A Guide to Cryptocurrency: The Future Digital Currency

Today cryptocurrencies have become a phenomenon known to most people. But the overwhelming majority of people have minimal knowledge about cryptocurrencies. They often fail even to understand the basic concepts. A cryptocurrency is a virtual or digital currency. It is designed to work as a medium of exchange. It uses cryptography to secure transactions and the creation of new units. Cryptocurrencies are limited entries in a database. No one can change it unless specific conditions are fulfilled. This guide will tell you all you need to know about various cryptocurrencies and the sheer flow of money they can bring into the global economic system.

History of Cryptocurrency

There have been attempts at creating a digital currency earlier. There have been many systems that emerged on the market but inevitably failed. There were many different reasons for their failures, such as fraud, financial problems, and even friction between employees and bosses. Notably, all those systems utilized a Trusted Third-Party approach, meaning that the companies behind them verified and facilitated them. Due to these companies' failures, creating a digital cash system was seen by many experts as a lost cause for a long while. In early 2009, an anonymous group of programmers under an alias, Satoshi Nakamoto, introduced Bitcoin. It was described as a 'peer-to-peer electronic cash system.'

It is entirely decentralized, meaning no servers are involved and no central controlling authority. The concept resembles peer-to-peer networks. Every payment network has to solve the problem of double-spending. It is a fraudulent way of spending the same amount two times. The traditional solution was a trusted third party. It would be a central server that kept records of the balances and transactions. However, this method entailed an authority controlling your funds and with all your details on hand.

How Does Cryptocurrency work?

Every participant must do this job in a decentralized network such as Bitcoin. This is done via the Blockchain. It is a public ledger of all transactions that ever happened within the entire network, available to everyone. Therefore, everyone in the network can see everyone's account balance. Each transaction is a file that consists of the recipient and sender's public keys (wallet addresses) and the number of coins transferred. The transaction must also be signed off by the sender with its private key. All of this is just basic cryptography. Eventually, the transaction is broadcasted to the entire network. But it needs to be confirmed first.

Miners can confirm transactions in a cryptocurrency network. This is done by solving a cryptographic puzzle. They take transactions and mark them as legitimate. Then they spread them across the entire network. Afterward, each node of the network adds it to its database. Once the transaction is confirmed, it becomes irreversible and unforgeable. The miner receives the transaction fees and a reward. All cryptocurrency networks are based on the absolute consensus of all the participants. This is regarding the legitimacy of balances and transactions. If nodes of the network disagree on a single balance, the system will break. However, many rules pre-built and programmed into the network prevent this from happening.

Cryptocurrencies are so-called because strong cryptography ensures consensus-keeping. This, along with the factors mentioned above, makes third parties and blind trust as a concept completely redundant.

What can you do with Cryptocurrency?

• Buy goods

In the past, finding any merchant that accepts Cryptocurrency was tough, if not impossible. These days, however, the situation is entirely different. Many offline and online merchants accept Bitcoin as a form of payment. They range from massive online retailers such as Overstock and Newegg to small local shops, bars, and eateries. Bitcoins can be used to pay for flights, hotels, apps, jewelry, computer parts, and college degrees. Other digital currencies like Litecoin, Ripple, Ethereum, and others are not widely accepted. However, things are improving, with Apple having authorized at least ten different cryptocurrencies as a viable payment form on the App Store.

Users of other cryptocurrencies can exchange their coins for Bitcoins. Moreover, Gift Card selling websites accept around 20 different cryptocurrencies. Through gift cards, you can necessarily buy anything with Cryptocurrency. Finally, there are marketplaces like OpenBazaar and Bitify. They only accept cryptocurrencies.

• Invest

Many people believe that cryptocurrencies are the best investment opportunity currently available. Indeed, there are stories of people becoming millionaires through their Bitcoin investments. Bitcoin is still the most recognizable digital currency. Ethereum is perhaps the second most valued Cryptocurrency. It has recorded the fastest rise a digital currency has ever demonstrated. Since May 2016, its value has increased by 2,700 percent. The market cap of all cryptocurrencies combined soared by more than 10,000 percent since mid-2013. If you decide to invest in cryptocurrencies, Bitcoin is still dominant. There are many options currently available. Some coins are privacy-focused. Others are less open and decentralized than Bitcoin. Some are just outright copying it.

While it is straightforward to buy Bitcoins - numerous exchanges trade in BTC - other cryptocurrencies are not easy to acquire. This situation is slowly improving with major exchanges such as Kraken, BitFinex, BitStamp, and many others starting to sell Litecoin, Ethereum, Monero, Ripple, etc. There are also a few other different ways. You can trade face-to-face with a seller. You can even use a Bitcoin ATM. It would help if you had a way to store it once you buy Cryptocurrency. All major exchanges offer wallet services. But, while it might seem convenient, it is best to store your assets in an offline wallet on your hard drive or even invest in a hardware wallet. This is one of the most secure ways of storing coins. It gives you full control over your assets.

• Mine

Miners are the most critical part of any cryptocurrency network, and much like trading, mining is an investment. They provide a bookkeeping service for their respective communities. They solve complicated cryptographic puzzles using their computing power. This is necessary to confirm a transaction and record it in a distributed public ledger called the Blockchain. One of the exciting things about mining is that the difficulty of the puzzles is continuously increasing, correlating with the number of people trying to solve them. So, the more popular a particular cryptocurrency becomes, the more people try to mine it, and the more difficult the process becomes.

Many have made fortunes by mining Bitcoins. Earlier, you could make substantial profits from mining. But how do miners make profits? The more computing power they have, the higher their probability of solving cryptographic puzzles. Once miners solve the puzzle, they receive a reward and a transaction fee. As a cryptocurrency gets more interest, mining becomes harder, and the number of coins received as a reward decreases. Initially, the reward for successfully mining Bitcoins was 50 BTC. Now, the award stands at 12.5 Bitcoins. This happened because the Bitcoin network is designed only to be 21 mln coins in circulation. However, as rewards become smaller and smaller, every Bitcoin mined will become exponentially more valuable. These factors make mining cryptocurrencies extremely competitive. It rewards early adopters.

• Accept as payment (for business)

If you own a business and are looking for potential new customers, accepting cryptocurrencies as a form of payment may be a solution for you. The interest in cryptocurrencies has never been higher. Along with the growing interest, the number of crypto-ATMs also grows worldwide. The payments can be accepted using hardware terminals or touchscreen apps. Simple wallet addresses through QR codes can also be used. Many different services can be used to accept payments in cryptocurrencies. Bitcoin and other cryptocurrencies in the US have been recognized as convertible virtual currencies. Accepting them as a form of payment is the same as taking cash, gold, or gift cards.

 How to store

Unlike most traditional currencies, cryptocurrencies are digital, which entails an entirely different approach, particularly when storing them. Technically, you do not store your units of Cryptocurrency. Instead, the private key needs to be stored securely. It is used to sign for transactions. Several different types of cryptocurrency wallets cater to different needs. You can also opt for a paper or a hardware wallet to protect your privacy. Those are the most secure methods of storing crypto funds. There are also 'cold' (offline) wallets stored on your hard drive and online wallets, which can be affiliated with exchanges or independent platforms.

How to buy

There are many choices when it comes to buying Bitcoins. There are nearly 1,800 Bitcoin ATMs in 58 countries. Moreover, you can buy BTC using gift cards, cryptocurrency exchanges, investment trusts, and even face-to-face trade. The buying options are not as diverse for other cryptocurrencies presently. However, there are several exchanges where crypto coins can be obtained for flat currencies or Bitcoins. Coins are also acquired through face-to-face trading. 

The Future of Crypto Networks

In the future, the design of the networks will be built around the concept of network function virtualization (NFV). The service providers will not purchase expensive hardware but will only buy software to run their networks. This allows them to scale up their networks rapidly to accommodate the growing demand. One of the challenges of dynamic networks is monitoring the communication environment. This can be done by collecting and analyzing data from different sources in the network. Network monitoring tools like open-source Network Management and Orchestration software, like Open-RAN, are designed to manage network functions. Another challenge is controlling the communication resources and ensuring the network runs smoothly. The architecture of the networks is built on software-defined networking (SDN) and network function virtualization (NFV). The communication resources are controlled and managed by a centralized controller. Dynamic networks are needed because conventional static protocols cannot support dynamic environments. Dynamic networks can be implemented using Network Function Virtualization (NFV) and Software-Defined Networking (SDN).

Conclusion

Cryptocurrencies are here to stay and here to change the world. Cryptocurrencies are slowly gaining in popularity. People worldwide buy Bitcoins or other cryptocurrencies to protect themselves against the devaluation of their national currency. More and more companies are discovering the power of Smart Contracts or tokens on Ethereum. Thus, the first real-world application of blockchain technologies is emerging. As more and more individuals realize the importance of digital currencies, cryptocurrencies will experience considerable gains in usage and value.