Cryptocurrencies have changed the way money is moved and also opened up a volatile world of unimaginable trading and investment opportunities. Read about the history, blockchain technology, revolutionary payments and how convenient it is to trade major cryptocurrencies with forex brokers here.
The history of cryptocurrencies
The first cryptocurrency (Bitcoin) was founded in 2008 when the pseudonymous Satoshi Nakamoto invented a decentralized electronic cash system that uses a distributed peer-to-peer timestamp server to prevent double spending. This distributed server generates computational evidence of the chronological sequence of transactions.
Each Bitcoin transaction receives a digital time stamp upon confirmation.
Revolutionary blockchain technology
In the course of inventing this payment system, Satoshi also pioneered the first blockchain database, an integral part of this system. Since then, many other cryptocurrencies have emerged, most of which use more or less the same type of blockchain technology as Bitcoin.
The amazing thing about blockchain technology is that it can be used to improve many different processes in different industries. For example, certain role players in the financial services sector have started using blockchain technology to implement systems that are much more transparent, effective and cheaper. The blockchain automatically performs certain functions when certain conditions are met. These smart contracts are also self-administered.
What is a cryptocurrency?
A cryptocurrency is a digital or virtual currency, usually created by computers that perform careful mathematical calculations, converting electricity into long chains of codes of monetary value. This calculation takes place in a distributed network and is known as cryptocurrency mining.
While not all cryptocurrencies are created this way, most of the most popular ones are. The algorithm typically used to mine cryptocurrencies is a decreasing supply algorithm that uses encryption techniques to limit the supply of these cryptocurrencies.
Put simply, this type of algorithm ensures that mining becomes increasingly difficult and resource-intensive as more and more cryptocurrency is mined. When a currency’s supply is limited, this can help maintain its value.
Mining cryptocurrencies is becoming increasingly difficult and resource intensive, just like mining natural minerals.
The encryption techniques used to mine cryptocurrencies are also used in conjunction with blockchain technology to facilitate the verification of money transfers between users of the particular cryptocurrency.
Bitcoin miners are rewarded for processing payments on the Bitcoin network as well as for mining new “blocks”.
About cryptocurrency payments – Bitcoin example
Bitcoin transactions are:
Irreversible – Once a Bitcoin transaction has been confirmed, it cannot be reversed by anyone.
Inexpensive – A Bitcoin transaction can move thousands of dollars with minimal transaction costs that averages less than one US dollar. Bitcoin transaction costs vary depending on the transaction speed required.
Fast – The speed at which transactions can be processed depends on the willingness of users to pay. Bitcoin transactions can usually be confirmed within a few minutes.
Global – Bitcoin can basically be sent to anyone anywhere in the world.
The largest cryptocurrencies (by market capitalization) include Bitcoin, Ether (Ethereum), Ripple (XRP), Litecoin (LTC) and Dash. Although there are hundreds of different cryptocurrencies, only a handful can be considered highly tradable, established, and liquid.
Easy access to trading / speculating with cryptocurrencies
Certain retail forex brokers make it easy to trade major cryptocurrencies in the form of Contracts for Differences (CFDs).
This enables cryptocurrency traders to take both long (buy) and short (sell) crypto positions on these brokers’ excellent trading platforms. To make crypto trading even more exciting, many forex brokers offer leverage (gearing) for trading cryptocurrencies.