- It’s here to stay
Many questions have been asked about the long-term viability of cryptocurrencies, with prices crashing in January. But while the rollercoaster ride may have put some off, the fundamentals of the technology-known as blockchain-that underpins Bitcoin are here to stay. Blockchain, a decentralised ledger for recording transactions, is still very new and is being compared to the way the internet was in 1994.
- Bitcoin is not the only cryptocurrency
While Bitcoin and to a lesser extent Ethereum tend to hog the headlines, there are more than 1300 cryptocurrencies and growing, each relying on blockchain technology. A new cryptocurrency can be created at any time. Bitcoin is the world’s largest cryptocurrency by market capitalisations, followed by Ethereum, Ripple, Bitcoin Cash, Cardano, and Litecoin.
- It’s secure
Cryptocurrencies are more secure than existing financial services, given that they decentralise and often anonymise digital transactions, and validate everything on a public, tamper-resistant blockchain. The flipside is that if your Bitcoins are lost or stolen, there is no intermediary with the power to bring them back. Given the recent high value of Bitcoin, some thieves have even started physically robbing people out of their Bitcoins – targeting those known to have Bitcoins and demanding that they transfer their digital currency across using their mobile phone. Ultimately, though, transparency and the fact that you can “be your own bank” gives power back to the consumer.
- Its inventor is anonymous
In October 2008, a pseudonymous maths genius, or group of geniuses, named Satoshi Nakamoto officially unveiled a white paper detailing the workings of a new form of currency, Bitcoin. Nakamoto, who was once rumoured to be Australian academic Craig Wright, claimed to be a 37-year-old man living in Japan, but some say he’s unlikely to be Japanese given his perfect English. To this day no one knows who he really is.
- Its original use was far from legal
Cryptocurrencies first took off with the illegal online bazaar Silk Road, which has a short life between 2011 and 2013. A marketplace for drugs and other goods and services hosted on the dark web, it only accepted payment in Bitcoin – anonymous, secure, and able to be traded by anyone with an internet connection. The site had an estimated 1 million users when it was shut down by the FBI.
- Not everyone can mine Bitcoin
While the philosophy behind cryptocurrencies is that anyone can participate, they do need mechanisms to prevent one party from abusing the system, to stop people forging transactions, for example. Satoshi Nakamoto created a rule that Bitcoin miners need to invest their computer power into mining Bitcoin. The process involves compiling recent transactions into blocks, with Bitcoin miners then trying to solve a computationally difficult puzzle—an intensive process often using powerful graphics cards, or data centres. The first miner to solve the puzzle claims the reward- a Bitcoin—and places the next block on the blockchain.
- There is a finite number of Bitcoins
The Bitcoin generation algorithm has defined, in advance, that Bitcoin has a finite supply, and there are only 21 million Bitcoins in total that can be mined. The number of new Bitcoins created each year is automatically halved over time, until the number mined hits 21 million, which is estimated to happen in 2024. At present, more than three out of every four Bitcoins that will ever exist have already been mined, while an unknown number have been lost forever due to discarded hard drives or websites closing down.
- Entire businesses have been built using Initial Coin Offerings (ICOs)
While Bitcoin dominated headlines in 2017, another revolutionary use for cryptocurrency was taking off-ICOs. Initial coin offerings are used by start-ups to raise capital in an increasingly challenged funding environment. ICOs are typically built off Ethereum, a technology that allows for “smart contracts”- digital contracts that execute once certain conditions are met. An ICO involves creating a saleable token or coin that can be bought with cryptocurrency. Some Australian companies have made millions of dollars from their ICOs. One of Australia’s most successful ICOs was Horizon State, which raised $1.4 million for its goal of putting democratised voting on the blockchain.
Source: The Australian_The Deal