Cryptocurrencies: knowing them to choose if they are for you
More than 10 years have passed since the appearance of the whitepaper on Bitcoin signed with the pseudonym of Satoshi Nakamoto from which we began to talk about cryptocurrencies and still discuss them animatedly trying to pass them off as a revolutionary tool of digital payment or as a dangerous mirror for the larks. Before labeling them, it is better to understand and observe how they have evolved and spread since their birth, in order to be able to predict how they will also evolve in the future.
Cryptocurrencies: what they actually are
Cryptocurrencies can be defined as a digital means of payment and are based on blockchain technology and cryptographic procedures such as hash functions and digital signatures. They are completely digital and usually asymmetrically encrypted, there are no coins or banknotes, and are generated collectively across the entire system through the mining process. A very important feature of cryptocurrency systems is their decentralized structure: all operations, not just the generation of new units, is performed collectively, meaning there are multiple participants who control and countersign every step on their respective system. We are within a large network of nodes and each node has the same importance and rights.
Cryptocurrencies: a mini glossary to know them better
Here are some terms that if you talk about cryptocurrencies you can not fail to mention and know.
The Blockchain is the decentralized ledger of a cryptocurrency. The various transactions are listed in blocks that are individually recorded without gaps and in chronological order resulting in an open and durable verifiable ledger. Each new transaction is validated according to a protocol defined by the participants of the peer-to-peer network who represent the nodes and can automatically download a full copy of the blockchain. In this way, there is no need for any central body to oversee the operations and this is exactly why, when we talk about blockchain, we talk about disintermediation.
Hash functions are the building block of the blockchain and are used to verify the integrity of the data and encode the account addresses and transactions of the participants. They are digital signatures that allow to prove the state of the encrypted information without revealing it, so are suitable for signing transactions and communicating to the network the approval of a transaction.
Cryptography is the basis of cryptocurrency security. It is a discipline that deals with both encryption and the overall protection of data and information, both of which are required in any cashless, all-digital payment system.
Advantages and disadvantages of cryptocurrencies
By putting cryptocurrencies side by side with monetary systems, we can evaluate their advantages and disadvantages or, if we want to be more neutral, their diversities. Among the advantages are certainly the anonymity, the speed of operations and the simplicity of application, the availability well beyond state borders and the absence of limitations on operations. Cryptocurrencies are also free from the influence of banks. All this has a price, or rather, it coexists with disadvantages of which to be aware of as much as with advantages, starting from the strong fluctuations, potential speculative bubbles and possible hacker attacks up to the danger of being “locked out” of your account in case of loss of an access key. It should always be kept in mind that we are dealing with virtual money only and that the system does not provide any insurance against losses.
Cryptocurrencies: how many there are and what they actually are
So far we can count more than 2,000 different cryptocurrencies in the world and the more time passes the more others can be born. It is not easy to navigate with these numbers but there are some established cryptocurrencies that we can start to familiarize ourselves with: the ones with a high market capitalization.
We can’t help but start with Bitcoin, in circulation since 2009: it is the precursor of cryptocurrencies and still the most important one, the one with the highest countervalue in Dollars, Euros etc. There is also a Bitcoin Cash much less known and recently born, it is a Fork of Bitcoin to overcome the low transaction rate of Bitcoin. In fact, 130 transactions per second are possible with Bitcoin Cash. Among the most well-known cryptocurrencies there is also Ethereum, officially used since 2015 not so much for digital payments but mainly for smart contracts. Its currency units these are defined as Ether. Ripple is also not assimilated to Bitcoin as a cryptocurrency, looking more like a universal exchange platform for currencies of any kind and contradicting the decentralized approach of cryptocurrencies. Another cryptocurrency to watch out for is Monero, which, through features such as hidden addresses or group signatures, stands out for its emphasis on user anonymity.
How to use cryptocurrencies
One is inclined to consider cryptocurrencies on a par with money because Bitcon, Ethereum, IOTA or Monero, possess a countervalue and therefore become possible means of payment. Bitcoin already is this, despite its highly fluctuating value. But how are cryptocurrencies being used in the world today?
Some startups are using them to raise investments while there are companies that combine them with their product or service offering as a financing solution. Also Traders are also proposing cryptocurrencies as an attractive alternative to stock trading and other speculative activities having high profit margins but also very high risks of loss.
If you want to listen to some concrete examples of how the fintech world has used bitcoins, we suggest listening to the two podcasts dedicated to Conio and Tinkl.it. They are two different and explanatory examples of how business has been enabled by cryptocurrencies. Breaking away from the well-known bitcoins, you can listen to the story of Wizkey that chose to bet on Ethereum.
