Introduction
Cryptocurrencies have become all the rage over the last few months, especially after the meteoric rise in the price of Bitcoin back in December 2017. It used to be that cryptocurrency investing was the realm of experts and savvy investors. But because of Bitcoin's massive success and popularity after December 2017, things have changed. It has now expanded to include even the smallest and least experienced of investors. Before going into the details of hodling and cryptocurrencies in general, it would be very beneficial for you to get a glimpse of how cryptocurrencies became what they are now.
A Brief History Of Cryptocurrencies From 2009 To The Present Day.
It all began in the 1990s when American cryptographer, David Chaum, created what was considered as the first kind of online money in the Netherlands: DigiCash. He created DigiCash as an extension of an encryption algorithm that was considered popular during those times, which was RSA. The technology he created, together with its eCash product, was able to generate a huge amount of attention from the media. It became so popular that Microsoft Corporation tried to buy DigiCash for $180 million with the intention of placing DigiCash on every computer in the world that ran on the Windows operating system. One of the crucial mistakes Chaum and his company made was to reject Microsoft's $180 million offer and earn the ire of De Nederlandsche Bank (Netherland's Central Bank), which was the Netherland's primary monetary authority. All of those crucial mistakes eventually led to the demise of DigiCash in 1998, when the company went bankrupt.
The second generation of Internet money was borne from the learning experiences of DigiCash. Companies from this generation came up with alternative payment solutions and money systems.that were also Internet-based but with small but important changes. Of these companies, the clear winner was PayPal. The reason why PayPal trumped its competition was its ability to give users what they really wanted in the first place, which was money on the web browser platforms they were already familiar with. PayPal - unlike its peers back in the day - was able to give its users the ability to transfer money to and from merchants and buyers, respectively, using a seamless peer-to-peer money transfer system. PayPal's massive success is very obvious by the fact that next only to credit cards, it's the most popular means by which to transact online.
But wait - there's more! PayPal's success led to other companies emulating it. One of the systems that tried to walk on the same path as PayPal was e-Gold. Unlike PayPal, its primary currency was gold, i.e., it received physical gold as deposits from its users and in return, it issued e-Gold or gold credits. E-Gold was able to manage a relatively healthy amount of cross-border transactions using gold. But because of the prevalence of fraudulent investment scams like Ponzi schemes, e-Gold was closed.
The next significant event in the history of cryptocurrencies is the 2008 subprime mortgage crisis that nearly crippled the financial system of the United States and affected many of the world's major financial institutions. This event served as some kind of wakeup call to many of the world's major economies and has led to the emergence of what is now popularly known as the blockchain, which is the foundation of cryptocurrencies today as we know them.
In 2009, an anonymous person (or group) that went by the identity of Satoshi Nakamoto published a white paper that expounded, among other things, the source code, technology and concept of what is now called the blockchain. And together with the blockchain, he launched the granddaddy of all cryptocurrencies as we know it; Bitcoin. The blockchain, while not an earthshattering, disruptive or incremental technology, was considered a foundational one. Why foundational? It's because it was meant to - and it still does - serve as a bedrock upon other data network storage technologies can be built. The blockchain naturally challenges all the conventional online data management protocols of that time, which included centralization of data.
Today, there are more than 16 million units of Bitcoin that are circulating in the digital financial system and these have a total market capitalization of around $50 billion. More importantly, Bitcoin's already garnering increasing acceptance and support from both the I.T. and business communities alike. As part of its gradual integration into the financial mainstream, some economic powerhouse countries like Australia, Canada and Japan have already begun regulating Bitcoins through tax and legal measures.
Since 2009, the growth in the popularity of the blockchain and Bitcoins has surged. This surge in popularity gave birth to other cryptocurrencies, which are referred to as altcoins or alternative coins to Bitcoin. Today, there are more than 850 cryptocurrencies in the digital financial system being transacted internationally, which include Ethereum (Ether), Ripple, Litecoin, Monero and Stratis. And if you combine the total market capitalization of all altcoins with that of Bitcoin, the result would exceed $100 billion.
Because of the massive expansion of cryptocurrencies, it appears that cryptocurrencies have created an entirely new and global industry. Because of the massive advances in the blockchain technology, as evidenced by the growth in the number of cryptocurrencies on the market today, newly developed apps that will be created upon the blockchain technology will naturally use cryptocurrencies. And as more and more cryptocurrency platforms and exchanges start to emerge, more and more people will be able to use blockchain-based apps, which in turn will make the latter industry grow even more.
10 Reasons Why Cryptocurrencies Are The Future Of Money.
One of the main motivations that fuel the development of cryptocurrencies is the breaking down of existing financial and technological barriers and borders, particularly in the realm of trade and finance. More than 1,000 altcoins are vying with each other in terms of early blockchain developmental stages. As a result, we can reasonably expect to see only a couple of successful cryptocurrencies to stay and change the way we will pay, lend money, borrow money, trade, and do banking in the future. And in the near future, we can reasonably expect several major cryptocurrencies to be accepted in the financial mainstream, which can signal a whole new era of digital finance.
What Is Money Really: How Can We Define It?
To better understand or appreciate cryptocurrencies, it's important to get a good grasp of the nature of money. This is because cryptocurrencies are a form of money and by understanding the true nature of money, especially what important characteristics it should possess, you'll be able to better appreciate and understand the nature of cryptocurrencies. And in turn, you'll be able to better understand the principle of hodling.
What is Money?
At its very core, money is something that is used to represent the value of other things. For example, you gave me money in exchange for receiving a copy of this book, and that sum of money represents the value of this book. The money I received from you and others who have bought this book, I'll use to purchase or acquire something of value from other vendors today or tomorrow. If you study history, you'll see that the values of things have been expressed in different forms and money, the primary way by which values have been expressed has come in different shapes and materials. Case in point, things like gold, shells, wheat and salt have been used in the past to represent value and as a medium of exchange. But for something to be able to continue representing value, the people who are using it must continue trusting that a medium of exchange is indeed valuable and more importantly, its value will persist for a long time so that they will still be able to benefit from it in the future.
How People's Trust in Money Has Evolved
Only until one or two centuries ago, societies had always placed their trust in something when it comes to the value or representation of money. But the way people trust in money has shifted from trusting something to trusting someone. What do I mean by this?
In the past, people would use - as I mentioned earlier - stuff like gold, wheat, salt and even seashells as a medium of exchange or money. But over time, people caught on to the fact that using such things as a measure of value and medium of exchange can be quite burdensome. Can you imagine buying your groceries with seashells or salt? What if inflation was very high the last several years and you want to buy a month's worth of groceries? Can you imagine bringing that much salt to the supermarket? And if you're the grocery owner, can you imagine having to weigh the salt being paid to you by your customers and needing a very large space and vehicle to store and transport all that salt? And what if it rains? Do you get the picture?
Because of such inconvenience, people were forced to improvise and come up with a more practical value storage and payment solution; paper money! So this was how it worked in the beginning. When you take up a bank or the government's offer to take physical possession of your gold bars for storage, they'd issue you certificates or bills for the amount or value of the gold you deposited with them. Say your gold bars were worth $500, the bank or the government taking possession of your gold bars would issue you a paper certificate or bills worth $500.
Now think about this. Which is easier to carry around - paper bills worth $500 or gold worth $500? Another thing to think about is this. Which is easier to cut in smaller pieces or value, paper bills or a gold bar? If you want to buy a bag of chips for $5, you'd only have to give the cashier five $1 bills, but if you're carrying around $500 worth of gold, you'd have to cut it proportionately to an amount that closely or exactly represents $5.
Another thing worth thinking about back in the day is this. If you wanted your gold bars back, all you'd need to do is give $500 worth of bills or certificates back to the bank or government to redeem your gold bars. It's that simple. Because of the convenience and practicality it brings, paper money has grown so much in popularity and has become the primary means by which goods and services are bought and sold all over the world today.
Back in the day, the value of the United States dollar was linked or based on gold. The money of the United States of America was valued based on its gold holdings. This was referred to as the Gold Standard. But over time, the macro economy has changed and as a result, the link connecting the value of the United States dollar to the value of gold was cut. As a result, Americans - and the rest of the world, considering the US$ has become the world's primary currency - had been conditioned to shift their trust from gold to the Federal government. In other words, people have been conditioned to shift their trust when it comes to monetary value from something - gold - to someone who assumed responsibility for the value of the dollar, which is the Federal government. And the only reason this system continues to work is trust because let's face it, there's no real underlying asset of worth behind the value of the dollar or other currencies. This was how fiat or paper money was born.
Fiat Money
The word "fiat" is a Latin word that's best interpreted as "by decree." This means that any fiat currency, i.e., paper money, only has value because their respective governments say so. As a result of such legal decrees of value, paper or fiat currencies are also called "legal tender" which means they have to be accepted for payment of goods and services in their respective countries. That being said, you can now see that money as we know it today has value only because of its legal status, which is declared by governments. As I mentioned earlier, the trust in the value of money has shifted from something (gold) to someone (the government).
Now fiat money as we know it now has some pretty serious issues. These are being centralized and are practically unlimited in quantity. Being centralized means that there's a central or lone authority that has the power to issue and control its supply, which in the case of the United States dollar is the Federal Reserve. It's also practically unlimited in quantity because the Federal Reserve has the power and capability to print or mint more units of the US dollar if it chooses to do so. Now, why is this a serious concern?
The reason is one of the most basic principles of economics; supply and demand. To be more specific, this means that when the supply of an object is increased, the value of that object will tend to decrease assuming demand for that thing remains constant. Conversely, when the supply of an item is decreased, assuming constant demand, the value will increase. So if the Federal Reserve or any monetary authority prints more money, it'll flood markets with more of that currency, which can make it worth less, i.e., buy less of goods and services. So when you see the prices of goods and services rising substantially over the long term, it's not necessarily because they became more expensive but because the value of the currency, e.g., the United States dollar, has dropped due to increased supply.
Digitizing Money
The establishment of fiat money has made it easy - even mandatory - to create digital ones. The advent of the Internet and establishment of monetary authorities that control and issue money have made the idea of digitizing money, i.e., making the most of digital or online currencies and letting such authorities keep tabs on who owns how much, a feasible and even necessary one. Proof of this is the evolution of alternative modes of payment to the point that they have become the main methods for transacting today.
How The Gold And Silver Markets Are Manipulated.
To answer this question, I'll focus the discussion more on gold. Gold price manipulation is defined as any intentional efforts to control the prices of this most precious metal. This supposedly happens in major financial markets when gold traders intentionally attempt to influence gold prices via certain financial instruments, particularly derivatives. These traders may have been able to successfully cause short-term deviations from the real values of gold, but over the long-term, it doesn't appear to be so.
The United States' Securities and Exchange Commission (SEC) defines manipulation in greater detail as any intentional act whose purpose is to trick investors by artificially affecting or controlling the market for a specific asset and includes activities like quote rigging, and voluminous trades or transactions that are meant to paint a deceptive impression of demand for a particular asset and sway market prices in their (traders') favor. And when speaking of gold price manipulation, there's one particular type of manipulation that is believed to be prevalent and that is price suppression, i.e., manipulating gold prices downward.
A really good question to ask then is this. Are the prices of gold - and consequently silver - manipulated? If you ask enough number of gold traders or investors, they'll tell you that it can be. Even more, they'll probably tell you that they are being systematically manipulated right this very moment. Are they right?
There are several iterations of this belief. One is that central bankers control the prices of precious metals. Another iteration of this belief is that greedy private commercial bankers are the ones manipulating gold prices downward through derivative instruments (short-selling and futures contracts) and high-volume trades meant to paint a scenario of low and decreasing.
How Cryptocurrencies Can Change The Future Of Our World.
The Ultimate Guide On How To Store Your Bitcoins Safely.
A Brief History Of Bitcoin Mining.
How Bitcoin Mining All Got Started: A Complete History.
Cpu Mining
Gpu Mining And The Starting Of Mining Farms
Gate Arrays
ASIC Mining
Cloud Mining
Hack Mining
FAQ (Frequently Asked Questions)
What Is Mining Difficulty?
Mining difficulty is defined as the measure of how hard it is to locate a hash under a given target value during the POW (proof of work).
Why Is Mining A Bitcoin Block Difficult?
Mining a Bitcoin block is difficult as accepting a block is only possible if its target is greater or equal in value to the SHA-256 hash of a block header.
In simple terms: Every block hash initiates with a specific cluster of zeros. With so many zeros, there is a very low probability of computation of a block hash. This results in many trials before generating a hash. For generating a new hash, the hash cash function used in Bitcoin mining increases.
The Metrics Of Bitcoin Network Difficulty?
This network difficulty in Bitcoin mining is a comparison between the instance it takes to identify a difficult block and the easiest block. After every 2016 blocks, this measure is recalibrated to such a value that the 2016 blocks from the previous cycle would have emerged in two weeks’ time if all miners were generating at the same difficulty. This way, each block generates every 10 minutes.With more miners adding up, the block generation rate also increases. This will also raise the difficulty of a generation so that it can balance the increasing rate of block generation and push it back down. Furthermore, attempts to add fraud blocks by exploiters are straightaway declined by all miners in the Bitcoin network, so it is futile.
What Is A Block Chain?
A blockchain functions as an open-source ledger where users record, control, and amend transactions. The blockchain is no different from other platforms, say for instance Wikipedia. Just as Wikipedia is an open source platform where a single publisher is not responsible for fabricating content, blockchain too does not give full power to just one miner.
However, as we move towards a deeper level, we find that Wikipedia is running on the internet through a client-server model of a network. Here, users are first provided with permissions to amend content in the website’s pages that are all stored on an integrated server.
So, a user accessing the page on the website will be provided with an updated version of the original copy for any particular entry on Wikipedia. Also, the regulation of the whole database system stays with the administrators, who are granted permissions and access through the main authority at the center.
