Cryptocurrencies essentially are blockchains with different set of rules or even usage. At the moment, most of them are being used to transfer value or create secure contracts. The first cryptocurrency is Bitcoin. Its whitepaper was released on October 31st of 2008 by an unknown author, who goes by the name Satoshi Nakamoto. In January 2009, the genesis block was mined by Satoshi himself, giving birth to Bitcoin’s blockchain. Today, we have over 2000 cryptocurrencies and anyone can trade them for goods or services on the internet.
The idea wasn’t new. There were examples of digital currencies since 1983, like ecash, Digicash and bit gold. Only the last one was described as an electronic system which required users to complete a proof of work function with solutions being cryptographically put together and published.
On 2009, Bitcoin was created; the first cryptocurrency which uses SHA-256 cryptographic hash function. On April 2011, Namecoin was created as an attempt at forming a decentralized DNS, which would make internet censorship very difficult. Soon after, in October 2011, Litecoin was released. Litecoin was the first successful cryptocurrency to use “scrypt” as its hash function instead of SHA-256.
The following years many more cryptocurrencies made their appearance, as more developers learn about cryptocurrencies and blockchain technology. In late 2013, Vitalik Buterin, a cryptocurrency researcher and programmer proposed Ethereum. The project’s development was funded by an online crowdsale that took place between July and August 2014 and went live on July 2015.
The cryptocurrency frenzy was about to start. Suddenly, cryptocurrencies started to pop up around the globe for different kind of uses and purposes. In December of 2017, there was a huge spike in interest of cryptocurrencies that also led their prices to spike. Some people saw it as an opportunity to get rich fast. However, the technology’s development was slow and products didn’t come out as fast as they expected, gradually making people lose their interest.
Most of the cryptocurrencies survived and established themselves as leaders in the current market, while others just died in a hopeless effort to copy existing projects which were better. Some were pure scams that took advantage of people’s dreams. Many of them are still in development and a few have major partnerships. Cryptocurrencies are still waiting for the right catalyst to kick in and start a chain reaction of mass adaption.
Cryptocurrencies and Economy
Cryptocurrencies played a huge role on how we perceive “money”. Cryptocurrencies don’t have any central authority. They are borderless and publicly distributed for anyone to review and they also have a limited supply of coins that makes them anti-inflationary. These are some of the advantages in correlation to fiat currencies. These are also the things that made people believe cryptocurrencies will replace fiat currencies.
In recent economic crises, cryptocurrencies protected several people from losing their money due to capital controls, corrupted governments and other forms of economic manipulation. Since banks don’t have the control any cryptocurrency, they can’t freeze your personal wallet account. Therefore, your money or value is yours and only yours to spend and review.
That economic freedom made possible the vision for a true free market. People around the world could pay fast for services or goods, with minimal fees. As there was more demand for the coins, cryptocurrency exchanges popped up like crazy.
At a cryptocurrency exchange someone can swap their coins or tokens for another one, almost instantly and use them to buy goods or services that this coin or token is used for. Today, billions of dollars in cryptos are being exchanged through cryptocurrency exchanges. The biggest and most reputable cryptocurrency exchange is Binance. Binance’s trading volume exceeds 400 million dollars per day, which is not little money. Other big exchanges are OKEx and Huobi.
The future of cryptocurrencies in economy might lie in the tokenization of the world, as value will be more liquid, but huge steps must be made in blockchain technology to meet the requirements. Cryptocurrencies are still trying to overcome problems, like scalability for real world use and connectivity in blockchain ecosystem. Until those problems are solved, the overall value of all cryptocurrencies will remain on low levels in relation to other big markets like gold or real estate.
Cryptocurrency “Gold Rush”
Since cryptocurrencies are blockchains which mostly use PoW (proof-of-work) algorithms, people started to mine with their personal computers to make some extra cash. But as the prices were rising, individuals and organizations begun to build huge mining solutions with dedicated systems to earn more coins or keep their income from mining cryptos stable.
That started a digital “Gold Rush” and computer hardware, like GPUs, went out of stock in not time. As the computer hardware industry failed to conform on the huge demand levels, companies formed with the sole purpose of creating specialized chips (ASICS) to mine cryptos more efficiently, in terms of power consumption and number of hash functions calculated per second.
Currently, mining hardware can start as low as 440$ up to 3000$ per mining unit. Making an investment into mining though, can be risky. If the price of a cryptocurrency that the miner is mining drops, it effectively means lower profits or ever mining at a loss. That happens because the mining facility needs to cover the electricity costs of the mining units.
Mining, therefore, isn’t entirely free. It uses electricity and the electricity each cryptocurrency consumes has an impact on the cryptocurrency’s price. People who mine coins or tokens probably won’t sell them on a lower price than the electricity they were billed to mine them, creating an artificial bottom for the cryptocurrency’s true value.
The future of cryptocurrencies
Cryptocurrencies will play a huge role in our economy and life during the following years. As mass adoption and regulations continue from country to country, people will start to trust cryptos more and more. This may eventually lead to a free and fair market that has been an utopia until now. In conclusion, we can say that we are in the midst of the digital era of economy.