The era of paper money and coins being the only currency has changed before our eyes. Today, thanks to the internet, it is said that up to 50 percent of our daily activities–including online banking, shopping, paying bills, and stock exchange–is conducted via cryptocurrency, such as Bitcoin and Litecoin.
It’s the era of a virtual, global currency that helps businesses all over the world make transactions safe and secure, but with little transaction costs, in a limited amount of time.
But what exactly is cryptocurrency? And how does it work?
Cryptocurrency
The common definition for cryptocurrency is that it is a digital medium to exchange value. It’s an alternate form of payment to standard currency, cash, checks, and credit cards. It was conceived to make daily monetary transactions with something called “cryptography,” which is a method of protecting any form of communication and information through various codes. Only the person sending or receiving is able to encrypt those codes. And since it works independently—and is not affiliated with any banks—there are no transaction fees.
Any digital currency is considered cryptocurrency. Besides the most popular one, such as Bitcoin (BTC), other cryptocurrencies are considered alternative coins or “altcoins,” such as Litecoin (LTC), and Ripple (XRP), among others. But one of the major differences between Bitcoin and Litecoin, is that Bitcoin is not allowed to exceed over 21 million coins, whereas Litecoin can serve up to 84 million coins.
Mining
With any sale or purchase using cryptocurrency (a “transaction”) BTC or LTC miners add transactions together in a public record ledger called ”the Blockchain.”
Blockchain
All transactions are bundled into blocks. This means the customer will sign cryptographically and will get a number of virtual currency units as a reward.
The science behind it is said to be the convenience of sending money without a mediator, which means customers don’t have to share private information, such as social security, or credit score to qualify to buy cryptocurrency. Parties can transact with one another without the usual concerns of trusting one another as the trust is embedded through the source codes. Bitcoin, for instance, is worth $500 billion, and has never been hacked.
The function of the blockchain is to validate transactions. When miners add a new transaction to the blockchain, they have to check the accuracy of those transactions.
Bitcoin
This form of financial transaction was introduced in 2009 and developed by Satoshi Nakamoto.
The first Bitcoin was known as cryptocurrency. Since February, Bitcoin’s market capitalization has increased to roughly $67 billion. Bitcoin is not only the most popular method, but has been largely recognized as the standard form of cryptocurrency.
Bitcoin is able to be stored on local hardware, meaning it can be stored offline. This procedure is often called “cold storage.” It helps protect the currency from being jeopardized by third parties. If the currency is actually stored online, it’s called “hot storage,” and it’s considered to be risky, as it can be stolen easily if the code encryption is subject to an unauthorized access. If the access to the Bitcoin hardware is lost, it’s lost forever. Approximately $30 billion in Bitcoins have been lost.
Litecoin
Litecoin and Bitcoin are almost identical, but there are a few differences. Litecoin has faster processing speed than Bitcoin. Litecoin’s transactions process takes about 2.5 minutes, whereas a Bitcoin transaction process can take about 10 minutes. Litecoin also has easier algorithms, which means it can make “mining transactions” of past transactions – faster and easier to be solved.
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