The Evolution and Basics of Bitcoin and the Cryptocurrency Sector | For Dummies

Cryptocurrencies have changed the way we think about money, for better or worse. This unique and largely unknown world until recent has been the driving force of changing how we transact on a day-to-day basis. The most notable cryptocurrency Bitcoin has exploded in value, creating vast amounts of wealth for many. Beyond the parabolic moves in the market, many people are unfamiliar with what cryptocurrencies actually are and the technologies behind them. Large investment banks such as Goldman Sachs have taken the technology and tested in real world applications with successful results.

What is a cryptocurrency?

A cryptocurrency is similar to any currency in that it is a store of value and can be used to transact. The difference begins in that cryptocurrencies are digital, eliminating physical currency. With cryptocurrencies, the goal is to transact seamlessly person to person with no middleman involved.

Bitcoin is the most famous of the coins, but there are several different instruments out there from Ripple to Ethereum. According to Coinmarketcap.com, Bitcoin has the largest market cap of $187 billion, with Ethereum in second with $85 billion, and Ripple in third with $36 billion. If you want to get into cryptocurrencies, it is important to find ones that are highly traded and widely used. Bitcoin has grown from a $1 billion market cap currency in 2013 to where it is now as of 2018.

Blockchain

Blockchain is the technology behind the scenes that gives value to the cryptocurrency market. What is the blockchain you ask? Put simply, the blockchain is a ledger where Bitcoin transactions are recorded both chronologically and publically. However, the transactions are encrypted and the identities of those involved are anonymous.

There are benefits and drawdowns to both sides of the equation, with the first one being less fraudulent activity. With each transaction being encrypted, it is nearly impossible to find out who is transacting with whom. Not only that, but to hack the blockchain itself is all but impossible. This would give everyone a peace of mind knowing his or her transactions are secure.

On the other side of the coin, these anonymous transaction lead to illegal activities such as the purchasing of drugs and firearms. The Silk Road is the most notable of crimes that put Bitcoin in negative favor. Certainly you can make the argument this happens already, but with the growth of Bitcoin, it only makes it easier for these transactions to occur.

Lastly, a benefit to the blockchain is no middleman, meaning you transact directly with the person. The ledger allows multiple computers to verify transactions and keep the funds flowing. Also, it would save on costs associated with a clearing house and processing facilities.

Exchanges

One of the benefits to the evolution of Bitcoin and the cryptocurrency space are the exchanges that have begun to grow. With this being the wild west of finance, exchanges were not the most trusting places and many people lost money for whatever reason. One of the notable exchanges Mt. Gox was hacked and forced to file bankruptcy as a result.

Since 2014, many reputable exchanges have popped up such as Coinbase, Kraken and Poloniex.
Recently, Poloniex was acquired by Circle, which is a Goldman Sachs backed company. Exchanges are where you can buy and sell various cryptocurrencies. Various exchanges offer wallets, which are places you can store your digital assets. However, the best place to store your coins is in cold storage, that way if your computer is hacked you won’t lose your coins.

Since the very beginning, Bitcoin has faced difficult challenges. First starting out it was nothing more that a way to transact and people laughed thinking it was a joke. Slowly but surely, it began to build a following and grow. As the technology continued to evolve, people began to see the true value behind the face of cryptocurrencies. Growing still, people became skeptical but not dismissive. Fast-forward now, every news station covers the cryptocurrency world and there are even futures contracts for Bitcoin.

The evolution of cryptocurrencies is still in their infancy stage, but it is safe to say people are warming up to the idea of an alternate currency that is not controlled by a government entity. Who knows that the future may hold, but it will be exciting to live through a potential fundamental shift in the financial world.