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Cryptocurrency, Bitcoin and Blockchain Trends

Cryptocurrency is defined as a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. It is an alternative form of payment to cash, credit cards, and checks.  It is a medium of exchange that exist in the digital world and uses encryption technology to secure transactions. There is no intermediary or third party like a bank.  It uses a decentralized control based on a distributed ledger technology. This allows clients to be reasonably pseudonymous.

Cryptocurrency is a digital asset that uses very strong cryptography to secure financial transactions, and verify the transaction. It is a digital currency that only exists on computers. There are no coins and no notes.  Users are in complete control of their money and information at all times. Information is encrypted as each user has special codes which stop their information from being accessed by other users. This makes it nearly impossible to hack.

Bitcoin is a cryptocurrency. It is a decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.  Even though early attempts were made by cypher punks in the early 1990s to create some form of digital money system through DigiCash and Cybercash , it wasn’t until 2009 when Satoshi Nakamoto and his team created Bitcoin, which is the best known cryptocurrency. Holders of Bitcoin are able to use it just like any other currency at thousands of vendors.

 In April 2011, one Bitcoin was worth one US Dollar (USD). And by December 2017, one Bitcoin was worth more than twenty thousand US Dollars. It has since dropped to  $7,576.24

There are over 1000 cryptocurrencies in existence but the most commonly used ones in addition to Bitcoin are Ethereum, Ripple, and Litecoin.

Ethereum was created to facilitate what is known as “smart contracts”. This replaces the need for paper contracts between parties to an agreement and remove the need for signing and amending contracts written on paper.

Ripple seeks to shorten the period and reduce the payment costs between financial institutions. Litecoin is designed as a general use currency that allows for a greater volume of transactions and performs them faster.

Blockchain has been referred to as a data structure that holds transactional records which ensures security, transparency, and decentralization. It is a continuously growing list of records, called blocks, which are linked and secured using cryptography. It is also regarded as a chain or records stored in the forms of blocks which are controlled by no single authority.

A blockchain consolidates every transaction that has ever happened using a particular cryptocurrency. It stays on the blockchain forever and everyone can see it. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority.

One can add new information to the blockchain if more than half of the nodes agree to its validity and accuracy. This establishes consensus and it is a key factor distinguishing cryptoccurrency and normal baking. It is designed to solve the double spending problem without the need of a trusted authority or central server.

Cryptocurrencies have certain distinctive characteristics. First, it is peer-to-peer, no banks or other intermediaries are involved in the process. It does not require a central authority, its state is maintained through distributed consensus. Computer programmes, or algorithms control the process and sets the rules on how transactions are made and recorded. Miners (these are people or organizations who) keep records of every transaction and attempt to solve complex computer problems that, when solved, reward them with new coins as payment.

Second, it works on a deflationary model since the total amount that can ever be in circulation is limited or restricted.

The thing that makes cryptocurrency different from fiat currencies and other attempts at digital cash is what has come to be known as blockchain technology.  And Satoshi Nakamoto developed the first blockchain for Bitcoin.

Distributed ledger technology (DLT) is what is used by cryptocurrency to remove third parties from their systems. These are shared databases where transaction information is recorded.

Mining is a validation of transactions. For this effort, successful miners obtain new cryptocurrency as a reward. This reward decreases transaction fees by creating a complementary incentive to contribute to the processing power of the network.

You can use crypto to buy goods. Today, there are a lot of merchants – both online and offline – that accept Bitcoin as the form of payment. Bitcoins can be used to pay for hotels, flights, jewelery, apps, computer parts and even a college degree.

One can also invest with cryptocurrency. Many people believe that cryptocurrencies are the hottest investment opportunity currently available. Indeed, there are many stories of people becoming millionaires through their Bitcoin investments.

Many governments have taken a cautious approach toward cryptocurrency, fearing their lack of central control and the effects they could have on financial security. Also, they pose a new challenge to central banks’ control over the important functions of monetary and exchange rate policy.

The introduction of Bitcoin has brought a paradigm shift in the meaning of money since such a digital currency does not exist in any physical shape or form and it is not controlled by a centralized authority. We need to explore its potential in our quest to create a cashless society.

Nana Prof. Osei Darkwa, President
African Virtual Campus

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