Cryptocurrency
What is a 'Cryptocurrency'
A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
BREAKING DOWN 'Cryptocurrency'
The anonymous nature of cryptocurrency transactions makes them well-suited for a host of nefarious activities, such as money laundering and tax evasion.The first cryptocurrency to capture the public imagination was Bitcoin, which was launched in 2009 by an individual or group known under the pseudonym Satoshi Nakamoto. As of September 2015, there were over 14.6 million bitcoins in circulation with a total market value of $3.4 billion. Bitcoin's success has spawned a number of competing cryptocurrencies, such as Litecoin, Namecoin and PPCoin.
Cryptocurrency Benefits and Drawbacks
Cryptocurrencies make it easier to transfer funds between two parties in a transaction; these transfers are facilitated through the use of public and private keys for security purposes. These fund transfers are done with minimal processing fees, allowing users to avoid the steep fees charged by most banks and financial institutions for wire transfers.
Central to the genius of Bitcoin is the block chain it uses to store an online ledger of all the transactions that have ever been conducted using bitcoins, providing a data structure for this ledger that is exposed to a limited threat from hackers and can be copied across all computers running Bitcoin software. Many experts see this block chain as having important uses in technologies, such as online voting and crowdfunding, and major financial institutions such as JP Morgan Chase see potential in cryptocurrencies to lower transaction costs by making payment processing more efficient. However, because cryptocurrencies are virtual and do not have a central repository, a digital cryptocurrency balance can be wiped out by a computer crash if a backup copy of the holdings does not exist. Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely.
Cryptocurrencies are not immune to the threat of hacking. In Bitcoin's short history, the company has been subject to over 40 thefts, including a few that exceeded $1 million in value. Still, many observers look at cryptocurrencies as hope that a currency can exist that preserves value, facilitates exchange, is more transportable than hard metals, and is outside the influence of central banks and governments. The smallest unit of the bitcoin cryptocurrency. Satoshi is named after Satoshi Nakamoto, the creator of the protocol used in block chains and the bitcoin cryptocurrency.
BREAKING DOWN 'Satoshi'
Unlike the physical versions of global currencies, such as the British pound or U.S. dollar, cryptocurrencies predominately exist in the digital world. Despite this difference, a cryptocurrency can be divided into smaller units, just as the pound is broken into pence and the dollar into cents. In the case of bitcoins, the smallest unit available is called the satoshi.
Digital Copy
A fork from Bitcoin Core that proposed increasing the size of blocks. Despite early successes, Bitcoin Classic failed to be adopted by the wider bitcoin community.
BREAKING DOWN 'Bitcoin Classic'
Bitcoin was jumpstarted by Satoshi Nakamoto, who published a paper in 2008 called “Bitcoin: A Peer-to-Peer Electronic Cash System”. The paper described the use of a peer-to-peer network as a solution to the problem of bitcoin for more than one transaction), with transaction details added to the end of block chains. Because of the computational power needed to attack and decode a block chain, bitcoin is able to retain a high level of security. This limited the need for transactions to go through trusted third-parties, such as financial institutions.
Litecoin
An anonymization strategy that protects the privacy of Bitcoin users when they conduct transactions with each other. Coinjoin requires multiple parties to jointly sign on an agreement to mix their coins when engaging in separate Bitcoin transactions. Also known as Coin Mixing.
BREAKING DOWN 'Coinjoin'
Advancements in technology are introducing digital tools that companies can use to better interact with their customers. A rising shift from traditional platforms to digital platforms has also brought about an abundant supply in data from sources like social media, mobile devices, online retail platforms, etc. Due to technology advancements in the areas of gathering, storing, and sharing data, large sets of data are easily shared among companies in every sector and country for little to no costs. The widespread accessibility of data has also brought about concerns over data privacy of individuals and their online transactions. Because every transaction or activity carried out online leaves a digital trail, individuals are opting for more anonymous ways to use the internet and conduct online transactions. The Bitcoin cryptocurrency was introduced to address the issue of privacy concern.
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