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Lesson 2. Blockchain technology. How cryptocurrencies appeared

Welcome to the second lesson of the “Cryptocurrency 101” course. In the previous lesson, we determined that the cryptocurrency market is a full-fledged financial market. Today I will talk about how cryptocurrencies appeared, how they are supported, how they work, and what they are based on.

Let’s get back to the main question: what are cryptocurrencies?

Cryptocurrency funds are decentralized virtual money. They can be exchanged or sold. You can also buy goods through online stores or pay for services. Unlike the classical understanding, such finances are not “physical” means. You can’t hold them in your hands or carry away in your wallet. Such money can be quickly converted into the usual fiat * (physical) currencies. In simple words, cryptocurrency is a digital coin.

* Fiat money is money whose face value is set and guaranteed by the state. The government of the country has declared it as legal tender. The most famous examples of such currencies are USD, EUR, UAH, RUB, and others.

Cryptocurrency coins are encrypted code generated as a result of computer equipment operation. It, in turn, implements complex mathematical algorithms and calculations. The main difference from real banknotes is the complete freedom of the cryptocurrency from jurisdictions. It’s not produced or controlled by states, and transactions using it are not regulated by tax and judicial authorities.

The first creator of cryptocurrencies is considered a hidden user under the nickname Satoshi Nakamoto. His identity remains a mystery to this day. Of course, there are gossips and guesses in the crypto world about the real identity of Satoshi. Still, they are not backed by any facts but are just someone’s assumptions. It’s generally accepted that this was a deliberate move and that Bitcoin’s creator wanted to remain nameless. He gave the world his concepts and designs to create a new digital blockchain network. The secret genius wrote the open-access code and described the principles of the future cryptocurrency system #1 — the Bitcoin. Bitcoin also has a short name, it’s read the same, but it looks like BTC in writing.

Let’s turn to Wikipedia for some facts about the identity of the Bitcoin’s creator:

Satoshi Nakamoto is a nickname for a person or group who developed the Bitcoin cryptocurrency protocol. Moreover, they created the first version of the software in which this protocol was implemented. Several attempts have been made to uncover the real person or group behind this name, but none have been successful.

Historical indicators of the Bitcoin price. How did the first cryptocurrency asset grow?

Today, the BTC rate is volatile. The asset’s value shows either ups and downs and pleases users with a relatively stable price. In late 2017 – early 2018, Bitcoin has seen the most significant growth to date. This asset reached nearly $20,000 per coin. In comparison, the amplitude of fluctuation* of this asset is about 30% within six months.

* Amplitude of fluctuations is the deviation of the price from the current values in a certain period (hereafter the timeframe).

Of course, such heights were not reached immediately. In the first years of the asset’s existence, the picture was different. The coin cost was no less, but exactly 8 cents. Now let’s compare 8 cents and the current $8,000 for 1 Bitcoin. Exciting, right?

The development of Bitcoin

The active growth of the cryptocurrency market began in 2011. The world’s #1 cryptocurrency began to get its first followers. As a result, the following events occurred in the currency market that was new at that time:

– Cryptocurrency exchanges Mt. Gox and Bitcoin Market was launched. Sadly, the control of these services was less than excellent. After mismanagement of projects and the invasion of crypto hackers, the exchanges are already dead today. Notably, the Mt. Gox was hacked, and the funds of traders and investors are still frozen in wallets. Maybe, they or have already been spent, but we will not find out;

– The first virtual wallets for smartphones and other portable devices appeared in the public domain;

– Various payment systems began to introduce BTC wallets into their services;

– Top media and news websites started publishing articles with mentions about cryptocurrency assets;

– Cryptocurrency developers began to organize entire summits and conferences dedicated to blockchain technology and cryptocurrencies;

– The darknet* got a feature of trading various goods and services for Bitcoin;

– Exchanges began to appear. They purchase Bitcoin to create liquidity;

*The Darknet is the so-called “decentralized Internet.” All internal activities are anonymous and not controlled by any country.

When use deals with cryptocurrencies, you need to “get the hang of it.” At first, everything looks very “vague,” but, if desired, everyone can learn. The user only needs to have a cryptocurrency wallet. Further, don’t forget that the speed of transactions is slow. So to speak, “clumsiness” in learning the Bitcoin transfer for beginners has not been canceled. But it doesn’t create problems for modern users. Cryptocurrencies are rapidly gaining popularity and becoming widely used. It’s partly because they are anonymous and decentralized. Perhaps now the world of cryptocurrencies looks a bit complicated. But, believe me, the time to adapt to working with crypto assets is short. The beginner needs to learn the basic principles of work. For example, services like Binaryx are ideal for an introduction and starting the “cryptocurrency journey.” The platform offers the purchase and storage of assets. Moreover, there the trading process guide with some tips. It minimizes stress and misunderstanding.

After the release of Bitcoin, new cryptocurrency assets began to be developed, including Litecoin, Dash, Etherium, and others. Still, I will talk about them a bit later.