The term cryptocurrency still remains somewhat of an obscure term, with many being confused over its meaning. However, bitcoin, the cryptocurrency market giant, is a widely heard and popular term. Essentially cryptocurrency can be referred to as virtual money, a digital cash system that uses cryptography to protect the anonymity of transactions. While the basics of cryptocurrencies have already been covered by one of our previous articles, we can now take a more in-depth look at the world of digital money.
“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us.”
– Thomas Carper, US Senator from Delaware –
The main difference between Bitcoin and our conventional monetary system, however, is that it’s decentralized, with no central entity monitoring transactions. This, of course, raises one key issue. If there is no central authority, who will validate a transaction? This is accomplished by the technology known as blockchain.
Blockchain is the backbone of decentralized cryptocurrencies. It’s a process that allows the system to function without central authorities. In layman’s terms, it’s a public ledger where all confirmed transactions are recorded in a permanent and unalterable way.
To make things simple, blockchain is all about confirmation. Since there is no central authority to verify a transaction and state that it’s legal, the system simply asks all entities instead. This is why a typical bitcoin transaction can take up to one hour to be completed. Once a transaction is approved by all relevant parties, then the data is added to the public ledger aka the “blockchain” never to be changed again.
Who are these parties who approve transactions? They are called miners, and they are the most important individuals in the cryptocurrency process. They spend their time going through transactions, checking their validity, labeling them as legit and adding it to the blockchain. They are rewarded for this process with a token of their cryptocurrency (like bitcoin). This is how cryptocurrency is created, or “mined”.
The flipside of this mining is the enormous amount of energy being used. Bitcoin, in particular, uses up 4 Gigawatts of electricity, which is equal to 3 nuclear reactors. The carbon footprint this leaves is extremely heavy. This is more complicated by the fact that bitcoin mining gets harder and harder as more coins are mined, putting a strain on the environment.
In 1983 the American cryptographer David Chaum conceived an anonymous cryptographic electronic money called ecash. He implemented it in 1995 through digicash, which was a form of electronic payments that used user software and encryption keys in such a way that it was untraceable by the issuing bank and the government as well as any third party.
In 2009, the first decentralized cryptocurrency, bitcoin, was created by Satoshi Nakamoto (until now, we still do not know who he really is). Starting off transactions with pizza orders, bitcoin slowly gained popularity. In 2011 it was followed by Namecoin and then Litecoin, as well as several successors afterward. IOTA became the first cryptocurrency which disregarded the blockchain and instead used tangle. Nevertheless, none were able to usurp bitcoin from its dominant role in the digital currency market.
Ironically, the first major use bitcoin had was on the Silk Road (for everyone recently coming out from under rocks, imagine the black market of the internet). A massive organization of underhand operations, Silk Road was finally taken down in 2013 with extreme difficulty with the collaboration of many agencies and departments.
One of the major reasons the Silk Road was so difficult to take down was the use of an anonymous payment system; bitcoin. The Silk Road was formed in such a way that it could only be accessed by the Tor network, which hides user identities by bouncing off your request from servers around the world, successfully preventing any digital identification. This combined with the encrypted decentralized network of bitcoin operations resulted in a seemingly invulnerable black market.
In 2013, with the cornering of Ross Ulbricht (also known as Dread Pirate Roberts) the founder and operator of the Silk Road, the black market came to an end. By then, however, the world had learned how easy it was to have anonymous operations digitally. Digital crime rose, with ransomware beginning to demand payments in bitcoins. The general market expanded as well, with many users finding bitcoin a safe and easy method for transactions. With that, the public rise of bitcoin began.
Bitcoin changes its value according to the user’s demand. With the popularity of bitcoins rising, it has risen dramatically (and fallen dramatically several times as well) since its introduction in 2009. The problem with cryptocurrencies is that they are so volatile. According to Mark T Williams by 2014 bitcoin had a volatility seven times greater than gold.
Demand for bitcoin has risen, to the point that by last weekend, the 16.8th million bitcoin was mined by the bitcoin miners. Bitcoin has a capping limit of 21 million. This means 80% of all bitcoins have now been mined. Experts estimate that bitcoins will be capped somewhere around 2040, but with the ever-fluctuating rates, we can never tell.
That being said, we cannot deny (looking at the above diagram) that there have been more ups than downs for bitcoins. However, that is not to say that it’ll remain the same. Just last Tuesday (Jan 16th 2018) bitcoin created mass chaos when the market price of a single bitcoin dropped down below $12k within 24 hours.
Considering that this is a six week low (since December 5th 2017) this is even more reason to panic. It only escalated when barely a day after that it dropped even further to $8000 which is 50% off the all-time high. This meant that the collective cryptocurrency market suddenly lost approximately $200 billion of its value.
The fluctuation is so much that during the course of writing this, it had to be edited more than 3 times to keep up with the volatile cyclone that is cryptocurrency. The reasons for the market’s sudden drop in value is still speculation. However, there are 2 or 3 main reasons we can theorize might be the biggest factors.
China, which houses the majority of the bitcoin mines in the world, recently announced its plans to shut down bitcoin miners. The primary reason being (so they say), the excessive amount of energy needed for mining, which is reasonable.
However, China also has concerns about the risks of cryptocurrency, particularly involving security, and as a result, officials shut down cryptocurrency exchanges and banned fundraising through initial coin offerings (ICOs). Recently it was reported that Chinese authorities have plans to block cryptocurrency platforms that permit centralized trading. China’s strategy seems to be to stop all practices as opposed to stopping illicit practices.
South Korea, has expressed interest in following in China’s footsteps on the above matter and banning cryptocurrency exchange. Considering South Korea is one of the largest cryptocurrency markets in the world, this promises to send major ripples across the system if the Korean government does decide to implement such a law.
It speaks a lot about the volatility of the bitcoin that reports of possible bans by two governments sent the user base into a frenzy enough for bitcoin (and other cryptocurrencies) to drop at alarming rates within 24 hours. The estimated loss by all cryptocurrencies was roughly $40 million by Tuesday and has been dropping steadily since then. With rumors of possible updates from France and the US, we can likely expect this to get worse.
Like every sector, bitcoin has its own competitors in the cryptocurrency world. They’re commonly referred to as altcurrencies. A few noteworthy names in the field would be;
Ripple is a fast growing name in the cryptocurrency field, mainly due to its signature feature; speed. Ripple aims to provide a seamless quick and safe way to spend money globally. Thus far they have managed to streamline transaction time to a total of 4 seconds, which is a massive difference when compared with Ethereum’s 2 minutes and Bitcoin’s time of up to an hour. Ripple has had one of the fastest rises in the cryptocurrency community, with an ascension from basically nothing to one of the biggest contenders in the market in a very short time.
Bitcoin’s biggest competitor before Ripple’s unprecedented and unexpected rise, Ether currency was founded in 2014 by a Swiss nonprofit foundation called the Ethereum Foundation. While bitcoin uses blockchain to record transactions, Ethereum in addition to that allows users to build their own applications or use existing applications that use blockchain technology. Called ‘smart contracts’ it’s written in Ethereum’s own programming language that supports a broad selection of computational instructions.
Zcash essentially operates the same way as bitcoin, with one major difference. Zcash offers the option to make a transaction truly anonymous with a “hidden” option. What that means in even the blockchain ledger will have no record of the buyer, seller, or the amount transferred. Only the time the transaction took place will be in the records. While that sounds like a good deal, in reality only an estimated 10% of total transactions are hidden due to the extra time and computational power required to make that happen.
Once again boasting a transaction speed of mere seconds, Stellar prides itself on starting at rock bottom (initial market value being cents) to rising at a rapid rate to become a viable competitor in the cryptocurrency market. What sets Stellar apart from the other altcurrencies in this list is that its fast timing applies to conventional money systems as well. Using Stellar you can convert Dollars to Euros in a second without relying on the cumbersome bank system.
One of the biggest problems an investor has when it comes to the cryptocurrency market is using real-world money to acquire digital money. Steem is a solution to that problem. Steem is the underlying currency for steemit, a blockchain based social media platform. Users can earn money by posting original content, and the best part is that it can be converted into bitcoins later. Once converted into bitcoins, a user has access to any number of altcurrencies they want.
There are several breakthroughs in blockchain technology the past year, the most notable of which is Oracle’s cloud-based blockchain service launching in October 2017. The rise of blockchain technology has sparked interest in a few other sectors we can expect developments from, a few being;
However, it should be noted that while blockchain technology has a lot of potential applications, it remains largely untapped, and will remain untapped if the most we do is introduce Luna dating service, which finds you connections via block chaining or spend cash on virtual cats.
Even in our own country, we can see a fast-growing cryptocurrency market. Currently, it’s mostly involved in trading, but there are a lot of enthusiasts and hardcore investors who are very active in the field. The best example for this is their facebook group.
In addition, if China and South Korea go through with banning cryptocurrency exchange, we will be seeing a drastic exchange in the markets, as well as a few companies migrating to new countries or closing down since China is cutting down on the mining process. All in all, it’s safe to say that we can expect a very interesting year ahead.
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IgniterSpace is a Makerspace that uses unorthodox methods to educate Sri Lanka's younger generation on technology and engineering. During the past 2 years of operation, IgniterSpace was able
(Sunday) 2:00 pm - 5:00 pm
129/1, Nawala Road, Narahenpitiya
Discussion will include, - PWA and Magento by Duleep - Role of cryptocurrency in Commerce by Yasodha - Conversational commerce - by Chamal and Arshad
Discussion will include,
– PWA and Magento by Duleep
– Role of cryptocurrency in Commerce by Yasodha
– Conversational commerce – by Chamal and Arshad
(Tuesday) 5:00 pm - 8:00 pm
Netstarter Sri Lanka
No.137, Vauxhall Street, 00200 Colombo, Sri Lanka
NetStarter Sri Lanka
In this digital age, an organization can no longer operate in isolation as an independent entity. Be it a bank, a supermarket, or an airline, organizations need to be able
In this digital age, an organization can no longer operate in isolation as an independent entity. Be it a bank, a supermarket, or an airline, organizations need to be able to link to other entities in its value chain to deliver a superior value to its customers.
Join Nuwan Dias in Colombo as he explores the importance of having a strong integration and API management strategy that goes hand in hand with each other.
Why you should attend this workshop:
This is a closed workshop with limited seats, which is better suited for Tech Leads and Solutions Architects.
Architect & Associate Director, WSO2
Architect & Associate Director, WSO2
WSO2 20, Palm Groove, Colombo 03
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