Bitcoin was created in 2009 by a person (or a group) using the pseudonym of Satoshi Nakamoto. In a paper, he said having invented “A Peer-To-Peer Electronic Cash System”. Bitcoin is then the first Cryptocurrency, digital money, using cryptographical functions to conduct transactions.
You can stop me here. Why did we have to invent cryptocurrencies? We have PayPal, and we can transfer our money on the web through our banks!
The second most important invention in Bitcoin is that the system is entirely decentralized. There is absolutely no single entity that can shut it down or control it. To understand the advantages of a decentralized currency, you must understand how currency works today.
Nations have developed a monetary system based on the fiat currency model. Fiat will be used to designate currencies such as U.S. Dollar (USD), Euro (EUR), Chinese Yuan (CNY), etc. All the currency value for such a nation is held by a central bank, free to adjust the worth of that value to meet the economic requirements of the nation’s goal. In the end, this will be a detriment to the consumer.
Instead, the value of the Cryptocurrency will only be determined by the difficulty of producing the asset, and the value it has in the eyes of their owners.
Decentralization is important:
- For residents of countries with unstable financial system (Venezuela)
- For customers willing to manage their wealth by staying away from bank failures, fees, and aggressive policies.
- For borderless payment, cryptocurrencies can easily be used with a low-cost transaction, from a continent to another.
We could quote more reasons and even draft an article about the power of decentralization. However, we will learn them through the next chapters of this formation.
How cryptocurrencies are a currency?
A cryptocurrency must achieve specific conditions:
Has a value.
Has a limited supply.
Transactions are registered in a public database that no one can change.
There are many cryptocurrencies in the world apart from Bitcoin. Indeed, anyone can create a blockchain and issue a coin from it. The alternative cryptocurrencies are called Altcoins and are ranked in function of their respective Market Cap, short for Market Capitalization. The Market Cap represents the capitalization of a crypto-currency or a set of crypto-currencies (the total amount in circulation). The number of units in circulation must be multiplied by the price per unit to obtain the market capitalization of a cryptocurrency.
For example, the Market Cap of Bitcoin at the current price is :
Price x Circulating Supply = Market Cap
$8,800 x 18,250,000 = $160,6 Billions
In other words, cryptocurrencies are a digital medium of exchange. They use blockchain technology to gain decentralization, transparency, and immutability.