Understanding Cryptocurrencies: Bitcoin and Ethereum

Cryptocurrencies are digital currencies. A digital currency has a value just like traditional currency and it is traded on an online exchange. Cryptocurrency values are subject to investor speculation and they do fluctuate. Value can also change in response to world events, investor confidence and technology changes in the digital age.

The key point to note is that Cryptocurrencies are not controlled by any government or any central authority. Bitcoins for example can be created by participants using the software and hardware designed to ‘mine’ for coins. Bitcoin miners use cryptography to secure their transactions and create new coins. The underlying technology uses various timestamping schemes which avoids the need for a trusted third party.

Blockchain Technology

Although cryptocurrencies technology is in its infancy but it is here to stay. The price of Bitcoin has skyrocketed in recent months. A single Bitcoin now trades for over $2500. It’s total market capitalization has grown to more than $70 billion. Many companies have introduced wallet apps to conduct cryptocurrency transactions in real time from mobile devices without the involvement of banks. Cryptocurrency is hailed as an alternative currency that could eliminate the middleman like banks or other financial institutions while doing transactions. However, some industry experts have also warned against the use of cryptocurrency. Due to the anonymous nature of transactions, Bitcoins are also widely used for illegal activities. Most ransomware today ask for payments in Bitcoins. This is one of the reasons that digital currencies are also looked upon with suspicion.

The technology used in cryptocurrencies is blockchain. Blockchain functions as a digital and decentralized ledger that keeps record of the peer-to-peer network. The technology has generated a lot of interest from consumers and large institutions. For consumers, using the blockchain means there will no third party fees, concerns of privacy and fear of fraud. For financial institutions, blockchain technology can help speed up their business processes.

Bitcoin and Ethereum

The value of Bitcoins and other digital currencies lies in the opportunities presented with the rise of these alternatives. Ethereum is a cryptocurrency project that has also begun to attract a lot of attention. It is not just a digital currency but instead it is a blockchain platform that provides a lot of features such as smart contracts, the Ethereum Virtual machine and enhanced security. The reward that Bitcoin miners receive for mining the currency halves about every four years. Ethereum miners on the other hand are rewarded based on its proof-of-work algorithm called Ethash, with 5 ether given for each block that is mined.

Bitcoin

Bitcoin payments termed as an automated payment processing system for bitcoin currency. In this merchants can accept bitcoins as a form of online payment.

Bitcoin was created by Satoshi Nakamoto.

What is Bitcoin?

Bitcoin is a form of digital currency which is created and held electronically. No one can control it.

You can use Bitcoin without any technical knowledge.

How does Bitcoin work?

First you have to installed a bitcoin wallet on your computer or mobile phone. After installing the bitcoin, it will generate your first Bitcoin address. You can further create more bitcoin address as per your need.

You can disclose your bitcoin addresses to the sender for online transaction. It works much similar like an email but the Bitcoin addresses are used only once.

Bitcoin transactions are sent & received through electronic bitcoin wallets and are digitally signed for security. All the transaction gets included in the block chain.

Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions. This private key provides a mathematical proof that they have come from the owner of the wallet.

According to a Cambridge University research 2017, out of 5.8 million cryptocurrency users most of them are using bitcoin.