In the last few days, we have seen a deluge of activity regarding Cryptocurrencies. A lot has already been written about it by finance experts and bloggers, alike. Some finance analysts ravel about its emergence; while banks, governments and financial circles are looking over their shoulders, keeping track on its recent developments. Being a digital lending platform, from completing a personal loan application to repayment, happens electronically – over digital media. Hence, we get plenty of queries from our faithful blog readers asking if Loan Singh deals with Cryptocurrencies or not.
We do not deal with Cryptocurrencies. But, we do deal with online personal loan. We provide an online loan for house repair, marriage, second hand car, home improvement, medical expenses, celebration, etc. Just like we cater to so many variants/purposes of online loan, Cryptocurrency is also being utilized via the different variants. This piece will not just look at Cryptocurrency and its oldest and most popular exponent – Bitcoin, but also at 6 other cryptocurrencies.
What is a Cryptocurrency?
In late 2008, a mysterious inventor named Satoshi Nakamoto developed a ‘Peer-to-Peer Electronic Transaction System’ termed as Bitcoin. Satoshi’s goal, with the introduction of this cryptocurrency, was to prevent double spending by making use of a P2P network. An important aspect of Satoshi’s invention was that he found a way to build decentralized digital cash system. One thing we must understand is that for digital cash (a currency which has no tangible presence and is used online) to work, one needs a payment network set-up which includes accounts, transactions and balances. A huge roadblock to avoid, for any form of such currency (or crypto), is ‘double-spending’. Double-spending is the practice of the same entity spending an amount twice. So, the central server has to be able to keep track of each transaction – maintaining its source and its next destination.
For a decentralized network, you do not need a central server. Every single entity of the network has to do the tracking by itself. Every peer needs to have a list of transactions to check if the current transaction is valid. Cryptocurrencies use a decentralized technology to let users make secure payments and store money without the need to use their name to go through a bank. They run on a distributed public ledger called as a Blockchain, which records all the information about past transactions and all the transactions which have happened prior to the next one. Cryptocurrency is viewed as a monetary value which is free from government control, bank fee, and other charges. Blockchain plays the part of verification and Bitcoin is seen as a tool of cryptocurrency for private and anonymous transactions. As of July 2017, the total number of Bitcoins in circulation amounted to approximately 16.5 Million. As of March 2017, a single Bitcoin valued at $1268, exceeding the price of gold ($434 per 10gm) for the first time.
How does a Cryptocurrency work?
A cryptocurrency consists of a network of peers. Every peer has a record which shows the complete history of all transactions and thus the balance of every account. An example of a transaction could read ‘Amar gives 12 Bitcoins to Vijay’ and is signed by Amar’s private key. All it contains is a public key cryptography. Once signed this transaction is put up on the network, sent from one peer to another. Each transaction is a block and connects to previous history like a chain. Voila! ‘Blockchains’ are formed.
The transaction is instantly recognized by the entire network. Confirmation happens after some time and is an important aspect of cryptocurrency. As long as a transaction is unconfirmed, it is pending and can be forged. Once confirmed, it is consolidated and becomes non-reversible; and becomes a part of Blockchain. Now this confirmation of transactions can only be done by miners. Their job over the cryptocurrency network is to stamp transactions as legitimate and spread them across the network. Miners are hence rewarded with a token of the cryptocurrency (Bitcoins). Anybody can be a miner. As cryptocurrency is built on a decentralized network, there is no authority to delegate any tasks to miners. Miners have to keep an eye out for forgery such as a situation where hundreds of peers spread forged transactions.
Cryptocurrency allows the exchange of digital currency completely over the internet. Cryptography helps secure all the information that is involved in creation, transaction and validation of the currency exchange. The creation of cryptocurrencies is public. Its value is not based on any organizational protocols but by market forces. There are more than 1300 cryptocurrencies being traded currently.
Features of Cryptocurrency
By now we know, that cryptocurrencies are entries about transactions present in decentralized databases. They are called Cryptocurrency because of being built on cryptography. They are secured not by people, but by the math involved. The features that they enjoy are not hard proof, but are properties that they enjoy thanks to their structure.
Cryptocurrency funds are locked in a public key cryptography system, and coupling that with a Bitcoin address makes it as secure as a vault.
A user can have multiple Bitcoin addresses, not linked to any name or personal info. Addresses are usually of 30 characters.
Not controlled by a single authority. If one network shuts down, the other takes over.
Bitcoin users can charge some fees to process the transaction faster. The higher the fee, the more priority it attracts on the network with quicker processing time.
Transfer of Bitcoin happens within minutes as soon as the Bitcoin network processes it. It involves a global network of computers.
Since there is no physical form of the currency, Bitcoins are free from counterfeiting. There are no risks to the country’s economy if millions of Bitcoins are lost.
Not a miner, not the President of India, not even Satoshi Nakamoto can save your money in case transaction is done to a scammer.
Ease of set-up
Download the Bitcoin software for free and start with setting up of a merchant account. You can set it up within minutes and start receiving or sending Bitcoins.
All cryptocurrencies control the supply of the token by a schedule written in the code. This means that the monetary supply of a cryptocurrency for any given moment in the future can be calculated today.
All confirmed transactions can be viewed by everyone (personal details are hidden). Anyone can view the Bitcoin Blockchain. It is exempt from governments or any other organization.
6 Cryptocurrencies other than Bitcoin
The first and most famous of all cryptocurrencies is Bitcoin. It serves as a benchmark in the whole cryptocurrency industry. It is inversely a prime currency that fuels cyber- crime over the dark net markets or ransomware. It’s been 9 years now and Bitcoin’s value has only soared. Bitcoin can be exchanged for other currencies or products or services. Bitcoin can also be held as an investment. On 1st August 2017, Bitcoin split into two derivative digital currencies – the classic Bitcoin (BTC) and Bitcoin Cash (BCH). Bitcoin can also be considered to be a Cryptocurrency standard and also a trendsetter in the digital economy domain.
After that brief on Bitcoin, let’s look at 6 other Cryptocurrencies. The currencies that are inspired by Bitcoin are collectively called as ‘Altcoins’. These Altcoins are said to be the modified versions of a Bitcoin. These Altcoins possess added risk compared to a Bitcoin due to its value retention and scalability.
Ethereum is an open source decentralized software platform that is based on block chain technology. It enables developers to build and deploy decentralized applications that can run without any downtime, control, fraud or third party interference. The one difference between Ethereum and Bitcoin is in their purpose and capability. While Bitcoin Blockchain is used to track the P2P electronic digital currency, Ethereum Blockchain focuses on running the programming code for any decentralized application.
Miners are working here to earn ‘Ether’ – a crypto token that fuels the network. Ether is used by application developers to pay for transaction fees and services over the Ethereum network. In 2016, Ethereum was split into Ethereum (ETH) and Ethereum Classic (ETC).
Referred to as the ‘Silver to Bitcoin’s gold’, Litecoin was launched in 2011 by creator Charlie Lee. It is based on an open source global payment network that uses a ‘scrypt’ and is not controlled by any central authority. It has a faster block generation rate compared to Bitcoin and also a faster transaction confirmation rate. Apart from developers, merchants are also slowly beginning to accept Litecoin. Litecoin is said to one day max out on the 84 million mark, making it limited in supply.
A real time global settlement network, Ripple offers instant and low cost international payments. Its transactional protocol is XRP (as Ether is to Ethereum). It is built atop a distributed ledger network which needs various parties to validate transactions – instead of a single centralized authority. Its transfer fees are cheaper than Bitcoin and XRP enables rapid transfer rates. Ripple’s ledger network does not need mining, something which makes it different from other cryptocurrencies. Therefore, it reduces the use of computing power and also reduces network latency.
Monero is considered secure and untraceable. Launched in 2014, it received heightened interest among Cryptocurrency enthusiasts. Monero was launched with an emphasis on scalability and decentralization. It provides complete privacy thanks to its ‘ring signatures’.
Dash is considered to be a secretive version of Bitcoin. Again working on a decentralized master code network, it provides untraceable transactions. Created by Evan Duffield, Dash can be mined using a CPU or GPU. Its original name was ‘Darkcoin’. Two technological features of Dash are Darksend and InstantX.
The youngest from the current list, ZCash was launched in 2016. ZCash defines itself as the ‘https’ to Bitcoin’s ‘http’. It offers privacy and selective transparency of transactions. It claims to provide an extra security cover where all transactions are recorded and published on a Blockchain. Details pertaining to sender, recipient and amount remain private.