Financial technology, or FinTech, is the second most adopted technology after the World Wide Web. So, there was no surprise when masses turned their attention to digital currency after the financial crisis of 2008.
To say that cryptocurrencies became popular in the immediate aftermath of the global financial crisis is not wrong. However, the concept of cryptocurrencies had been around for almost a quarter of a century before 2008.
Let’s dive deeper into the topic and understand what exactly is cryptocurrency.
Cryptocurrency: A Short Overview
Cryptocurrencies, in easy terms, are digital currencies that utilize cryptography for security and operating. These digital currencies work on a decentralized ledger technology known as blockchain. Blockchain technology makes transparency and security in these transactions possible. If you don’t know what blockchain and cryptography are, read on, and you’ll find out.
Cryptography
Cryptography is a fundamental component of cybersecurity. It employs various techniques to secure communications and data from unauthorized access. This technology entails mathematical algorithms and protocols to encrypt and decrypt information. The encrypted or encoded information can only be decrypted or decoded by the authorized parties.
The key concepts in cryptography include;
- Encryption
- Decryption
- Hash Function
- Symmetric-Key Cryptography
- Asymmetric-Key Cryptography
- Digital Signatures
Blockchain
Blockchain is a decentralized ledger technology, also known as DLT. This means that the blockchain technology is a digital system that records transactions across multiple locations. Blockchain being decentralized means that it does not require a centralized authority to perform or record transactions.
For better understanding, let’s take the example of traditional currencies and how transactions are performed using them. Whenever you make a transaction using traditional currencies like USD, you require a centralized authority. This centralized authority is usually a bank or financial institutions.
“Note: In the Crypto World, traditional currencies are known as Fiat money”
Blockchain does not require these centralized authorities to record or perform transactions. Blockchain is designed to be immutable. This means that once data is recorded within the blockchain, it can not be changed or deleted. This is what makes blockchain technology so secure and reliable in FinTech.
The key features for a blockchain include;
- Decentralization
- Immutability
- Transparency
- Smart Contracts
Now that you understand what cryptocurrency is. Let’s dive deeper into the topic and look at how it came to being as we know it today.
Brief History of Cryptocurrencies
The concept of cryptocurrencies has evolved over multiple decades. Its roots can be found as far back as the 80s. Let’s dive deeper into it.
Early Developments
These early developments are what laid the foundation for modern cryptocurrencies as we know them today.
1- eCash
The very first concept of cryptocurrency was introduced in 1983 by an American cryptographer named David Chaum. He proposed a form of electronic cash known as eCash. David aimed to use eCash to enable secure and anonymous transactions. This concept laid the foundation for future digital currencies.
2- DigiCash
Chaum founded DigiCash in 1990. DigiCash was an electronic money corporation, and eCash was the first fully electronic money. It was the first attempt to create a cryptographic electronic payment system. DigiCash transactions were unique as they were anonymous because they used multiple cryptographic protocols. Although DigiCash eventually went bankrupt in 1998, its inception was enough to influence the development of modern digital currencies.
3- Bit Gold and b-money
Bit Gold and b-money were introduced respectively by Nick Szabo and Wei Dai in 1998. Both of these digital currencies were an attempt to create decentralized digital currencies. Modern cryptocurrency, Bitcoin, also incorporates the same elements as these early concepts.
These early developments in the world of digital currencies had a profound impact on modern cryptocurrencies.
The Modern Era
The modern era for cryptocurrencies began with the inception of Bitcoin.
1- White Paper That Changed It All
The concept of bitcoin was introduced through a whitepaper that was titled “Bitcoin: A Peer-To-Peer Electronic Cash System” in 2008. This whitepaper was surprisingly published using the pseudonym “Satoshi Nakamoto”. It is still not clear if Nakamoto is an individual or a group. This means that the true identity of the creator of the most famous cryptocurrency is still unknown.
Before the introduction of Bitcoin by Nakamoto, all previous attempts at creating a decentralized digital currency had failed. The traditional financial market was already in turmoil at that time. This led to Bitcoin gaining widespread popularity which its predecessors failed to do.
2- The Official Launch
Bitcoin was officially launched in 2009 when Nakamoto mined the initial block of the Bitcoin blockchain. It is known as the Genesis block. The mining of the Genesis block (first block of Bitcoin) on January 3 2009 is widely regarded as the beginning of the crypto revolution.
Although the concept for cryptocurrencies had been around since the 80s, the very first successful cryptocurrency (Bitcoin) was launched in 2009.
Why Cryptocurrencies?
When the people realized, they don’t have control over their own money after the financial crisis of 2008. That’s when they started to look for other options. Options where they didn’t have to rely on authorities that control their money. And where they can freely do whatever they want with their money.
In short, they wanted a system that is not controlled by a single entity and provides freedom to online investors. If this piques your interest then cryptocurrencies are for you.
Cryptocurrencies, since the very first concept, have been centered around decentralization and freedom. Crypto owners have full control and ownership of their crypto assets. If you feel like the financial systems currently in place are unreliable, you are not alone. That is one of the major reasons why cryptocurrencies have become so popular.
Additionally, cryptocurrencies also promote privacy by allowing users to transfer these anywhere in the world, anonymously.
Now, if you feel intrigued by cryptocurrencies and want to try them out, some questions might still be holding you back. Questions like,
- Where is cryptocurrency stored and how can you prove its ownership?
- How can you use cryptocurrency?
If you can relate to these questions, then you are in luck. This guide will answer all your crypto questions. All you have to do is read on!
How Is Cryptocurrency Stored?
So, you have decided to get into crypto. But for that to happen you’ll need a crypto wallet. Crypto wallets or digital wallets are personal storage spaces. These storage spaces come in different forms, like;
1- Web Wallets
These wallets are mostly in the form of web extensions that allow access to cryptocurrencies using the web. Examples of web wallets include Meta Mask and My Ether Wallet.
2- Mobile Wallets
These storage spaces are mostly in the form of mobile applications. You can install these wallets on your smartphone. Mobile wallets provide easy access, allowing you to manage cryptocurrencies anytime, anywhere you want. Coinbase Wallet and Trust Wallet are both examples of mobile wallets.
3- Desktop Wallets
Desktop wallets are software installed on a desktop. These wallets are famous for their enhanced security and control. Electrum and Edos are examples of desktop wallets.
4- Hardware Wallets
These wallets store private keys offline and provide enhanced security against attacks.
5- Paper Wallets
These are the physical printouts of the private keys in the form of QR codes. You can scan these QR codes to access your cryptocurrencies but these wallets are less effective for frequent use.
6- Custodial Wallets
Custodial wallets as the name suggests are those in which a third manages the private key on behalf of the user.
7- Non-Custodial Wallets
In these wallets the users hold complete control over the private keys.
8- Multi-Signature Wallets
These wallets need multiple private keys to authorize a transaction. This adds an additional layer of security.
These wallets are how you store your crypto assets. As to how you can prove their ownership? These wallets require private keys to make any transaction, as the owner of the wallet only you’ll have access to these private keys. These private keys are also what’ll prove your ownership.
How Can You Use Cryptocurrency?
You can use cryptocurrencies for various purposes, from shopping to buying virtual goods and trading. Buying, selling, trading are the most common use of cryptocurrencies currently. But the future is near when you’ll be able to shop for groceries and other necessities using crypto.
Cryptocurrencies, right now, are mostly viewed as an investment. Similar to that of the stock market. Many cryptocurrencies are volatile, this means that their value can increase or decrease within a day or an hour.
This provides investors an opportunity to buy cheap tokens and later sell them off when their market value rises. Some other ways cryptocurrency is currently being used include;
- Making overseas payments, as it can quickly be changed back to fiat at cheaper rates.
- You can also shop in specific businesses like Microsoft and Starbucks.
- Buying virtual goods like NFTs or video games.
The Future Of Cryptocurrencies
As governments around the world debate on the legality of cryptocurrencies, cryptocurrencies continue to be adopted by the masses. As more regulatory requirements are set, crypto will become more mainstream. Until eventually it becomes a part of the future financial ecosystems.
So, as a novice, it is better for you to jump on the crypto bandwagon sooner rather than later. However, you must first gain a deep understanding of the topic. This’ll help you fully understand the benefits and challenges of cryptocurrencies and which ones to invest in.
