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What Is Cryptocurrency and How Does It Work?

Cryptocurrency is a form of digital money that can be used during an online purchase or sale. As the term “digital money” suggests, its value is not held in physical notes or coins. Cryptocurrency is not based on other assets (e.g. gold), and does not go through banks like the more typical forms of money do. You can see how Bitcoin has faired over the last decade in this infographic originally created by Online Casino Betway.

Typical forms of money, such as Pound Sterling and the US Dollar, are regulated through a centralised system, where financial institutions keep a record of which account holders own what, stopping them from duplicating money.

Instead of being regulated by banks or other financial institutions, cryptocurrency is monitored through a decentralised system, using “blocks” (digital information about transactions) that are “chained” together in a public database. This regulatory system is known as blockchain technology, and is used to track transactions.

How Did Cryptocurrency Start?

Bitcoin was the first form of cryptocurrency, the theory behind it published in a paper during October 2008 on a cryptography mailing list. The paper mapped out a way of creating a decentralised currency that solved the “Double Spending” problem.

The paper was authored by Satoshi Nakamoto, presumed to be the founder, or founders, of this initial cryptocurrency. Bitcoin was then launched under this name in 2009. The true identity of Bitcoin’s founder(s) is still unknown.

In the first year of its launch, Bitcoin was only used to trade privately, with the first ever Bitcoin transaction being made in May 2010. The transaction was used to by two pizzas, the Bitcoins at that point being worth $40. Since this first transaction, these Bitcoin have reached a $90.5 million peak value.

In the following years, Bitcoin began to go mainstream, with businesses and universities starting to accept it as a payment method. As Bitcoin grew in popularity, other forms of cryptocurrency began to emerge on the market, including the likes of Litecoin and Ethereum, creating a now well-established cryptocurrency market.

What Is Bitcoin?

Bitcoin, as previously mentioned, was the first form of cryptocurrency that is still used today. Bitcoin is a virtual currency that, like most cryptocurrencies, can be used to both purchase and sell various different products and services. Uniquely to what is fast-becoming a financial product and investment in its own right, Bitcoin is not regulated in the same way that financial products such as property investment loans and similar (read more).

All Bitcoins a user owns are stored in their own personal digital wallet, which can be accessed on a computer, phone or other compatible device. Bitcoins can be sent from one user’s wallet to another and vice versa, with all transactions of these Bitcoins being recorded/added to the public data base in the form of a blockchain.

This blockchain, like a bank, helps to regulate user spending, helping to stop people from spending Bitcoins they don’t have.

Where Is Bitcoin Now?

During 2016-2017, Bitcoin became incredibly successful, and has since been dubbed the best investment of the decade by various media outlets. The currency’s value broke numerous different records, and during the end of 2017 reached its peak in value – this being $19,783.06.

However, in only 24 hours of hitting this peak, Bitcoin’s value dropped by a considerable amount, and by the end of the following year (2018), fell to less than $3,300.

Presently, Bitcoin appears to be on the rise again, reaching a value of £10,908.18 last June. 2020 is set to bring about changes to Bitcoin with reductions to its block rewards and increased competition from the likes of Facebook’s Libra cryptocurrency.

Whilst this new decade will come with its challenges to both Bitcoin and the rest of the cryptocurrency market, it may also bring exciting new innovations, that could change cryptocurrency, and the way money operates, for good.

You can read more about the past decade on Betway’s Insider.