What is CryptoCurrency?
Cryptocurrency is a subset of the class of digital currency but it has become an important type of digital currency. Unlike other digital currencies that can be centrally issued, circulated within a community or geographical location, or tied to fiat currency or the organizations issuing them, cryptocurrency has very different characteristics. The blockchain technology used by cryptocurrency, such as Bitcoin, is an openly distributed ledger that records transactions. This solves the double-spending problem and does not require a trusted third party. Decentralization allows the blockchain technology to have increased capacity, better security, and faster settlement. Some of these features are at the top of the list of shortcomings of traditional financial systems. As a result, blockchains and cryptocurrencies have become two of the most pressing topics in the financial industry. In this article, we focus on the diversification role of cryptocurrencies and explore the possibility that they may generate new investment opportunities based on historical data.
Bitcoin and its Importance
Few people know, but cryptocurrencies emerged as a side product of another invention. Satoshi Nakamoto, the unknown inventor of Bitcoin, the first and still most important cryptocurrency, never intended to invent a currency.
In his announcement of Bitcoin in late 2008, Satoshi said that he developed a Peer-to-Peer Electronic Cash System.
His goal was to invent something; many people failed to create before digital cash.
The single most important part of Satoshi’s invention was that he found a way to build a decentralized digital cash system. In the nineties, there have been many attempts to create digital money, but they all failed.
Features of Bitcoin
Similar to conventional currencies that are traded digitally, bitcoin can also be used to buy things electronically. Unlike any fiat money or platform-based digital currencies, however, Bitcoin is decentralized. In other words, there is no single group or institution that controls the Bitcoin network. Its supply is governed by an algorithm, and anyone can have access to it via the Internet.
Bitcoin wallets or addresses can be easily set up online without any fees or regulations. Furthermore, transactions are not location specific, so bitcoins can be transferred among different countries seamlessly.
Every transaction will be broadcast to the entire network. Mining nodes or miners will validate the transactions, record them in the block they are creating, and broadcast the completed block to other nodes. Records of all transactions are stored in the blockchain, which is open and distributed, so every miner has a copy and can verify them.
Transactions are broadcast within a few seconds, and it takes about 10 minutes for the transaction to be verified by miners. Thus, one can transfer bitcoins anywhere in the world, and the transactions will usually be completed minutes later.
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