What is cryptocurrency?

In Cryptocurrency

For many, the world of cryptocurrency and blockchain technology is not only alien, but downright intimidating and confusing.

Where to start?

In this article, we’ll aim to break it down and answer: what is cryptocurrency?

A brief history of currency

Trade has been part of human culture for a very long time. Before currencies were invented, we had barter trade.

It wasn’t an accurate method of trade compared to the structure we have now and there were disputes over the value of goods, which led to the use of coins as a representation of the value of a commodity or service.

The use of coins dates back to 600 BC in Turkey. From here, coins became notes... then credit cards were introduced.

Each “upgrade” to how currency is used came about from a need to overcome the prevailing challenges of the previous form of trade or currency.

The world is now embracing a new form trade: cryptocurrency.

This technology of digital payments can help us overcome challenges such as security, transparency and other issues that have plagued the financial sector.

Cryptocurrency over the years

While it was the surging bull-run in late 2017 that really brought public awareness to crypto, cryptocurrencies were widely available long before this.

The idea of cryptocurrency or cryptographic electronic money was first introduced in 1983 by David Chaum.

This idea grew over the years with projects like:

  • digicash
  • b-money
  • Bitgold

There were still some underlying technical issues, especially double-spending, which made it possible for cryptocurrency owners to spend the same cryptocurrency twice or even more times.

This issue was resolved by the proposal drafted by Satoshi Nakamoto, an anonymous group or person, which led to the development of Bitcoin, the first decentralized cryptocurrency, in 2009.

Satoshi Nakamoto introduced blockchain technology – the platform on which Bitcoin is built on and a fundamental reason for its current success.

The issue of double spending was easily resolved after blockchain came into play.

Blockchain works as a distributed ledger that records transactions between parties immutably.

This means:

cryptocurrencies already in use for one transaction cannot be used for any other transaction until the active block was complete.

Bitcoin was predominantly was used in dark websites after its inception due to the privacy, security and anonymity it provided.

However:

adoption started to gradually increase as more people became aware of blockchain technology and Bitcoin.

It started being traded actively as its value grew based on its key underlying features: immutability, security and anonymity.

Bitcoin and how it’s changing the world

Part of the attraction of Bitcoin is the fact that there is no central hierarchy in control.

Complex mathematical formulas have to be solved before a new Bitcoin is released. This controls the total supply of Bitcoin and also helps preserve value as overproduction of Bitcoin is prevented.

The fact that Bitcoin records are on an immutable, distributed ledger also increases its allure due to the accurate records kept.

Governments are also not involved in Bitcoin transactions, which to many is a key selling point.

Bitcoin is decentralized. While transferring money overseas through banks can be costly in fees and taxes, with Bitcoin, the rates of transactions are minimal.

Trade crypto on Liquid

True ownership of currency is also experienced with Bitcoin.

People may take some comfort knowing that their money is in bank accounts, but this could cease to be the case at any time. Accounts can be frozen or banks may collapse.

Bitcoin removes these risks as it has no central authority and its network is in theory too expansive to be taken over.

If you have Bitcoin, it's yours and no-one can prevent you from using what is in your possession.

Since the government is not involved in any way, Bitcoin can be a great asset that can prevent inflation.

The production of Bitcoin is fixed. Once all the coins have been mined, no more will be produced.

Bitcoin also helps reduce fraud in online marketplaces, especially chargeback fraud. Bitcoin transactions are final. Once the transaction has taken place, you cannot carry out a chargeback as is common with credit or debit cards.

This safeguards businesses, some of whom are now adopting Bitcoin or other cryptocurrencies as payment options.

Bitcoin opened the eyes of the world to a number of possibilities through the use of cryptocurrencies. Bitcoin has created security, privacy and anonymity in transactions.

The rise of ethereum

Vitalik Buterin had a great vision which he translated into the Ethereum whitepaper. Buterin’s vision was to look past the financial capabilities that Bitcoin had afforded the world and provide a blockchain that would mean developers could easily build their own projects on top of it.

The Ethereum crowdsale was one of the most successful of 2014, with more than USD18 million raised.

Fast forward to 2018 and Ethereum is among the leading blockchain protocols and cryptocurrencies.

Its rise in fame and value can be attributed to the introduction of its innovative smart contracts, which allow payments to be made once certain conditions are met by both trading parties.

This attracted developers to build decentralized applications (dapps) on Ethereum as they could dictate how and when transactions could be made and completed.

Through smart contracts, Ethereum added freedom to blockchain that had previously not been experienced. 

Ethereum is still the protocol of choice for many decentralized applications and this has helped maintain and even improve the value of its cryptocurrency, Ether.

Most altcoins are also based on Ethereum as they are ERC-20 compliant, which further indicates the confidence developers have in Ethereum.

In as much as the value of Bitcoin remains far much greater than Ethereum, the role Ethereum plays in blockchain and the decentralized community is important and unique.

Ethereum bases its value on the services it delivers to decentralized applications while Bitcoin is more concerned with transactions in the blockchain sphere.

The explosion of ICOs

Getting funding for any project is no walk in the park. Getting funding for a project based on a new technology is even harder.

Million-dollar ICOs were rarities in 2014/2015 as most investors were still skeptical about blockchain technology.

But then something changed.

The rise in the value of Bitcoin increased the interest of investors who then started channeling funds into these projects.

The rise in the number of ICOs followed.

ICO mania was born.

Ethereum was among the first successful projects that held an ICO as a form of crowdfunding. After the gains that Bitcoin made, other ICOs came in confident that they could raise the amount of money they needed.

Many hit their targets, often offering utility tokens.

Purchasing utility tokens allows the owners to gain access to services or products that will be offered by that company once its platform is up and running.

For example, Ethereum offered Ether during its ICO which could be used to pay for transactions on the platform and other services, plus Ether could also be traded as a cryptocurrency in the open market.

This kind of system attracted users beyond professional and seasoned investors – the entire blockchain community became active participants in ICOs.

The appeal that ICOs have to the greater blockchain community became an important asset in itself. Instead of having to look for investors who could pump millions of US dollars into a project, platforms had the opportunity to raise the same amount by from the blockchain community.

Trading of these tokens also attracted more community members.

ICOs were a hot commodity. 

More cryptocurrency exchanges were built to meet the needs of traders holding an ever-expanding portfolio of ICO tokens.

This further widened the scope of cryptocurrencies.

But it didn't last as ICOs started to struggle to raise funds and it became much more difficult to get a return on ICO investment.

ICOs are still around, but ICO mania appears to have come to an end now. 

Real world adoption of cryptocurrency

Thanks to cryptocurrencies and blockchain, a number of real-world use cases have emerged. From gaming to gambling, fintech to education, the use of cryptocurrencies is growing:

  • In the travel industry, platforms like Cheapair are accepting cryptocurrencies as a form of payment.
  • Vanywhere (listed on Liquid) is another interesting platform in the cryptocurrency sphere as it connects people to gigs via social media. All transactions through Vanywhere are done via cryptocurrencies.
  • Even fast food restaurants are not left behind. Subway is among the fast-food chains accepting cryptocurrency as a form of payment.
  • The retail industry is also taking part in the cryptocurrency revolution with platforms like Overstock accepting payment in the form of cryptocurrency.

More and more institutions are preparing and implementing large-scale architecture for an adoption of blockchain and cryptocurrency services.

Cryptocurrencies are here to stay. While many people may be skeptical about new technology, especially where money is involved, taking the time to research through articles like this one should help.

Cryptocurrencies are revolutionizing transactions, making them much more efficient and cheap. They are also making transactions safer from hacks.

If you’re looking for a place to start, you can buy and sell crypto on Liquid using regular fiat.

New call-to-action

WRITTEN BY

Matt Crook

Marketing Operations Manager for Liquid. Still holding QASH.