Cryptocurrency 101: How We Got Here

Cryptocurrency has been in the financial news in recent years as the value of Bitcoin and other cryptos has skyrocketed to unprecedented levels. What once was an anonymous payment method for questionable purchases has become mainstream and could possibly replace traditional currency for most transactions.

What is cryptocurrency?

Cryptocurrency is an electronic payment method that works on a peer-to-peer system without the need for bank accounts to process the funds. The system works on an implementation called “blockchain.” The blockchain is a ledger that keeps track of all transactions in chunks of data called blocks. The ledger is a peer-to-peer system that directly interacts between the buyer and seller without a financial institution being involved. This is what is referred to as a decentralized technology.

The blockchain is a highly secure encrypted chain of data blocks that is replicated and shared among millions of computers that act as nodes throughout the blockchain network. Blockchain technology was created to enable faster transactions online without the need for bank accounts. This creates more anonymity, no risk of identity theft and it provides a means of payment for millions of people throughout the world who don’t have bank access.

The beginning of cryptocurrency

The most dominant cryptocurrency today is Bitcoin, and it is also the first technology that used the blockchain platform. The origin of Bitcoin is somewhat of a mystery, as its inventor never came forward. The person or group of people who created the technology went by the pseudonym Satoshi Nakamoto. Bitcoin was released in 2009, and the software was released as an open-source platform.

The early value of a single Bitcoin when it was used for black market transactions was a mere 30 cents. Since then, the price has dramatically risen and fallen as the coin has gained more mainstream adaptation. By January 2014, the currency reached a value of $770 per coin, and from there it exponentially increased in value until one coin was worth over $14,000 in 2017. In 2018, Bitcoin reached a record high value of $19,783.

How Bitcoins are created

Bitcoins and other cryptocurrencies are created in a process called “mining.” This procedure rewards users on the network with Bitcoins when they use computer resources to process operations on the network. The computer nodes that process encrypted transactions are using a lot of computational power to solve the math involved.

The system is designed to make bitcoins more difficult to create as time goes by. There is also a limit to how many Bitcoins can eventually be created. As Bitcoins become more difficult to mine and the total supply of new coins gets scarcer, the value will continue to climb exponentially.