Bitcoins, digital currency, cryptocurrencies, Blockchain, these are words that sound familiar to you, right? These well known cryptocurrencies, Lately appear in the news, in newspapers, on television, on blogs … And they are on everyone’s lips, but … Do you know everything there is to know about cryptocurrencies?
What are they?
Cryptocurrencies or cryptocurrencies are virtual currencies with which you can carry out electronic transactions for the purchase and sale of goods and services without the need for an intermediary. Unlike physical currencies, such as the euro or the dollar, cryptocurrencies are not issued by any state or central bank. They only exist on the Internet, that is, they are generated and stored only digitally.
How are they born?
The first cryptocurrency that existed and that began to work was the famous Bitcoin 11 years ago, in 2009. It is the first network between pairs of decentralized payments, without a central authority or intermediaries. Behind the creation of this protocol is an anonymous person (or group of people) named Satoshi Nakamoto. If you are interested in learning more about Bitcoin, the documentary “Banking on Bitcoin” is available on Netflix.
Since then, a few other cryptocurrencies have appeared, some better known than others, which occupy a market that grows day after day.
What cryptocurrencies are there?
As we say, Bitcoin is widely known, but it is not the only existing cryptocurrency. XRP (formerly called Ripple), Ethereum, Litecoin or Dash are some of the current cryptocurrencies with the highest capitalization. All of them have been developed using different cryptographic functions and have different values depending on their creation date, their number of users, or the volume of their transactions.
Next, we review some of the best known on the market:
Bitcoin (BTC): it is the best known digital currency in the world, it was born in 2009. It became so popular due to its decentralized nature and its open source created as we have already seen Satoshi Nakamoto.
Bitcoin Cash: it is a division of the most famous cryptocurrency in the world (as its name suggests, Bitcoin), which took as the last block of Bitcoin the 478558. From there, Bitcoin Cash would generate its own blocks with a size much higher than those of Bitcoin, going from 1MB to 8MB first and then to 32MB. It is a recent cryptocurrency, born in August 2017, with the intention of continuing the original vision of Bitcoin, of using the Internet as the effective peer-to-peer system for its operation without depending on third-party solutions, such as Bitcoin with p. ex. Lightning Network (P2P network that works as a second layer system for micropayments with Bitcoins.).
XRP (formerly called Ripple): it derives, like all, from Bitcoin, and in this case it is the second digital currency in market capitalization. It was created by the RippleNet platform in 2012 and is postulated as a great competitor to Bitcoin.
Ethereum: it is a Blockchain or a Distributed Accounting Technology. It was conceived as an improved version of Bitcoin to overcome the limitations of its programming language. Ethereum was proposed by Vitalik Buterin, a cryptocurrency developer.
Dash: Also known as Darkcoin and XCoin, the Dash cryptocurrency offers the same features as Bitcoin but also has advanced functionalities.
Litecoin (LTC): it is inspired and is identical in its technical aspect to Bitcoin, designed for transfers of little value, it has three main differences with respect to it:
The Litecoin processing network takes 2.5 minutes to perform a block instead of 10.
The Litecoin network will produce approximately four times more units than Bitcoin (84 million Litecoins).
It uses the Scrypt function in its algorithm to facilitate mining (obtaining Litecoins), not needing other types of more complex systems as in the case of Bitcoin.
Peercoin (PPC) – Also known as PPCoin and Coin Peer-to-Peer is the first cryptocurrency based on a combined proof-of-stake (PoS) / proof-of-work system (PoW) implementation that makes the verification of transactions with this cryptocurrency are simpler, consuming much less computing resources, than that carried out with other digital currencies.
Dogecoin (DOGE): it is the cryptocurrency derived from Litecoin that has as its logo a Shiba Inu dog from an internet meme, created by IBM programmer Billy Markus with the intention of reaching a number of users much greater than Bitcoin, surpassing the controversy with Bitcoin over the issue of the Silk Road online black market.
Namecoin (NMC): this is the first derivation of Bitcoin but with minor modifications, to anticipate scalability problems. It is limited to 21 million units and can be divided up to 8 decimal places.
QuarkCoin (QRK): created by the economist Bill Still, this cryptocurrency claims that it can be created and / or used by anyone without the need to possess special equipment with greater security and speed of transactions than Bitcoin.
Anyone without the need for special equipment with greater security and speed of transactions than Bitcoin.
Iota (IoT): a cryptocurrency focused 100% on the internet of things. It is currently ranked No. 7 in market capitalization.
What is its difference with the Blockchain?
Blockchain or “chain of blocks” is a fundamental part of Bitcoin or any other cryptocurrency, as it functions as a non-modifiable “notary public” of the entire transaction system. Blockchain prevents a virtual currency from being spent twice and ensures that payments and collections with Bitcoin are safe.
How do cryptocurrencies work?
Cryptocurrencies use a series of state-of-the-art technologies, combining P2P (peer to peer, exchange of pairs) services with cryptography.
From the users’ point of view, transactions are carried out from electronic wallets, also known as wallets, through which Bitcoins or the cryptocurrency in question can be sent or received. The appearance of any of these digital wallets is that of a mobile application and its operation is very similar to online banking, although without an intermediary body that controls the transaction.
In terms of its “guts”, cryptocurrencies are encrypted files that work in a similar way to a bank account. The Bitcoins (or other cryptocurrency) transaction is carried out at the moment when some public codes coincide, which are related to the passwords (or cryptographic keys) created by the users. This transaction is then recorded on the Blockchain, ensuring its security.
How are cryptocurrencies created?
In principle, anyone with adequate programming knowledge can create a cryptocurrency from an existing one, since most cryptocurrencies are open source that can be downloaded and modified. You can also do it, more easily, through the platforms that exist to create cryptocurrencies, such as Wallet Builders.
But if what we are talking about is getting units of an existing cryptocurrency, the possibilities are two:
Manufacturing new units of Bitcoin or other cryptocurrency through a process that is commonly known as “mining.” The problem is that as Bitcoins are mined, the more difficult it is to obtain new Bitcoins, which is why, in most cases, special computers are required, very powerful and that consume a lot of energy. That is why this process of generating Bitcoins is practically only carried out through server farms.
Accepting cryptocurrencies as a method of payment for a good or service, acquiring them at an exchange house, or buying them from someone. The number of sites that accept Bitcoins as a payment method is limited, and it changes over time, such as Microsoft or some restaurants of the Subway chain, currently accept them. Other companies, such as Amazon, do not accept payments in Bitcoin directly, but they do accept through payment gateways that act as intermediaries, such as Bitrefill or Fold.
Are cryptocurrencies dangerous?
Cryptocurrencies are relatively recent technologies that are being studied by experts and banks around the world. In general, the idea that it is, as many believe, a scam or fraud is ruled out, for two reasons, the first, because cryptocurrency systems do not promise false returns, and, second, because they have Blockchain technology behind that supports them. Although it is true that they do not get rid of the stigma of volatility and fear of the little known.
An example of the change in attitude towards cryptocurrencies over the years is that of the European Central Bank (ECB), which has gone from warning about cryptocurrencies, due to their volatility, the lack of legal protection and the lack of support from a public authority, to study the possibility of creating a digital currency.
In any case, before taking any step in the world of finance, be it with real currency or with cryptocurrencies, it is advisable to gather as much information as possible to know the pros and cons and seek the advice of specialists.
So how do you make a Bitcoin transaction?