'' 5 Reasons Why Cryptocurrency Is So Popular
5 Reasons Why Cryptocurrency Is So Popular

5 Reasons Why Cryptocurrency Is So Popular

British Petroleum, Microsoft, J.P. Morgan, Intel, Deloitte, Samsung, Toyota — what  do all these corporations have in common besides the fact that they are all  Wall Street bigwigs? Together with many other famous companies, they are the members of a consortium of investors. «A hardly surprising big deal», some might say unless the name of the consortium is announced – Enterprise Ethereum Alliance (EEA). The impressive list of EEA’s investors hints at something promising and attractive, at an extremely valuable asset that drives financial leaders following.  As can be seen from the consortium’s name, the asset is Ethereum – a decentralized platform that runs smart contracts basing on a blockchain technology (more on that in our next post about Decentralized Ledger Technologies). The platform has its own digital currency - Ether cryptocoin which is traded now at > $350/ETH. Those who familiar with cryptocurrency trading may find it nothing special once notorious Bitcoin is traded at a much higher price of about $2800/BTC. However, the intrigue is not about the price, but rather about the progress with which Ether has been running over the last 6 months  - more than 4.000% up! And this is not a misprinting – everyone can check it calculating the percentage of Ether’s hype since January 2016, for example, when it was traded at only $0.90. Too huge to be real? The guys from our first sentence think otherwise. Their financial and public reputations along with the fact that cryptocurrencies market cup has exceeded $100 billion can make even the most skeptical pundits take cryptocoins seriously. So, what is this stuff and what all the fuss is about?

 

Obvious dependencies

National banking systems emitting fiat currencies, international corporations playing the stock market, social media occupying the global population with websites and television are all centralized, one way or another. It means all of them are vulnerable to the current political instability and to the related economic threats. Everyone can check daily news along with the reports of the world leaders at Munich Security Conference 2017 to ascertain the relevant facts. Politics affects economics too significantly to be ignored. The recent Brexit and Donald Trump elections are telling examples of how interdependently the political uncertainty and economic problems (declining of stock market indexes, for example) can play when assets belong  to centralized entities.

 

bitcoin

 

Third party is irrelevant

Both big investors and ordinary asset owners appreciate security above all. The idea about a decentralized digital asset untied from geopolitical events and fiat currencies came to Satoshi Nakamoto (a pseudonym of a mythical person whose actual identity is remaining unclear up to this day) in 2008 when he published his Bitcoin yellow paper. This short paper entitled “Bitcoin:  A Peer-to-Peer Electronic Cash System” has become a manifesto for adepts of cryptocurrencies and decentralization. In order to explain what Bitcoin is without getting too technical, we refer to only two sentences from the Abstract of the document representing the main idea in a brief manner: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution… The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.» The detailed description of the system can be found on Bitcoin wiki website where answering the question of why to use Bitcoin appears as concise as straightforward: «Bitcoins are sent easily through the Internet, without needing to trust any third party».

 

The dawn of the Bitcoin age

The first Bitcoin block (the so-called Genesis block) was generated in 2009, and as Taylor Gerring noticed in the Ethereum blog recollecting the beginning of the blockchain era, “What began as a cypherpunk dream had blossomed into an industry”. Since those days more that 1000 cryptocoins along with numerous online exchanges have appeared. Some States officially accepted Bitcoin as a legal currency, some acknowledged Bitcoin’s right to exist only. However, many countries are still resisting cryptocurrency considering it a threat to their national financial systems. For example, Ukrainian Government has not announced Bitcoin legal yet while in fact this country is one of the silent world leaders in the digital currency movement. The legality of Bitcoin throughout the world can be checked here.

 

When the ownership matters

Some may wonder whether cryptocurrencies are similar to the well-known centralized e-money systems such as WebMoney, Payoneer, PayPal, and eCash. The latter also provide payments to the end users directly or via third party digital currency exchangers and mobile digital wallets. Besides, the global digital giants such as Apple, Samsung, and Google offer their users the cashless payment opportunities embedded in their gadgets via the ApplePay-like services. In doing so, Apple is ahead of others with the newest iOS 11 feature of peer-to-peer payments accessible via iMessage. However, the apparent similarity disappears when it comes to  the entities who control the above-mentioned systems. Irrespective of the type of their owners (a bank, a hardware vendor, or any other particular entity) all of them are the centralized systems that can be switched off, suspended, and even eliminated when something wrong happens with their owners. In contrast, cryptocurrencies like Bitcoin and Ether are controlled by nobody and by everyone at the same time. The very nature of the distributed blockchain technology makes cryptocoins invulnerable to any deliberate elimination. In order to control Bitcoin, for example, it is necessary to gain more than 51% of all computation power applied to generation of all existing Bitcoins. This is prohibitively expensive and even hardly possible from the technical standpoint. Describing such a crucial advantage of the blockchain technology the Lykke Exchange white paper stands that this “… is a great platform to build other services on top, as it is an independent technology without any vendor lock-in or other entity behind it that might abuse it one day to further their strategic agenda. Examples of other such decentralized technologies that serve as a platform for others to build on are Linux, Email, or the Internet».  

 

Mathematics rules

Besides their distributed nature, another advantage of cryptocurrencies lies in the tamper-proof method all the transactions are encrypted with. Mathematics is a stubborn thing as such where two plus two is always four. Nonetheless, the hash function in which transactions of a blockchain are packed (the most popular secure hash algorithm is SHA 256) is a real godsend making any backward calculations impossible. It means that nobody can forge cryptocurrency neither falsify a blockchain transaction. Such an ancient activity as counterfeiting has outlived its usefulness with regard to cryptocoins. That means a lot when it comes to money. But the most exciting peculiarity of a cryptocurrency is, of course, the possibility of emitting it by all who wish. The cryptocurrency creation is called mining (an implicit allusion to gold or diamond mining) when hash function calculations are performed by the miners’ computers in accordance with a certain protocol in order to be rewarded with cryptocoins.  

mining

 

It seems that even the most general description we are giving in the present post can hint at why many financial bigwigs are paying their close attention to cryptocurrencies - investors are looking for safe havens for their assets with understanding that there is no enough gold for everybody. However, there are two sides to any coin: cryptocurrency is only one of many other attractive opportunities that the distributed ledger technology (DLT) can offer. How to make any elections absolutely fair, why decentralized apps have no limits, what kind of social media is beyond any censorship, why passwords are obsolete, what advantages could tokens give to Jack Ma — all these issues along with many other promising aspects of DLT will be discussed in our next posts. Don’t miss, to be continued.

Tags: CryptocurrencyBitcoinMiningEthereumBlockchain

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