What Is Cryptocurrency?

What Is Cryptocurrency?

Blockchain Crypto Market
December 7, 2018 by Leo Webb
1799
Cryptocurrency is one of the most popular topics today. When Bitcoin first appeared back in 2009, it was an almost worthless investment. People started to mine and buy Bitcoins just because they were excited about the idea of perfectly protected payments and a completely new approach to electronic transactions.
What Is Cryptocurrency

Cryptocurrency is one of the most popular topics today. When Bitcoin first appeared back in 2009, it was an almost worthless investment. People started to mine and buy Bitcoins just because they were excited about the idea of perfectly protected payments and a completely new approach to electronic transactions. When the price of Bitcoin reached $20,000 in 2017, it became clear that cryptocurrencies will not go anywhere, and the understanding of crypto tokens and blockchain offers countless benefits.

Cryptocurrency is a digital asset. Just like any tangible currency, it can be exchanged for other currencies, services, or products. “Crypto” means that these currencies are based on cryptographic mechanisms. Any cryptocurrency transaction is encrypted and automatically validated, which is a reason why there’s no need for banks or other third parties when making cryptocurrency transactions.

Transactions are possible due to the blockchain technology. A blockchain is a decentralized system that is distributed among many computers and records all transactions. Any records remain in the blockchain forever — they cannot be changed or deleted by anyone, which means a great level of transparency. Every transaction is a new block in a blockchain. To create a block, computers have to solve complex mathematical tasks. Once the solution is ready, the whole network should agree that it’s correct. If the transaction is successfully validated, it is completed, and the new block appears in the blockchain. Now let’s consider blockchain and cryptocurrencies in more detail.

Blockchain, Cryptocurrency, and Tokens: What’s the Difference?

  • Blockchain. Blockchain is a technology. When Bitcoin was the only cryptocurrency, the terms “Bitcoin” and “blockchain” were often used interchangeably. Today, there are many different blockchains, as well as many different crypto coins. Blockchain itself is a technology that can be used not only for financial transactions but also to store information of virtually any kind. For example, blockchain can be used to deliver secure peer-to-peer messages. It’s a ledger distributed among many computers, where every block contains certain information. The blocks are linked to each other and recorded in the blockchain permanently.
  • Cryptocurrency. Cryptocurrency is a digital asset. Crypto coins are tools used in blockchain networks for selling, buying, rewarding, trading, investing, and any other monetary operations. Any blockchain has its native token and may also have subtokens. There are many types of tokens and coins, and all of them are considered cryptocurrencies. However, they may serve completely different purposes. For example, you can use some coins to purchase actual products while others are used only within a certain blockchain network, representing shares in a company.
  • Coins, Tokens, and Altcoins. Words “coin” and “token” often mean the same thing, however, they actually refer to different concepts. Coins are digital money. For example, Bitcoin, Ether, and Ripple are coins. All coins have something in common: they are used in public-open blockchain networks, they can be mined, sent, and received.
    Tokens represent a utility or an asset. They can be used as loyalty points or as shares in a certain blockchain project. Some blockchains, for example, Ethereum, allow you to create your own tokens with no need to create a new blockchain from scratch. Tokens are used in Initial Coin Offering (ICO), which is a method of crowdfunding used by most blockchain-related startups. Finally, altcoins are basically any coins except Bitcoin. They are often based on alternative variants (forks) of the Bitcoin blockchain. The examples of altcoins are Litecoin, Peercoin, Dogecoin, Namecoin, Auroracoin, etc.

The Most Popular Cryptocurrencies

  1. Ethereum (ETH). This is the second most popular cryptocurrency after Bitcoin. The Ethereum blockchain is used for various decentralized apps and supports smart contracts — self-executed agreements on the blockchain that automatically make sure all the conditions two parties agreed upon are met. Ethereum’s market cap exceeds $12 billion.
  2. Ripple (XPR). This cryptocurrency is different from many others, as its main purpose is solving problems associated with international payment transfers. There is no central entity that would control most of the coins. Ripple has the lowest cost per transaction and allows users to make international payments faster than when using any other technology. Ripple’s market cap is more than $14,8 billion.
  3. Stellar (XLM). This cryptocurrency was created by Jed McCaleb — the same man who created Ripple. Actually, Stellar is a fork of Ripple, and it’s also intended for international payments. The main difference between Stellar and other cryptocurrencies is that the company behind it is a non-profit organization engaged in fighting poverty and providing low-cost financial services. Currently, Stellar has a market cap of $3 billion.
  4. Bitcoin Cash (BCH). This is an example of an altcoin which appeared as a fork of Bitcoin in 2016. At one point, Bitcoin developers couldn’t agree on whether or not they should make some changes in the code of Bitcoin, so they decided to create a new cryptocurrency. BCH transactions are faster than Bitcoin’s, and its fees are 25 times lower. The market cap of Bitcoin Cash is $3 billion.
  5. EOS. Even before the EOS platform was launched, EOS has already been one of the top 10 cryptocurrencies. Today, it has a market cap of $2,7 billion. EOS was created to address the same problems as Ethereum: EOS blockchain is intended for smart contracts and decentralized applications. However, it has some improvements compared to Ethereum: it uses advanced mechanisms of verification, supports multiple programming languages, and is more scalable.
  6. Litecoin (LTC). Created in 2011, Litecoin was one of the first alternative coins. It is similar to Bitcoin but blocks in its blockchain are generated faster and all transactions are also confirmed faster. Many developers, as well as merchants, accept Litecoin, and its market cap exceeds $2 billion.
  7. Cardano (ADA). This coin was created by Ethereum’s co-founder, Charles Hoskinson. Cardano is also a platform for smart contracts and decentralized apps. Just like EOS, Cardano has many improvements compared to Ethereum. Its blockchain is considered the 3rd most advanced technology in the industry, which is a reason why this cryptocurrency is so popular and has a market cap of $1 billion.
  8. Monero (XMR). This cryptocurrency ensures a complete privacy of transactions, using a technology called “ring signatures.” One participant has many cryptographic signatures. All of them look valid so that nobody can spot the real one. The exceptional security of this coin is a reason why it has been mentioned when talking about various illegal operations around the world. However, it’s still one of the most popular cryptocurrencies with a market cap of $1 billion.
  9. IOTA (MIOTA). Perhaps, it’s the most unique coin because it’s based not on a blockchain but on a completely new protocol called “Tangle.” IOTA implies zero transaction fees and is intended for the Internet-of-Things industry, where various devices communicate with each other via the internet. IOTA’s market cap is almost $834 million.
  10. Dash (DASH). Also known as “darkcoin,” Dash is a version of Bitcoin that offers more anonymity. Its transactions are virtually impossible to trace, which is a reason why this coin quickly gained popularity. Today, its market cap exceeds $793 million.

Legal Status of Cryptocurrencies in Different Countries

  • USA. Although cryptocurrencies and Bitcoin, in particular, are not illegal in the US, citizens have to pay capital gain taxes on their coins. The American Senate Banking Committee has been concerned about ICOs and other operations with tokens that involve unregulated stocks, notes, and bonds. However, the Securities and Exchange Commission tends to support cryptocurrencies, warning about the possibility of fraud (e.g. Centra, Tezos).
  • UK. In February, the Treasury Committee started to investigate blockchain and cryptocurrencies. The main goal of this investigation is to protect businesses and consumers. The UK Financial Conduct Authority also warned consumers about risks associated with cryptocurrencies. As of now, British crypto exchanges are regulated by the government. The UK’s crypto investors are also expected to be forced to pay capital gain taxes in the future.
  • Canada. Canada can be considered a good country for crypto enthusiasts. Cryptocurrencies are neither legal or illegal because the Canadian government has yet to decide whether or not they should be considered securities or currencies. Currently, cryptocurrencies are regulated by Canadian security laws. The government now works with experts from this industry to develop the best legislative solutions in this area.
  • China. China used to have the biggest cryptocurrency market in the world, however, the situation has changed. ICOs and crypto exchanges are banned, and their websites are blocked. In addition, any peer-to-peer financial operations are illegal in China. The government considers cryptocurrencies a threat to the Chinese national currency and a tool for illegal activities. On the other hand, Bitcoin mining hasn’t been banned in China yet.
  • Japan. Japan was the first country that legalized cryptocurrencies, and now Bitcoin payments are very common there. However, there are strict rules for businesses. Companies that use cryptocurrencies have to deal with frequent audits and pay taxes. Japan also plans to implement additional rules for ICOs and to ban anonymous cryptocurrencies (e.g. Monero, Dash). People who use cryptocurrency exchanges also have to prove their identity.
  • South Korea. South Korea, along with Japan, and the US, are three countries where the main cryptocurrency trading volumes are concentrated. Recently, the South Korean government introduced heavy taxes. It’s most concerned about anonymous cryptocurrencies and ICOs. The latter have been banned last year, however, the government is going to allow ICOs to operate again, under strict regulations.
  • Singapore. Singapore doesn’t have any strict laws regarding cryptocurrencies, however, its government may just wait for the right moment to change the situation. Cryptocurrencies are considered digital assets and fall under VAT rules when somebody wants to buy coins. The regulations, in general, are rather strict when it comes to ICOs, and The Singapore Central Bank states that there is a need for more regulations.
  • India. There are no strict rules regarding ICOs and mining in India yet, but the government has clearly expressed that it’s going to introduce new regulations in the nearest future. The Reserve Bank of India has already decided that banks will not exchange cryptocurrencies for fiat currencies.
  • Australia. Australia declared Bitcoin and other cryptocurrencies legal right after Japan did so. The Australian government has also overturned double GST taxes for selling and buying cryptocurrencies. Cryptocurrency exchanges are regulated in order to protect investors from fraudulent activities. ICOs are legal but they should follow actionable guidelines.
  • Switzerland. Switzerland is a particularly liberal country when it comes to blockchain and cryptocurrencies. This is a reason why many ICOs moved to Switzerland and made it necessary for the government to introduce certain regulations. Now, all ICOs should follow official guidelines and are regulated by securities and money-laundering laws.

Cryptocurrencies: Main Trends of Development

  • Platforms will change, but ICOs won’t lose popularity. Since 2017, ICOs delivered 3.5 times more money to blockchain startups than venture capitalists. Many experts see ICOs as an improved version of the venture capital system. Tokens offer investors instant liquidity so that they don’t have to wait for five or ten years to get a return from their investment.
  • Platforms will continue to be crucial. Platforms offer you one of the safest ways of earning on digital investments. As more ICOs are launched on the Ethereum, platform, the value of its cryptocurrency continues to grow, attracting more investors and traders. Platforms are lucrative and safe, however, traditional platforms now face a competition from decentralized applications. On the other hand, decentralized platforms are still far from becoming mainstream.
  • More regulations for ICOs. More and more countries are adopting a critical position regarding ICOs. Thus, it makes sense to expect the hype around ICOs to end soon. It’s also important to understand that many countries are looking for soft regulations so ICOs are not going to disappear. Quite the contrary, regulations are likely to help create a strong basis for the market.
  • Pre-ICOs will bring more money than ICOs. To minimize risks for investors, many startups sell a major part of their tokens at a low price during a pre-sale period. Most funds from pre-ICOs come from syndicate groups and private investors. The syndicate groups set discount prices, and the fundraising process becomes cheaper. Such projects are becoming the most popular, allowing everyone to invest in blockchain startups. On the other hand, it’s important to understand that syndicate groups operate your money on your behalf so you should choose only trusted groups.

Conclusion

The world of cryptocurrencies evolves and changes all the time, so it’s important to stay up to date about all the important events in this area. There are many cryptocurrency coins and tokens which are based on different blockchains and used for different purposes. Investing in cryptocurrencies can be a good source of income, however, some ICOs can be very risky so there’s no surprise many countries are creating regulations that will protect not only national banking systems but also investors as well.