Crypto currencies have grown significantly within the last year. They have been making a great impact worldwide as alternative forms of currency. In January 2018, the price had increased over 500% in 12 months – a never seen before phenomenon. Bitcoin is not bound by any specific government regulations, it is an extremely volatile currency, and the most minor change can fluctuate its prices enormously.
The first ever cryptocurrency, Bitcoin, was released in 2009 by an anonymous creator named Satoshi Nakamoto. It was the first digital currency to provide a decentralised electronic cash system without a central authority or server. This has enabled a cheaper and simpler method of spending money internationally because it bypasses traditional third parties such as banks and governments. Owners are all anonymous, with buyers and sellers identified by encryption keys.
Bitcoin is comprised of decentralised peer-to-peer networks where all users have a record of all transactions simultaneously. These are documented in the Blockchain technology, which is similar to a traditional public ledger. Records of transactions are secured by cryptography which lock them within blocks. Those blocks are subsequently linked together to form a chain of blocks, hence the title of Blockchain.
Bitcoin owners access the currency, saved in their Bitcoin wallet, through a confidential key to its address on the blockchain. The record of transactions on the blockchain are unchangeable and cannot be counterfeited as they are duplicated on every computer on the network. This prevents the digital coin from being transacted with twice.
Bitcoins are finite, as its creator capped their available amount to 21 million, so its value will increase over time. This has produced an increase in ‘mining’ of Bitcoin, which is the process of computers deciphering difficult maths puzzles to validate the bitcoins used in a transaction.
There is considerable competition between thousands of ‘miners’ to be the first to solve the puzzle, with the winner currently being awarded 12.5 bitcoins. This role is essential for the crypto-currency network as mining verifies a transaction, to form a part of the blockchain.
Initially, mining for Bitcoin was small-scale but has majorly grown in complexity with the establishment of large ‘Bitcoin mining centres’, now forming the majority of the network. In particular, bitcoin mining has become so popular in Iceland that officials have warned that if projected future centres were to be established, it would use more electricity than the country’s current power usage for all its houses. An added effect of this mining boom has been to drastically drive up the prices of graphics cards and GPUs.
“The record of transactions on the blockchain are unchangeable and cannot be counterfeited as they are duplicated on every computer on the network”
The past year has seen immense volatility within the Bitcoin market. Combined with fluctuating transaction fees and times, concerns have been raised over its long-term viability. Despite such
issues, Bitcoin remains the dominant cryptocurrency within the market. Other popular competitors gaining traction include Ethereum, Litecoin, Ripple and Monero, with many new forms of digital money constantly being launched.
Such proliferation demonstrates that cryptocurrencies will continue to grow in popularity as their technologies are refined.
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