WHAT IS CRYPTOCURRENCY AND UNDERSTANDING THE HYPE BEHIND IT
A cryptocurrency is a form of payment (a digital or virtual currency), that can be exchanged online for goods and services. It is secured by cryptography (the art of writing codes), which makes it nearly impossible to counterfeit or double-spend. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.
Cryptocurrencies work using a technology called a blockchain. Blockchain is a decentralized technology spread across many computers that manage and record transactions. Part of the appeal of this technology is its security.
There are over 4,000 cryptocurrencies as of early 2021, but bitcoin has seemed to make its mark. Let's understand its progression and how it has managed to become one of the hottest topics on the internet.
Satoshi Nakamoto is the name used by the presumed pseudonymous person or persons who developed bitcoin and authored the bitcoin white paper. A white paper is a report/guide that informs readers concisely about a complex matter and in business is used as a marketing presentation.
Nakamoto also managed to solve the pressing problem of double-spending. Double spending enabled the same digital token to be spent more than once.
On 18 August 2008, the domain name bitcoin.org was registered. Later that year, on 31 October, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System (the white paper) was posted to a cryptography mailing list. On 3 January 2009, the bitcoin network came into existence with Satoshi Nakamoto mining the genesis block of bitcoin (block number 0), which had a reward of 50 bitcoins. In the early days, Nakamoto is estimated to have mined one million bitcoins.
The value of the first bitcoin transactions was negotiated by individuals on the bitcoin forum with one notable transaction of 10,000 BTC used to indirectly purchase two pizzas delivered by Papa Johns. ( 1 Bitcoin is now worth over 48,000 USD / over 35 lacs!)
The only major security flaw that was discovered and exploited in bitcoin’s history took place on the fateful day of August 6th, 2010.
Transactions weren't properly verified before they were included in the transaction log or blockchain, which let users bypass bitcoin's economic restrictions and create an indefinite number of bitcoins. On 15 August, the vulnerability was exploited; over 184 BILLION bitcoins were generated in a transaction and sent to two addresses on the network. Within hours, the transaction was spotted and erased from the transaction log after the bug was fixed and the network forked to an updated version of the bitcoin protocol.)
From being worth almost nothing in January of 2009 to less than 0.01 USD in May of 2010 to a dollar in
February of 2011 to its mammoth valuation of almost 50,00 USD in 2021.
The recent rally in digital assets has come on the back of interest from big global financial institutions such as JP Morgan, BlackRock, and Goldman Sachs. Moreover, prices jumped from around $8,000 in a day to over $48,000 after US electric-car maker Tesla disclosed that it has bought bitcoin worth $1.5 billion.
Tesla also said that they’d start accepting bitcoin as payment, which brought more attention to the coin. On 12th May 2021, Tesla CEO Elon Musk tweeted that the electric car company would no longer accept Bitcoin as payment citing environmental concerns."We are concerned about the rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel," Mr. Musk wrote, Bitcoin fell by more than 10% after his tweet and Tesla shares also dipped.
Critics of bitcoin have long been wary of its impact on
the environment. Bitcoin mining – the process in which a bitcoin is awarded to a computer that solves a complex series of algorithms – is a deeply energy-intensive process.
Now that over 18.5m bitcoin has been mined, the average computer can no longer mine bitcoins. Instead, mining now requires special computer equipment that can handle the intense processing power needed to get bitcoin today. And, of course, these special computers need a lot of electricity to run. Proponents of bitcoin say that mining is increasingly being done with electricity from renewable sources but environmentalists say that mining is still a cause for concern particularly because miners will go wherever electricity is cheapest and that may mean places that use coal which is harmful to the environment.)
Some sources, including the Cambridge Bitcoin Electricity Consumption Index, say that the world's largest cryptocurrency uses almost 150 TWh per year — more than the whole of Malaysia.
Describing all the times through history when Elon Musk has managed to influence the cryptocurrency market will be never-ending, but this is just an example to show the volatility of the cryptocurrency market. His tweets in rec
ent months helped to turn Dogecoin, which was started as a social media joke, into the world's fourth-biggest cryptocurrency.
smartphones have much larger carbon footprints than typewriters and telegraphs. Sometimes a technology is so revolutionary and important for humanity that society accepts the tradeoffs,” wrote investor Tyler Winklevoss on Twitter.
The creators of ethereum, considered the second most popular type of cryptocurrency after bitcoin, have promised to change the currency’s algorithm to make its mining more environmentally friendly.)
Extreme volatility is a part and parcel of cryptocurrency trading, they are highly speculative investments but like NFTs, these new developments have opened up multiple new avenues for the future and the coming years will shape the decades ahead.
Writer - Dyumna Madan
Editor - Priyam Kusundal
Graphics - Hafsa Gaballa