The cryptocurrency industry has been around for some time, but is still constantly evolving. A decade after the launch of Bitcoin, many people are just being made aware of its potential. If you are one of these people, we have compiled ten facts about cryptocurrency you should look over before making that first investment.
1. A brief history
The concept of digital currency has long been an attractive idea to people around the world. Satoshi Nakamoto was the first to create a reliable cryptocurrency called Bitcoin. The reason for Bitcoin’s success over previous forms of cryptocurrency was the blockchain. It is the distributed ledger that records all cryptocurrency transactions. Each block on the blockchain is a peer in the system, and every transaction must be recognized by all peers before being validated. This effectively solves the double spending problem as each block contains a ledger of all transactions and must be consulted beforehand. The blockchain is hailed by some as Satoshi Nakamoto’s biggest creation, and not Bitcoin itself.
Cryptocurrency is a decentralized system, which means there is no single entity in charge of the way it’s regulated. This has both positive and negative implications. With no centralized entity to regulate it, there are no rules. Users have complete anonymity. The decentralised system also ensures there is no singular data centre for hackers to break into. Records are distributed throughout the network so they cannot feasibly be altered or destroyed by hackers.
3. Bitcoin and Altcoins
Bitcoin has become a household name in the world of cryptocurrency. Bitcoin was the first tradeable cryptocurrency and remained so for a while. In time, however, other cryptocurrencies were created. But this has only done a little to reduce the prevalence of Bitcoin. Today, Bitcoin still has the largest market cap of over $110 billion, which makes up over 50% of the combined market capitalization.
One other way Bitcoin’s prevalence is shown is in the classification of all other cryptocurrencies as altcoins, such as Ethereum (ETH), Ripple (XRP), and Litecoin (LTC). With a market cap of over $57 billion, Ripple is a major cryptocurrency closely behind Bitcoin in size. There are also Bitcoin Cash (BCH) and Bitcoin Gold (BTG), both of which are offshoots from the original bitcoin.
4. They are incredibly volatile
Over the last few years, cryptocurrencies have become the most unstable asset to invest in due to their frequent and often drastic fluctuations in value. 2017 was a year that recorded some notable events in the cryptocurrency world including the fact that the market saw an unprecedented rise of over 3,200% in their combined market cap. Ripple experienced a 36,000% rise; the Bitcoin, which was worth less than $1,0000 at the start of 2017, rose to $20,000 before the end of the year. It is currently worth about $7,000.
This does not include the numerous pump and dump coins, which experience incredible market soars one day and then disappear by the next. This incredible capacity of cryptocurrency to rise and fall make it a highly risky, but potentially high rewarding investment.
5. They have no backing
One feature that makes cryptocurrencies stand out from regular currency, is the fact that they aren’t backed by any central bank, government, or single financial entity. No single entity is able to control or regulate cryptocurrency, and that was the aim. However, this does make it difficult to accord specific values to the differing cryptocurrencies. With no central entity in charge, there is no way to determine value based on the performance of that entity.
6. Blockchain might be more valuable than Bitcoin
The blockchain technology is an exemplary creation. A great reason for this is that unlike Bitcoin, its usefulness extends beyond the financial industry. The ledger system within the blockchain has incredible functionality in many other sectors and has even been implemented in some already. Its uses extend from the medical industry, to the banking sector, and even to the future of cloud storage.
7. What is a miner?
If you have attempted to make a cryptocurrency transaction, you will no doubt have come across the word mining or miner. Miners play a huge role in keeping cryptocurrency transactions viable. They verify transactions and ensure that the record is inputted in the blockchain. Mining requires a lot of processing power and relevant computing infrastructure. However, if you have some coding experience and a good enough system of your own, mining is a great way to earn yourself some cryptocurrency.
8. Over 6 million wallet types
The popularity of cryptocurrency has boomed significantly over the last three years. With this came a demand for a new type of product—a digital wallet. Digital wallets are used to hold cryptocurrency and other similar assets; one must have a wallet to perform transactions. There are currently over 6 million types of wallets available. Each type has its own unique features and benefits, but they all serve one common function—to store cryptocurrency. The incredible and rapid diversity of wallets is yet another testament to the growth of the cryptocurrency market.
9. There are new forms of cryptocurrency every day
With the creation of blockchain, there was no longer any real barrier hampering individuals and companies alike from creating their own cryptocurrencies. Currently, there are almost 1,600 forms of cryptocurrency. And there will certainly be more. Not all of these are viable options, but with the volatility of the market, you never know when a previously inconsequential cryptocurrency will skyrocket in value, or when a previously high flying cryptocurrency will fall into obscurity.
10. The story of Mt. Gox
Every industry has its own cautionary tale and MT. Gox is the cryptocurrency’s. Mt. Gox was a cryptocurrency exchange, one of the first and certainly the biggest of its time. A cryptocurrency exchange, also called digital currency exchange, is a business that enables its customers to trade cryptocurrency for one another or for regular fiat currency. Mt. Gox and Ripple were founded by Jed McCaleb. But it only really hit success under the management of Mark Karpelès. At its peak in 2013, Mt. Gox was handling over 70% of all Bitcoin transactions in the world.
The downfall of Mt. Gox really began with a series of hacks in 2011 that led to loss of investment and fraud. This was later followed by litigation from disgruntled partner companies. Neither was enough to truly bring down this giant company. In April 2014, it was announced that Mt. Gox was missing 650,000 of customer Bitcoins and 200,000 of its personal stash; meanwhile, was later discovered to be the result of another hack. The total missing 850,000 Bitcoins were worth about $450 million dollars at the time. This ruined the company and changed people’s opinions regarding Bitcoin. Not even the discovery of 200,000 of these Bitcoins was enough to stop the downfall.
The moral of this story is fairly simple. As with all industries, cryptocurrency comes with its own share of risks. There will definitely be snags along the way, and so you must be careful. However, this does not have to be the end. Following Mt. Gox, Bitcoin’s price was just over $100. The industry persisted and now Bitcoin is priced at over $7,000.