Important Aspects of Digital Currency

 

Digital currency market cap crossed 600 billion USD on 18 Dec, 2017 and since this currency is in the form of 0s and 1s, it’s a platform whose resistance from getting hacked will be greatly tested in days to come.

The underlying technology of Bitcoin and every digital currency is Blockchain. The blockchain is an electronic ledger that is distributed across thousands of computers that are geographically separated. This distributed network of computers holding electronic ledger form the Bitcoin blockchain.

The blockchain is the internet of value that gives us the ability to not only transmit the information but value in the blink of an eye to anyone anywhere in the world. The answer to how secure and forge-proof Bitcoin lies on how secure its Blockchain is.

Bitcoin blockchain is public which means anyone can read and write transactions on it. Bitcoin blockchain has robust protocols (Proof-of-Work and Consensus Protocol) that ensure only valid transaction goes to the digital ledger and not the forge one.

 

Proof-of-Work (POW)

Bitcoin Blockchain uses the concept of proof-of-work for security and address issues of forge like ‘double spending problem’ – a single coin is being spent twice by the owner.

Bitcoin uses the Hashcash proof-of-work system. Proof-of-work is a procedure that groups up the transactions and adds them to the block. There is a cost (in terms of computation power and electricity) to generate new blocks. Every block point back to the previous block in the chain, that’s why it’s called blockchain. All blocks have the same set of transactions in the entire distributed ledger, say if block 21 has a transaction F in it, every ledger block 21 will also have a replica of transaction ‘F’. So if somebody tries to add a fake transaction in Bitcoin Blockchain ledger, he has to add this in all ledgers and update all previous blocks linked with that block, it’s something not possible with current computing resources

There are special nodes called ‘Miners’ who do this proof-of-work and are rewarded with Bitcoin’s as an incentive for rendering their services, once a transaction is written on the blockchain it remain there forever and can’t be altered later.

 

The Consensus Protocol

It’s a process by which a network of nodes confirms the record of previously verified transactions, and by which it verifies new transactions.

 

How Hackers are Benefiting from digital currency

Nicehash, a Slovenian digital currency mining marketplace, lost about $64 million worth of bitcoin due to hack of its payment system on Dec 7, 2017.

But it’s important to understand that it was not Bitcoin Blockchain who got hacked, it was a crypto exchange digital system that got hacked. Crypto exchanges are turning out to be a paradise for hackers, as its almost impossible with current computing power to make a breach in Bitcoin Blockchain.

“Sophisticated criminal groups are increasingly targeting the digital currency industry, focusing on exchanges and other types of firms in the sector”, said Noam Jolles, a senior intelligence specialist with Israeli cyber-security company Diskin Advanced Technologies. (Source)

Hackers also have the potential to hack mobile and web wallets to steal Bitcoin private keys.

 

Cold Storage

Hackers these days are searching all around for their share from Bitcoin massive market. Some simple precautions can save you from losing your money, one recommended approach to safe your Bitcoins is “Cold Storage”.

Bitcoin works on the principle of public/private key combination. A public key is a code available to everyone, while the private key is secret and should never be shared with anyone.

It’s like the public key is your home address, while the private key is your home key. Whenever you store your private key with a crypto exchange or mobile wallet you are sharing access to your Bitcoins with someone else. Hackers can become the rightful owner of your coins once they got your key by breaking into the crypto exchange, mobile or web wallet.

It’s important that you store your private key offline on some piece of paper not digitally. This is what’s known as cold storage.

This is perhaps the drawback of bitcoin that once you lose your private key there is no way you can secure it.

A typical bitcoin private key is nothing more than a string of digits, like

6Ry8kLf9zgWQnogidRq76MzPL6TsZZY36hWXMssSzNydYXYB9WE

 

Conclusion

As far as bitcoin immunity from hackers is concerned, it’s 100 percent. Till date, there is no record of an incident where hackers have successfully breached Bitcoin Blockchain and hacked Bitcoin residing there. Their only way to get Bitcoin right now is by hacking the third-party system (laptops, crypto exchanges) where Bitcoin keys are stored.

 

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The Era of Digital Currency

Era of Digital Currency

Pioneer of digital currency i.e. Bitcoin rolled out in the year 2008 and is believed to be the biggest revolution after industrial revolution.

Bitcoin was introduced by an unknown person named Satoshi Nakamoto. It is believed that Satoshi Nakamoto is a group of entrepreneurs since the idea is clearly bigger than one person job. Paper describing the concept of Bitcoin was published through a metzdowd.com cryptography mailing list on October 31, 2008. Satoshi Nakamoto introduces a  peer-to-peer electronic cash system that allows direct online payments from one party to another without going through a financial institution like banks. The cash system has a proof-of-work concept to address the double spending problem. The cash system is free from all kind of cyber attacks as it’s decentralized and distributed across various nodes worldwide.

The first real known price of Bitcoin was 0.008 USD in 2009 and first real world transaction of Bitcoin was carried out on May 22, 2010. In that historic deal 10,000 Bitcoin were exchanged for two pizzas only, the deal took place at bitcointalk.org. It was considered to be first real-world transaction using Bitcoin. At the time, the exchange rate put the purchase price for the pizza at around US$25.

According to investing, following chart shows price comparison of Bitcoin starting from year 2012 onwards.  

Year Bitcoin Price in USD
Nov 2012 12.6
Nov 2013 1112.4
Nov 2014 376.7
Nov 2015 376.9
Nov 2016 739
Nov 2017 6500.2

In the year 2017 sun is about to set and it will be remembered as the year of digital currency. Although there are more than thousand known cryptocurrencies,  bitcoin is the sole leader of this market. In the Year 2017, Bitcoin reached an all-time high value of 19,187 USD on Dec 16, 2017 (source).

Advantages of Using digital currency

Here are few gains associated with digital currency.

Decentralized and Distributed

The very first thing associated with digital currency is that its decentralized and distributed. The foundation of every digital currency is blockchain technology, blockchain in simple words is an electronic ledger that’s stored on thousands of computers across the globe. Whenever there is a transaction it’s updated on all digital ledgers, all these ledgers compare their values with each other to ensure uniformity, all this is done using blockchain protocols. If someone tries to enter a fake transaction, he has to replicate it on all ledgers, which is technically not possible.

Due to this decentralized and distributed nature, every digital currency is immune from fraud.  

Free from Manipulations

Due to decentralized and distributed nature of cryptocurrencies, they don’t have unified control. All Bitcoin tokens are owned by Bitcoin community members and same holds true for other cryptocurrencies as well. What’s happening right now is that all fiat currencies like US dollar, UK pound are under federal government control and almost all central governments do manipulation with currencies under their control. Since there is no single owner of digital currency, it can’t be manipulated by few people for their gain.

Secure Transfer of Funds

With cryptocurrencies like Bitcoin, no personal information is transferred with transactions. Sender and receiver both remain anonymous in the process of sending and receiving. It’s a great way to do business in areas where the crime rate is high.

All Bitcoins transactions are strongly encrypted with private keys. As long as you keep your private key safe nothing can happen to your Bitcoins.

Instant Transfer

Gone are days when you need to wait for days and hours to send money to other cities and countries. With Bitcoins, you can instantly send coins to any corner of the world in just 10 minutes without any intermediary like banks or any other monetary service. All this is done with zero transfer fee, whether you are sending Bitcoins next door or to next continent.

Factors Driving Demand for digital currency.

digital currency market cap is over 400 billion USD right now, here are some factors driving demands of cryptocurrencies.   

Crypto Exchanges

There are many crypto exchanges like GDAX, Bitfinex, bitstamp. Coinbase was overwhelmed by two to three times its normal traffic on Nov. 29, when Bitcoin’s price crossed 11000$ making its service temporarily unavailable for users. Crypto exchange work like a normal stock exchange, daily trading volume on every crypto exchange is in billions of USD. Seeing massive gains associated with digital currency trading, more and more people are opening accounts at crypto exchanges.

Many digital currency based hedge funds are coming up every week and their numbers already surpassed 100. Return from these digital currency hedge fund is more than 24000%. This is another motivating factor for people to invest in digital currency.

Initial Coin Offerings (ICO’s)

Another boost to digital currency is in the form of ICO’s. ICO provides a way for startups to gather funds for their future roadmaps. The biggest ICO’s of all time came out in the year 2017, Filecoin and Tezos successfully generated 257 and 236 million USD.

ICO’s require investors to buy stakes of a company by using digital currency like Bitcoin or Ether. ICO’s have successfully generated 2 billion USD of investment in the year 2017, compared to 295 million USD generated from the year 2014 to 2016 (Source). Investors are now getting serious towards ICO’s.

Here is an amazing representation of ICO’s token sale history.

Inflation-free Currency

Almost all fiat currencies have gone down in their values over time. It’s due to the fact that as more notes are printed price of currency goes down. Cryptocurrencies are free from inflation, as there are a finite number of coins for every digital currency.

Take the case of bitcoin, for instance, there will be 21 million Bitcoins ever generated and generation of bitcoin is halved every 4 years. It’s a rule when you have too many people chasing few goods, the price goes up.   

Open to All

Two billion people worldwide do not have a bank account or access to a financial institution (source). Reasons is a majority of people can’t fulfill documentation and other formalities required for opening a bank account.

digital currency has opened his gates for everyone. Anyone can buy digital currency regardless of his country and with this currency, one can do almost all sort of financial activities like fund transfer, money lending and so on.

Conclusion

Gains associated with cryptocurrencies are enormous, it’s a future currency with frontiers that are yet to be explored by human minds. Bitcoin and other cryptocurrencies saw tenfold increase in the year 2017, experts predict that it’s just the start of the journey.

It’s a good time to invest in small digital currency like Ripple, Altcoin, Dogecoin as their prices are within range. Remember bitcoin was 0.008 in 2009 and almost 20,000 USD in 2017.

For more information please visit http://www.worldcoin.cash