Cryptocurrencies and Bitcoins have been becoming the talk of the town of late! A large number of people are talking about cryptocurrencies, buying them, selling them – or simply investing. Bitcoin miners, traders and even brokers are rising in number with every passing day. In a time like this, one might often wonder what this hype is all about.
We all know that Bitcoins are actually a kind of Cryptocurrency but we don’t know the exact difference between both. So, bear with us while we take you through the whole journey.
What is a Cryptocurrency?
In the simplest of words, a cryptocurrency is a digital money. It may be used to buy goods and services. Unlike traditional money, however, the one big difference here is that most cryptocurrencies ‘ values are not fixed-this also makes them an investment asset, as investors buy cryptocurrencies at a lower price and sell them when the price increases.
To put it simply, a cryptocurrency is essentially a combination of two words: Crypto + Currency. It is a currency that is encrypted cryptographically. All cryptocurrency transactions are recorded on a’ blockchain’ public ledger system. The blockchain technology has multiple uses of which one is to record cryptocurrency transactions.
Cryptocurrencies use cryptographic protocols to secure their exchange units or extremely complex code systems that encrypt sensitive data transfers.
Developers of cryptocurrency build these protocols on advanced principles of mathematics and computer engineering that make them virtually impossible to break and thus duplicate or counterfeit protected currencies. These protocols also mask the identities of cryptocurrency users, making it difficult to attribute transactions and fund flows to particular individuals or groups.
Characteristics of Cryptocurrencies
Let’s look at some of the characteristics that Cryptocurrencies possess.
1. Decentralized Control
Cryptocurrencies are also decentralized. Supply and value of Cryptocurrencies are controlled by their users ‘ activities and highly complex protocols incorporated into their governing codes, not conscious decisions by central banks or other regulatory authorities. In particular, the activities of miners–cryptocurrency users who leverage vast amounts of computing power to record transactions, receive newly created cryptocurrency units, and other users pay transaction fees in return–are critical to the stability and smooth functioning of currencies.
2. Exchange with Fiat Currencies
Cryptocurrencies can be exchanged in special online markets for fiat currencies, meaning that each one has a variable exchange rate with major world currencies (such as the US dollar, British pound, European euro, and Japanese yen). Cryptocurrency exchanges are somewhat vulnerable to hacking and represent the most frequent venue for hackers and cybercriminals for digital currency theft.
3. Finite Supply
Cryptocurrencies are most but not all characterized by finite supply. Their source codes include instructions that outline the exact number of units that can and will ever exist. Over time, producing cryptocurrency units becomes more difficult for miners until the upper limit is reached and new currency ceases to be entirely minted. The finite supply of cryptocurrencies makes them inherently deflationary, more similar to gold and other precious metals –of which there are finite supplies –than fiat currencies, which central banks can theoretically produce unlimited supplies of.
What is Bitcoin?
Bitcoin is a virtual currency, or cryptocurrency, controlled by a decentralized user network and not directly subject to the whims of central banking or national governments. Although currently in active use there are hundreds of cryptocurrencies, Bitcoin is by far the most popular and widely used–the closest cryptocurrency equivalent to traditional, state-minted currencies.
But transaction times have spiked because of the frenzy around bitcoin, which could go against the cryptocurrency’s original aims. While Nakamoto referred to bitcoin as electronic cash, it has been called “digital gold” by many experts and said it could be a long-term store of value.
Characteristics of Bitcoins
1. First Modern Cryptocurrency
Bitcoin is a cryptocurrency, which means a source code that uses highly complex algorithms to prevent unauthorized duplication or creation of Bitcoin units is supported. The underlying principles of the code, known as cryptography, are based upon advanced principles of mathematics and computer engineering. Breaking down the source code of Bitcoin and manipulating the supply of the currency is virtually impossible.
Though other virtual currencies have preceded it; Bitcoin is known as the first modern cryptocurrency. That’s because Bitcoin is the first to blend some key features shared by most of the cryptocurrencies subsequently created.
2. User Anonymity
Intense privacy protections are baked into the source code of Bitcoin. The system is designed to record Bitcoin transactions and other relevant data publicly, without revealing the identity of the persons or groups involved. Instead, public keys or numerical codes identify Bitcoin users to other users, and sometimes pseudonymous handles or usernames.
Additional protections permit users to further conceal Bitcoin’s source and flow. For example, special computer programs available to all Bitcoin users, called mixing services, privately swap a particular Bitcoin unit to another Bitcoin unit of identical value, and thus obscure the owner’s holdings ‘ source.
3. Bitcoin Exchanges
Bitcoin exchanges permit users to exchange Bitcoin units at variable exchange rates for fiat currencies, such as the US dollar and euro. Many Bitcoin exchanges also exchange Bitcoin units for other cryptocurrencies, including less popular alternatives that for fiat currencies can not be exchanged directly. Most Bitcoin exchanges take a cut of the value of each transaction, typically less than 1 per cent.
Bitcoin exchanges ensure the Bitcoin market remains liquid, setting its value relative to traditional currencies–and allowing holders to take advantage of speculation on fluctuations in that value.That said, users of Bitcoin need to understand that the value of Bitcoin is subject to wild swings-weekly movements of 50 percent in either direction have occurred before. Among stable fiat currencies these swings are unheard of.
4. Blockchain Structure
The block chain of Bitcoin is vital to their function. The block chain is a public, distributed ledger of all previous Bitcoin transactions stored in block groups. Every node in Bitcoin’s software network–server farms and terminals run by individuals or groups known as miners whose efforts to produce new Bitcoin units result in Bitcoin transactions being recorded and authenticated, and new blocks being periodically created–contains an identical record of Bitcoin’s block chain.
On average, miners create a new block chain every 10 minutes that includes all prior transactions and a new block of transactions. Bitcoin’s source code is designed every two weeks to adjust to the amount of mining power devoted to creating new block chains, preserving the average creation interval of 10 minutes. If mining power has increased during the most recent span of two weeks, new block chains become more difficult to create during the next span of two weeks. If the mining power drops, it becomes easier to create new chains. The trend for most of the history of Bitcoin was toward greater mining power.
The Bitcoin block chain is Bitcoin’s sole proprietary arbiter. No other comprehensive record exists. The block chain also serves as a payment processing system, such as Visa or PayPal, with the miners acting as employees of the system.
Bitcoin vs Cryptocurrency
Cryptocurrency, as explained, is a digital currency that uses encryption techniques to regulate the generation of currency units while also verifying fund transfers.
Bitcoin is a cryptocurrency that activates the technique of encryption which comes with no specific legal back-up from the central bank. In addition, it’s an unregulated private digital currency.
Any crypto-currency launched as an autonomous digital currency option is considered legal and guarantees payment of the value that comes in encrypted. But as it is a digital form of private currency, bitcoin comes with no such value. You would be surprised to know that there is no base value or underlying asset in Bitcoin. Bitcoins have become increasingly popular for quite some time now. And central banks around the world have voiced their concerns over the use of Bitcoins as private currencies.
Bitcoin happened to be the only blockchain at a certain point in history. There wasn’t much difference between these terms in those days and the two were usually used interchangeably. With the emergence of technology and the evolution of a wide array of bitcoins, users have had to diverge too soon from using the pure money aspect. Here, the technologists began experimenting with certain aspects, including the decentralized register of names. The other ideas include peer-to-peer aspect that would help in delivering messages separately and in a unique way. In some countries, cryptocurrency is seen as a medium for terrorist financing inflows and money laundering. In India, the RBI has a special group to analyze digital currencies, backed by global central banks before they can decide whether to use this as a legal tender. Currently, if used, cryptocurrencies would violate many foreign-exchange rules.Countries like China, however, have made it crystal clear that the central bank will have total control of cryptocurrencies. While central banks may have cryptocurrency transactions, it has still not provided the provision for the exchange of bitcoin and others to private digital issuers.