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Cryptocurrencies - the means of payment of the future?

More than ten years after the introduction of Bitcoin, the triumphant advance of cryptocurrencies is apparently far from ending. The virtual phenomenon became known to a broader public at the latest in Year 2017 known when the crypto pioneer hit its all-time high. From this point on, interest in cryptocurrencies increased all over the world. More and more people are choosing that Bitcoin trading or alternative digital currencies.

But what is a cryptocurrency anyway? How does the technology underlying the payment method work? What is Bitcoin and which cryptocurrencies are there as an alternative? What are the advantages and disadvantages of digital currencies? How sensible is it to invest in cryptocurrencies? This article deals with these and some other exciting questions in the following.


What is a cryptocurrency?

A cryptocurrency is a decentralized digital means of payment. It acts as an exchange medium for various types of transactions using the Encryption principle of cryptography. The vast majority of cryptocurrencies are based on the Blockchain principle. All transactions are here in one digital ledger, the blockchain. Behind this term is a simple yet effective method for fully automatic and secure transmission of information from a to B.

The processes behind it are basically easy to imagine graphically: A participant in a transaction initiates the process by having a virtual block created. Thousands, or now often millions, of computers worldwide then check the correctness of the information. The process of tracking transactions of a cryptocurrency on a blockchain is called Mining.

After a successful check, the verified block is added to a chain stored in the network. So there is always a Record with a clear history in front. The falsification of individual data sets is almost impossible. In this case, potential fraudsters would have to falsify a complete chain and the associated millions of data records. There are no centralized version of this information. Hackers are therefore unable to damage or deactivate the blockchain.

The blockchain is run by a Peer-to-peer network managed. All peers in the network act as equal partners and share the entire workload among themselves. The network is basically a collection of interconnected nodes (Nodes). Nodes are understood to mean all computers involved, which record inputs and carry out functions.

At first glance, the entire crypto topic may seem extremely complex. To successfully trade cryptocurrencies, it is not mandatory to fully understand all the details of the technology. In fact, the philosophy behind it is a very simple one: Decentralization, immutability and absolute transparency are the three essential characteristics of the blockchain. Ultimately, it was precisely these factors that led a large number of users to recognize them.


The different types of cryptocurrencies: which ones are there?

Not that long ago, all existing cryptocurrencies could be counted almost on one hand. In the meantime this is no longer possible, because the crypto market is growing rapidly. Currently exist in total more than 3000 cryptocurrencies. There are different ways to categorize the different coins. A common subdivision is the assignment into Categories Bitcoin, Altcoin or Token.

Bitcoin (BTC) was the first cryptocurrency and is already holding up on the market since 2008 - and with impressive success. The creator of the digital currency is considered to be a man named Satoshi Nakamotowhose true identity is still unknown to this day. In terms of market capitalization, Bitcoin is by far the world's leading cryptocurrency. In the meantime, the coin has largely established itself in many areas and is spent and saved like traditional money. Since bitcoins can only be produced in limited numbers and are therefore a finite resource, many investors see it as an alternative to gold.

The release of Bitcoin and his Open source codes Eventually paved the way for the development of thousands more cryptocurrencies. These new coins fall under the category of Altcoins (alternative coins), as they are alternatives to Bitcoin. While some altcoins serve a similar purpose to Bitcoin, others have a wide range of different uses.

So serve IOTA for example especially innovative data transfer and transaction processing in the machine industry as well as in the area of Internet of Things (IoT). Via the blockchain from Ethereum (ETH) on the other hand, developers can, for example, use decentralized applications (DApps) and create and deploy smart contracts.

In general, every altcoin can come up with some distinctive asset. But very few Bitcoin alternatives manage to establish themselves and cannot last in the long term. Only a handful of coins made the breakthrough. The most successful altcoins include Litecoin (LTC), Ethereum (ETH), Zcash (ZEC), Dash (DASH), Ripple (XRP), Monero (XMR), Bitcoin Cash (BCH) or NEO (NEO).

In addition to bitcoins and altcoins, there is also the group of Token. In contrast to the other two categories, tokens exist not independent of other digital currencies. This means that they do not have their own blockchain, but are based on the technology of an existing cryptocurrency. Tokens are more commonly considered to be Sub-coins of other altcoins. Right now there is almost 1500 tokensthat use the blockchain platforms of 24 cryptocurrencies.


The main advantages of digital currencies

Compared to classic fiat currencies, cryptocurrencies have a number of advantages that make them particularly attractive for investors. The central motives why people invest in Bitcoin and Co. lie in the elementary basic properties of blockchain technology. Probably the most important factor here is the aspect of decentralization. Specifically, this means that no entity such as a central bank or state authority exercises control over the currency. The crypto scene and its market participants make their own decisions without outside intervention. Just through this As a rule, cryptocurrencies offer a high level of data security to reduce government influence.

The buyer keeps his acquired coins in one digital wallet, the so-called wallet, on. Only he himself can access it via a complex code.

As far as the point of decentralization is concerned, a certain opposite trend has recently become noticeable. In the recent past, several crypto currencies have come onto the market which, contrary to the actual philosophy of the blockchain, are organized centrally. Behind it are usually profit-oriented companies that define the protocol of the digital currency and regulate who is allowed to participate. The most famous example of such a cryptocurrency is Libra from Facebook, which should appear in 2020. The project has been massively criticized in advance. In addition to some concerns of a monetary policy nature, crypto experts primarily criticized the lack of data security.

With a few exceptions, cryptocurrencies enable their users complete anonymity with simultaneous transparency. This may seem a bit paradoxical at first, but it is easy to understand thanks to the underlying technology. The identity of each user is hidden by the complex cryptography and only represented by a public address. The participants are only known to the public under a cryptographic code, but not by their name. At the same time, they can still view all transactions publicly.

Another advantage of cryptocurrencies is that they make many areas of banking obsolete. Many people have long since lost their trust in banks. In such cases, cryptocurrencies are an attractive alternative. When trading and using Bitcoin and Altcoins, there are basically no bank fees. Still, that doesn't mean that all transactions have to be free. On the other hand, users can usually rely on the fact that there are no delays with transfers via blockchain, unlike with banks. In addition, the concept of cryptocurrency does not stop at national borders. The technology is designed for international trade.


Bitcoin and Co .: That's what the critics say

Despite the increasing acceptance, critical voices are becoming increasingly loud with regard to cryptocurrencies. The developments of the last few years even have well-known investors like Warren Buffet prompted to warn against the alternative form of currency. Many experts even speak of a bubble bursting in the near future.

But what are the main points of criticism?
Probably the biggest problem with cryptocurrencies is the common ones Scaling problems. With the crypto pioneer Bitcoin, this fact quickly became evident due to the growing number of users. To date, the blockchain is limited to just seven transactions per minute. Especially at crypto weddings, transaction times and fees increased almost directly with the price. The developers of other cryptocurrencies recognized the problem of poor scalability and reacted to it with new concepts. This means that alternative crypto currencies such as Ripple can easily keep up with the VISA system with their transaction rate.

Another disadvantage of cryptocurrencies is theirs extreme price volatility with a simultaneous lack of inherent value. This was recently shown clearly in the course of the Cryptocurrency crashes in early 2018. Within a month, Bitcoin lost over 65% of its value. Of course, there can never be one hundred percent protection against serious losses. Experts recommend at least as a precautionary measure against the high volatility of cryptocurrencies greatest possible diversification. Under no circumstances should users put everything on one asset.

The crypto scene itself is critical of the increasing institutional regulation with regard to crypto currencies. Various experts are now warning against government intervention. Several governments have become aware of the phenomenon and have responded to it in some way. Some tech-savvy countries are now even developing their own state cryptocurrencies. The Venezuelan government implemented the in the course of the de facto bankruptcy of the country in 2018 Petro as the first state cryptocurrency a.

The decentralized structure of digital currencies and the associated anonymity of users also have serious downsides. Criminals have repeatedly been able to take advantage of these properties of the blockchain. There have been several worldwide in recent years Ransom demands via cryptocurrencies.


The future of cryptocurrencies

Although cryptocurrencies are currently on one Popularity high surf, you are facing an uncertain future. One thing is certain: a significant proportion of well-known technology companies and numerous experts speak out in favor of the use of different forms of encrypted currencies. In addition, international companies such as Microsoft, Amazon, Starbucks or PepsiCo have long been using the advantages of the blockchain for themselves. This fact alone suggests a promising future for Bitcoin and other cryptocurrencies.

However, it is also true that the majority of coins have little potential to assert themselves in the long term. Probably the biggest hurdle when it comes to the future of cryptocurrencies is that it not a universal means of payment are. Most companies don't accept them. Only Bitcoin is available as an alternative payment method from some providers.

It is uncertain whether this will change in the future. Nevertheless, interest in crypto currencies is finally increasing in Europe too. The euro is in a massive crisis, which is why the population is looking for ways out of the banking system. Therefore, experts assume that Bitcoin and the numerous Altcoins will soon play a more important role. Some experts on the crypto market even suspect that Cryptocurrencies could completely replace fiat currencies from the 2050s.