Back in the early 90’s, many of us were still trying to get to grips with the internet – when terms like ‘surfing the net’ and ‘World Wide Web’ took on a whole new meaning in life. However, some bright sparks were way ahead of us and understood just how powerful a tool the internet could be.
Some of these individuals, known as Cypherpunks, felt that governments and corporations had too much power over people, so they wanted to utilize the internet to give people all over the world the freedom they deserved, with more control over their money and information.
Cypherpunks were deeply suspicious of central banks, and top of their agenda was the creation of digital cash. Two attempts were made – DigiCash and CyberCash – but neither were successful. It would take a further decade before the world’s first decentralized digital cash system was unveiled.
For us to discuss the evolution and growth of cryptocurrency, we must first understand Bitcoin.
In late 2008, Satoshi Nakamoto published the white paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System, outlining what it was and how it would work. To this day, no one knows who Satoshi Nakamoto is – it could be one person or a group of people. The first Bitcoin (BTC) transaction was completed in January 2009 and the world was introduced to its first cryptocurrency.
In April 2011, one Bitcoin was worth one US dollar. Looking at today’s cryptocurrency list, as measured by market capitalization, it’s priced at a little over $24,000. However, it took a while before investors were to look seriously at the new digital cash, with many ‘nerds’, programmers and engineers benefitting from early investment profits as it took flight.
Blockchain technology is essentially a digital ledger – a database in which every transaction is stored. The network of computers that store the information are known as nodes. New information may only be added once the nodes have validated it and the transaction is approved. This is known as a Proof of Work (PoW) consensus.
Miners are nodes that perform special tasks to make transactions possible. Miners encrypt the information received (hashing). To this, they add other transaction information and hash that too. More info is added and hashed until they have a sufficient amount to form a block.
Miners now race against each other to solve the complex mathematical algorithm (block hash) before it is added to the blockchain. The miner who breaks the code gets to add the block to the chain. All the other nodes on the network verify the transaction information and validate the new block. For their hard work, miners are rewarded with Bitcoin.
The growth of cryptocurrency
Since its inception in 2009, Bitcoin has revolutionized people’s way of thinking when it comes to cash. Not only is it a decentralized digital currency not beholden to any government or central bank, it can also be used to purchase goods and services, be traded globally or used as an alternative investment option.
You can buy or sell crypto through a trading platform such as Binance. Incredibly, there are over 10,000 currencies competing in the crypto market. While Bitcoin remains king of the castle, Ethereum (ETH) has long occupied second place. In terms of current cryptocurrency prices, whereas Bitcoin offers $24,000+, ETH holds price at just over $1,900.
The crypto market is highly volatile for various reasons. To show how cryptocurrencies can appreciate in value, let’s take a look at our old friend, Bitcoin.
In 2020, BTC nearly quadrupled in value, closing out the year at just under $29,000. By April 2021, the cryptocurrency prices for BTC had more than doubled, but then all those gains were lost in July 2021. Then, by November, BTC more than doubled again, hitting above $68,990 but dropping to around $46,000 by the end of December 2021.
While BTC is down by around 35% year to date, over the space of five years it has seen an appreciation of more than 1,000%. With such a volatile market, traders need to keep a watchful eye on the cryptocurrency list. As cryptos jostle for position, prices can rise or fall by over 10% in just one day.
In contrast to Bitcoin, some of the newer cryptocurrencies e.g. Tether (USDT) do not need to be ‘mined’ and are pegged to a fiat currency. They utilize the Proof of Stake (PoS) verification method, whereby the number of transactions verified depends on the amount of crypto ‘staked’.
There’s no solving complex mathematical algorithms, it utilizes less energy and allows for faster verification than PoW. Interestingly, Bitcoin’s fiercest competitor is looking to fully switch to a PoS mechanism, decreasing its energy consumption by over 99%.