Over the last several decades, cryptocurrency has
experienced a volatile rise to prominence. Some traditional financial
institutions are skeptical of cryptocurrency markets, while others see them as
the wave of the future. Changpeng Zhao discusses the history of cryptocurrency
and other digital assets.
What is Cryptocurrency?
Cryptocurrency is a type of digital asset that people use to
conduct online transactions. The term comes from how cryptography aids in the
encryption of each transaction and account in a ledger using private keys (a
concept called the blockchain). To put it another way, when you exchange
cryptocurrencies for goods and services, encryption protects them from outside
hacking while also making them traceable on a peer-to-peer electronic cash
system.
Unlike traditional fiat currencies, cryptocurrencies have no
centralized authority. These decentralized tokens exist on a blockchain, which
is hosted by millions of different computers, and derive their value in a
distributed manner rather than from the power of a central bank.
To "mine" these coins, a significant amount of
computing power is required. Many cryptocurrencies require miners (the people
and computers who crack algorithms to obtain more coins) to submit proof of
work to ensure the legitimacy of their efforts.
How Does Cryptocurrency Work?
Cryptocurrency functions similarly to a credit card, except
that digital assets are exchanged for goods and services rather than US dollars
(USD). To conduct a cryptocurrency transaction, you must first exchange
currency with a peer using a digital wallet.
You can transfer money from one account to another using
these wallets. You must have access to a private key in order to complete a
transaction (password). These keys work similarly to bank accounts. The
transactions are represented as nodes on a public ledger, with totals displayed
without revealing the identities of the parties involved.
The process of verifying transactions with cryptocurrency is
known as mining. Mining requires a massive amount of computing power and
complicated algorithms, but those who successfully solve problems can earn
reward coins, tokens, or transaction fees.
A Brief History of Cryptocurrency
The modern world is being reshaped by digital assets. This
cryptocurrency history will help you understand how these new technologies are
changing everything:
The emergence of digital currency: In the 1980s and 1990s,
ideas about digital currency began to spread. Cryptographer David Chaum (ecash
and Digicash), programmer Wei Dai (b-money), and computer engineer Nick Szabo
were among the early adopters and supporters of digital currency (bit gold).
These prototype efforts struggled to get off the ground. Over the next few
decades, open-source software and innovation made it more feasible to lay the
groundwork for a truly functional digital currency.
The birth of Bitcoin: Bitcoin's (BTC) history began shortly
after the 2008 financial crisis. "Satoshi Nakamoto published the Bitcoin
white paper, and in 2009, that was deployed onto a live blockchain [the Genesis
Block]," explains Changpeng Zhao, cofounder of one of the world's largest
cryptocurrency exchanges. "I believe that triggered the entire Bitcoin,
blockchain, crypto, and Web3 industry." It was the first cryptocurrency to
gain widespread acceptance.
The emergence of new cryptocurrencies: The Bitcoin network
took off in 2010 and is still growing today. While Bitcoin remains the most
popular cryptocurrency, many altcoins began to gain popularity in the 2010s as
well. Ether (ETH, sponsored by Ethereum blockchain technology), Dogecoin
(DOGE), Cardano (ADA), Ripple (XRP), and Litecoin were among them (LTC). These
new blocks and coins fluctuate in relation to fiat currencies, but stablecoins
are more tightly linked to the value of legal tender.
The rise in cryptocurrency value: In 2010, ten thousand
Bitcoin was required to purchase two pizzas”the first real-world transaction
involving a cryptocurrency. Many onlookers laughed at the Bitcoin exchange at
the time. "That pizza transaction was a watershed moment," Changpeng
says. "It got to $1 at some point." 'This is impossible,' people
said. This is internet magic money.' And then it went up to $10, then $30, and
then there was FOMO... so people rushed in." By the end of the decade, the
virtual currency had amassed a market capitalization (or market cap) in the
hundreds of billions of dollars.
The evolution of DeFi: Initial coin offerings (ICOs) for
cryptocurrencies quickly branched out into a variety of other decentralized
finance (DeFi) innovations. People began to experiment with using these online
coins in real-world scenarios rather than using intermediaries such as
cryptocurrency exchanges. NFTs and smart contracts became new forms of
exchange.
Increased business interest: Cryptocurrency transactions
were a niche phenomenon until the larger business community became aware of
them. "You don't have to be a blockchain developer to participate in the
ecosystem anymore," Changpeng says. "You can now be any entrepreneur."
Startups began to accept or invest in Bitcoin transactions. Some businesses
have begun to hold reserve funds in cryptocurrency. For the first time, credit
card companies began to experiment with ways to use cryptocurrency.
Governments' interest: As cryptocurrency usage increased,
governments around the world reacted differently. El Salvador, for example,
accepts Bitcoin as legal tender, whereas China has imposed a ban on the entire
cryptocurrency market. Regulators of the overall financial system are still
trying to figure out how to protect consumers on blockchains from scams and
hackers.
The market's volatility: While cryptocurrency has
experienced years of explosive growth, it has also seen a high level of
volatility. For example, the value of Bitcoin skyrocketed to an all-time high
before halving in the early 2020s. This is only one application, but the value
of Bitcoin is a good indicator of the volatility that other virtual currencies
are experiencing during this time.
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