What is cryptocurrency?

It's digital money. We have actually been using digital currency ever since Reagan mandated that the United States leave the gold standard. Before that time, every dollar printed had that same value of gold or silver in the Federal Reserves. It became necessary to break away from the gold standard when the U.S. began needing more currency than it could produce in gold and silver. The government started demanding that citizens turn over all their gold for a fixed price. On August 15, 1971 the United States decided that the value of dollars printed would be based on the faith the people put into it and not backed by collateral.

Since that time, the banks have produced more and money by lending and extending credit. Currently, banks only have to keep 10% reserves leaving them with 90% to lend out. "From the time when the Bank of England was formed in 1694, it took over 300 years for banks to create the first trillion pounds. It took only 8 years for banks to create the second trillion. Today cash accounts for just 3% of the total money in the economy."

Which leads us to Bitcoin and other cryptocurrencies. The concept of cryptocurrency is that it is digital money whose value is based on the faith people all over the world put into it. It's money that you can spend in any country in the world or on the web.

No Taxation

The main attraction to this revolution is that the money, at least for now, is completely free of government oversite. That means no taxation, deductions, or garnishments so you can keep more of your money as it increases in value. In this way, it has become a political statement. For instance, those people who feel like the government is wasting their tax dollars no longer have to participate in the system. Cryptocurrency holders get to decide where and how their money is spent.

Decentralization

Bitcoin achieves this by being decentralized. There is no CEO and no company to shut down. The currency itself is a database of digital hashes that make up ever-growing transactions managed by a global network of computers using Blockchain technology. According to the white paper written by the founder or founders of Bitcoin identified by the name Satoshi Nakamoto, the network operates as follows:

1. New transactions are broadcast to all nodes.
2. Each node collects new transactions into a block.
3. Each node works on finding a difficult proof-of-work for its block.
4. When a node finds a proof-of-work, it broadcasts the block to all nodes.
5. Nodes accept the block only if all transactions in it are valid and not already spent.
6. Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash. Nodes always consider the longest chain to be the correct one and will keep working on extending it.

Superior Fraud Resistance

Because all the nodes consider the longest chain to be the most accurate and it is constantly extended, a hacker would have to catch up while tracking and adding subsequent hashed blocks. At the time of this writing, a successful hack on the blockchain itself has never been done. However, there have been multiple successful attacks with the storage of cryptocoins, called wallets.

Access to Everyone

Many counties do not have access to the banking we enjoy in the U.S. and other developed countries. It has been a tremendous challenge to get money to people without checking and savings accounts. Now, through the wonder of a wallet, anyone with an internet connection can purchase, invest, and save through exchanges from wallets.

Everything I've stated up to this point has sounded great. However, there are many pitfalls that make investing in crypto a high risk. The currency has not been around long enough to gain the trust of most making its price compared to national currencies fluctuate widely. At every turn, the government tries to identify users and regulate transactions. In addition, the transaction fees are growing while more coins are making it to market continuously which can undermine more well know cryptocurrencies. All this while economist are calling this a bubble that is sure to break leaving investors cringing.

Investing is always a risk. I for one, am ecstatic about what new ideas are going to flow from this epic market that seemed to just emerge overnight. There are over 400 coins and tokens all with something different about each, new crypt-trading exchanges, crypto-peer-to-peer lending, mining, and crytokitties. Below are my referral links.

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