Cryptocurrencies generally consist of decentralized, peer-to-peer, digital currencies that are typically traded on special exchanges or in the Over the Counter or OTC market. Cryptocurrencies and their issuance and payment systems have no oversight or control by any centralized authority, which is part of their appeal to certain investors. The value of cryptocurrencies is determined solely by market forces via the typical dynamic of balancing supply and demand.
Just about all current cryptocurrency specifications are based on the original fully-implemented and decentralized cryptocurrency known as bitcoin, which was introduced in 2009. To maintain confidence in the market, cryptocurrency systems need to maintain a safe and balanced ledger, which is typically implemented by calculations performed by a community of miners who are occasionally rewarded for their efforts with cryptocurrency.
Miners are mutually distrustful members of the public that employ their own computers and at times specialized devices to timestamp and validate transactions to be included in the cryptocurrency’s ledger. Most cryptocurrencies also include a means of gradually reducing the production of currency, effectively placing a cap on currency in circulation and giving the currency greater value, much like the precious metals market.
In addition to Bitcoin, which has the largest market capitalization, more recently introduced cryptocurrencies include: Ethereum, Litecoin, Montero and Ripple. Due to the current experimental environment, cryptocurrencies can be harder to seize by law enforcement than other assets.
BITCOIN – THE FIRST AND MOST POPULAR CRYPTOCURRENCY
Based on a paper that was posted to a cryptography mailing list by Satoshi Nakamoto in November of 2008 entitled Bitcoin: A Peer to Peer Electronic Cash System, Bitcoin became the first decentralized cryptocurrency, and is currently the most popular among traders. The new electronic cash system was embraced by many programmers that were attracted to the obvious advantages presented by a decentralized free-floating currency. Bitcoin gradually became accepted and was aided by the fact that it was one of the first cryptocurrencies to appear on the scene.
Eventually, bitcoin payments began to be accepted by more and more merchants as central banking authorities clarified that they would not encourage law enforcement to crack down on the newly formed digital currency economy. This made the value of bitcoins explode, and fostered the proliferation of many online exchanges and wallet services, which consequently made it easier for people to buy, hold and spend bitcoins. If you are looking to buy bitcoin, try Bestbitcoinexchange for a huge list of exchanges.
While some of these services failed dramatically at the beginning, such as Mt. Gox in 2013, and hacking to obtain bitcoins remains an ongoing issue, bitcoin not only prevailed but even managed to thrive in the aftermath of these disasters. All bitcoin transactions are registered on a public ledger known as a blockchain, with users making transactions directly without intermediaries and that are verified by network nodes before being recorded on the blockchain.
All bitcoin operations are performed by a network of computers owned by bitcoin miners. Miners maintain the blockchain and sort transactions, which use private keys and signatures encoded with advanced cryptography. In addition to managing transactions and blockchain related information, miners must solve increasingly complicated mathematical problems for which they are rewarded with bitcoins.
Because of the vast number of mathematical computations involved, in addition to the cost of electricity required to run the computer systems, bitcoin mining has become difficult and no longer profitable for many miners. Today, advanced Application Specific Integrated Circuits or ASICs are used and are typically equipped in custom built bitcoin mining boxes.
Nevertheless, even with this equipment, bitcoin mining is typically only profitable in places like Iceland and China, where cold weather conditions and low-cost electricity significantly reduce the cost of mining. In addition to mining, bitcoins can also be obtained as acceptance for payment for goods and services and through trading on a bitcoin exchange.
Bitcoin values have fluctuated dramatically, especially over the past year. One bitcoin is currently worth more than $4,000 per unit as of August of 2017. The bitcoin market has been through several boom and bust cycles and it is currently looking like the bitcoin market is heading higher.
CRYPTOCURRENCY TRADING AND POSSIBLE SCAMS
Most bitcoin and other cryptocurrency users use an exchange to sell their cryptocurrency for fiat currency. Because of the unregulated nature of bitcoin transactions, finding a reputable broker is one of the main concerns for making transactions. As with any tradable asset that becomes popular with the public, several scams have been developed to steal and extort bitcoins:
Bitcoin Phishing Impersonators– impersonating the bitcoin brand is a strategy used by scammers to gain a victim’s trust. Once trust is gained, the phishing website offers a search service inviting people to enter their private bitcoin key to verify that it exists in their database. After the number is entered, the private key is simply phished, which allows the scammer to spend the victim’s bitcoins directly from their account.
Bitcoin Flipping – this scam offers an instant bitcoin exchange for cash after paying an initial startup fee. Scammers often offer to double the victim’s money overnight. As you may surmise, the victim pays the initial fee and submits their bitcoins, with the counter-party failing to deliver on their side of the transaction.
Fake Bitcoin Wallets – scammers attract victims through social media, enticing victims to click on URLs which subsequently attempt to download a malware infested app. Fake bitcoin surveys are often used for malware distribution; therefore, users must be cautious when clicking on URLs that are not secured with an HTTPS connection.
As with any trading or investing endeavor, those interested in obtaining or trading cryptocurrencies should check out the reputation of a potential trading partner, website or broker before entrusting them with fiat money, cryptocurrency, personal information, or cryptocurrency keys.
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