Between November 11th, 2017 and December 11th, 2017 the value of one Bitcoin unit rose from $ 6,544.18 to $15,241.99.
In the early days of the internet, the general public was slow to understand the new technology and all of the new terms and phrases associated with it.
In today’s tech-savvy world you can’t afford to stay ignorant about Blockchain and cryptocurrencies.
New jargon such as cryptocurrencies can seem futuristic and frightening to the uninformed so it is important that we reveal that there is nothing to be afraid of.
1. Bitcoin is Mined Not Printed
When you think of traditional mining you probably envisage someone digging large quantities of coal or ore out of the ground, so that it can be refined to a more useful product.
Cryptocurrencies such as Bitcoin are mined in a different process. By solving extremely complex algorithms (mathematical equations) you can earn units of some cryptocurrencies.
In the Gold rush days of the 1940’s anyone with a pick and shovel had the potential to mine for Gold.
Today anyone with the correct mining software and enough computer hardware has the potential to mine for bitcoin.
Although anyone could mine for Bitcoin it is not as simple as installing an App on your phone and having it run in the background.
Although there are tutorials out there to talk you through the hardware and software requirements, if you decide to mine for cryptocurrencies you will have to take into account the business running costs of your power supply and other extras.
The Bitcoin System is Creating More Bitcoins. What Stops Bitcoins Suddenly Being Worthless?
Although bitcoins are generated through this system of algorithms, the system has been set up so that it is actually producing the coins at a slower and slower rate and will eventually cap out at a maximum world distribution of 21 million units of bitcoin.
Unlike national currencies that can just be printed in larger and larger quantities by a specific country, the cap set on bitcoins means that they are less likely to be susceptible to being devalued through inflation.
In some countries where their own economies are viewed as unstable, Bitcoin could actually be seen as a safer alternative to their own national currency.
2. There is No Central Bank of Bitcoin or Any Other Cryptocurrency
Unlike a simple currency or credit card payment that has to be verified by a company or country, cryptocurrencies are part of a decentralized system using Blockchain.
Blockchain technology refers to digital blocks of information that are linked together (hence the term chain, to infer links) using a system of maths called cryptography.
These blocks of information are transmitted to receivers/transmitters called “nodes“ who transmit the information instantly to all the other nodes that they are linked to.
Because the Blockchain process shares information across a huge network of personal computers it is not only decentralized but distributed making it harder for the system to be compromised.
All This Talk of Blocks and Nodes Sounds Really Confusing?
Just as you don’t have to be able to write computer code to send an email or a text on your phone, you don’t need to understand all of the intricacies of how the mathematics of cryptography secures the information.
Because a large number of the nodes need to verify the information before it is accepted it ensures that the information cannot be changed or counterfeited.
In simple terms, unlike paper currencies that can be counterfeited and used more than once, the Blockchain system has safeguards in place. These safeguards know when a currency has been transferred and stop it being used more than once.
3. Bitcoin is Not the Only Cryptocurrency
As at December 12th, 2017 there were over 1300 cryptocurrencies
As at December 12th, 2017, there were over 1300 Cryptocurrencies. This number is set to continue to grow. Click To TweetAlthough there are over 1300 cryptocurrencies, just like traditional currencies not all cryptocurrencies are created equal.
In order for any currency to have value it needs to be accepted by others in trade, the term liquidity (i.e. its ability to flow) can be used to refer to the ability to trade a currency.
Before investing in any of the specific cryptocurrencies you should consider various factors such as the liquidity, the value of one unit of the currency and the Market Capitalization (Market Cap) of that currency.
The Market Cap of a company refers to the value of all of the outstanding shares (as calculated by multiplying the number of shares by the current market value of one share).
If a company has 100,000 shares outstanding and the current market value is $5 a share, then the market cap of the company is $500,000
The Market Cap of a cryptocurrency is calculated in a similar way to that of a Company.
The circulating supply (the number of units available to trade) of that currency is multiplied by the current market price of one unit of that currency.
Simplified this means that if Bitcoin was at a current market value of $10,000 per unit and there were 1,000 units of bitcoin circulating around the world, the Market Cap of Bitcoin would be $10,000,000.
It is worth noting that although Bitcoin is not the only cryptocurrency its market cap is more than twice that of the combined total market cap of the next twelve cryptocurrencies by value.
Is The Rise of Cryptocurrencies The Next Tech Bubble?
There are various opinions as to the future in the surge of bitcoin and other cryptocurrencies
These blocks in the Blockchain system are more flexible than a basic currency transaction. They can be programmed with more information than just the value of a currency.
Currencies such as Etherum are actually encoded with smart contracts and although some of the faster-growing currencies may not maintain their value long term, some of the other currencies may have more potential.
Just like any financial decision, an investment in cryptocurrencies needs to be monitored.
As a rule of thumb, the more volatile an investment, the more quickly you can make (or lose) funds and the more closely it needs to be monitored!
The Blockchain Wrap Up
Although Bitcoin and other cryptocurrencies may seem complicated to the layman, we should not be scared of things that we do not understand.
New technological advancements are continually being discovered and we need to educate ourselves.
Cryptocurrencies provide investment and income opportunities but like any other investment, you need to ensure that you understand what you are doing before committing time and money.
Although they are referred to as cryptocurrencies, the blocks in Blockchain have the potential for much more than the exchange of simple currencies.
Embracing education will help dispel your fear.