where all Bitcoin transactions were stored. It was called “blockchain” because the transactions that entered the network were grouped into blocks of data and then linked together using sophisticated mathematics.
After the Bitcoin blockchain had worked for a number of years, successfully storing every Bitcoin transaction and surviving a series of attacks from hackers, many programmers and entrepreneurs wondered if the design could be replicated to create other types of secure ledgers unrelated to Bitcoin.
Businesses and governments that are not dependent on currency have since started using blockchain technology to store their data. Banks are building blockchains that can track payments between accounts, while governments are experimenting with using blockchains to store real estate registers and votes.
Coinbase is a platform that allows people and businesses to buy and sell various digital currencies, including Bitcoin, for a transaction fee. It looks like a stock exchange.
Coinbase was founded in San Francisco in 2012, and allows people and companies to buy and sell various digital currencies, including Bitcoin. In April 2021, Coinbase became the first major cryptocurrency company to list its shares on a US stock exchange.
Coinbase differs from other early blockchain companies by being one of the first to obtain a new specialist license, called BitLicense, to operate a virtual currency company in New York. In addition to offering the brokerage service for small investors, Coinbase also operates a stock exchange called GDAX, which is tailored for larger investors.
“Cryptocurrencies” is a term that refers to the various virtual currencies that have been developed since Bitcoin was created.
The most well-known cryptocurrencies are Ether, Dogecoin and Tether.
Ether is the virtual currency used on the global computer network Ethereum, which operates according to rules defined by the Ethereum software. These rules allow the Ethereum network to be programmed to complete certain types of computing tasks, with each computer on the network completing the tasks at the same time to ensure that they are performed correctly. Usually the tasks involve money.
The creator of Ethereum, Vitalik Buterin, has compared the network to a global smartphone that can be programmed to work according to the apps built on top of it. The apps are called Dapps because they are powered by a decentralized network of computers.
Mr. Buterin was inspired by Bitcoin’s success in creating Ethereum. But he set out to build something that could do more than Bitcoin: He wanted to build a system that would make it possible to program more complex financial transactions. With Ethereum, two companies can complete transactions, such as settling a stock option on a shared computer, which allows them both to check the records.
Dogecoin was created as a cryptocurrency parody in 2013 by two friends who had met in a chat room. Dogecoin was named after a meme by an expressive dog, and was meant to mock the self-serious cryptocurrencies of the day, many of which never took off. The joke did, however, and it created a community of enthusiasts who have kept it alive for years.
Tether is the largest stable currency, a type of cryptocurrency that is typically linked to an existing state-supported currency. It is about half invested in a type of short-term corporate debt called commercial securities.
Decentralized finance, or DeFi, refers to the universe of alternative financial services created by the development of cryptocurrencies.
DeFi is an umbrella term for the part of the crypto universe that is aimed at building a new, Internet-based financial system, using blockchains to replace traditional intermediaries such as banks and trust mechanisms. This has made it possible for crypto companies to move into a more traditional banking area, offering services such as lending and loans.
Investors can earn interest on the holdings of digital currencies – often much more than they could on cash deposits in a bank – or borrow with crypto as collateral to support a loan. Cryptocurrencies usually do not involve a credit check since transactions are backed by digital assets.
To send or receive money in the traditional financial system, you need intermediaries such as banks or stock exchanges. In DeFi, these intermediaries are replaced by software. When people trade directly with each other, blockchain-based “smart contracts” do the job of creating markets, settling trades, and ensuring that the entire process is fair and reliable.
A non-functional token, or NFT, is a digital resource that establishes authenticity and ownership and can be verified on a blockchain network.
An NFT is basically a way of claiming ownership of a digital file: You can think of it as a certificate of authenticity you can get if you buy an expensive sculpture. The sculpture can be copied, forged or even stolen, but because you have the certificate of authenticity, you can theoretically prove that you are the owner of the original.
NFTs make digital works of art unique and can therefore be sold. Artists, musicians, influencers and sports franchises can use them to make money on digital goods that were previously cheap or free. The technology also responds to the art world’s need for authentication and origin in an increasingly digital world, and permanently connects a digital file to its creator.
The technology for NFTs has been around since the mid-2010s, but became mainstream in late 2017 with CryptoKitties, a website that allowed people to buy and “breed” digital cats with a limited edition of cryptocurrencies. Since then, investors have begun buying and trading NFTs, often at conspicuous prices.
A stablecoin is a type of cryptocurrency that is usually linked to a stable asset, such as the dollar or another government-backed currency.
To promise owners that every $ 1 they deposit will remain worth $ 1, stablecoin issuers hold a bundle of assets in reserve, usually short-term securities such as cash, government debt or commercial securities.
Stablecoins are useful because they help lock in value at the time of the transaction. This is important since cryptocurrencies are volatile and prone to price fluctuations. They form a bridge between traditional money and crypto, and explode in popularity as a convenient and inexpensive way to make transactions in cryptocurrency.
But many stack coins are built more as a bit of a risky investment than as the dollar-and-cent money they claim to be. And so far they are slipping through regulatory cracks.
Regulators are concerned about stablecoins because they have exploded in popularity very quickly, and because many are backed by traditional reserves, they can even trigger a kind of bankruptcy that will potentially pose a risk in the broader financial system. There is also no consistent supervision of issuers or a standard for reserves, and as such, different stackcoin issuers have different types of reserve backing, including more or less cash, government bonds, certificates, etc.
There are a few types of stack coins, including these digital assets backed by traditional reserves, others secured with crypto and finally algorithmic stack coins. The risk in algorithmically stable coins – which depend on a mathematical formula developed by issuers and investor interest to maintain stability – was demonstrated in May when Terra / Luna crashed after the assumptions the algorithm was based on did not find out in the market and investors fled.
“Web3” is a term some technologists use to describe the idea of a new version of the web consisting of blockchain-based platforms and services powered by cryptocurrency.
At its core, web3 aims to replace centralized enterprise platforms with open protocols and decentralized, community-driven networks. The term has been around for years, but it has become trendy in the last year or so. Packy McCormick, an investor who helped popularize web3, has defined it as “internet owned by developers and users, orchestrated with tokens.”
Web3 is seen as the next development of web1 (the era of the 1990s and early 2000s where the internet consisted of blogs, bulletin boards and early portals such as AOL and CompuServe) and web2 (a phase that started around 2005 or so, characterized by social media like Facebook, Twitter and YouTube).
Proponents envision that web3 will take many forms, including decentralized social networks, play-to-earn video games that reward players with cryptocurrencies, and NFT platforms that allow people to buy and sell parts of digital culture. The more idealistic ones say that web3 will transform the internet as we know it, by upgrading traditional gatekeepers and ushering in a new, middleman-free digital economy.
But some critics believe that web3 is little more than a rebranding effort for crypto, with the aim of abolishing crypto’s reputation as a place for junk and insurgents and convincing people that blockchains are the next phase of computing. Others believe it is a dystopian vision of a pay-to-play internet where every activity and social interaction becomes a financial instrument that can be bought and sold.
