More about Cryptocurrencies: Bitcoin & Ethereum

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What is a cryptocurrency?

In a cryptocurrency, any rule or regulation is programmed into the cryptographic algorithm that governs the decentralised community using the currency. The combination of cryptography and currencies gives crypto-currencies their name. This basically means a currency that is backed by and made rare through cryptography.

Trust in a cryptocurrency is derived from the underlying cryptography. Since this is a new concept compared to thousands of years of using precious metals, it will take a bit of time until more and more people start to understand the true benefits of the new system.

Bitcoin - BTC

Bitcoin, the “mother of all cryptocurrencies” also called “digital gold” is the first decentralised digital currency that works without any intermediaries such as a central bank. It is a peer-to-peer network where transactions are verified by a network of nodes using cryptography on a public ledger called the blockchain.

Bitcoin uses a proof-of-work algorithm, where a reward is given to the miner who finds a new block. Originally that was 50 bitcoins every block, but is halved every 210,000 blocks, or approximately every 4 years. The first halving from 50 to 25 bitcoins happened on November 28th, 2012, and the latest halving from 25 to 12.5 bitcoins took place on July 9th, 2016. The next halving from 12.5 to 6.25 bitcoins per block is expected to happen around the beginning of June 2020. This halving will occur 64 times until the reward hits 1 Satoshi per block sometime in a hundred years or so. After that, it cannot be halved anymore, and the total number of bitcoins will remain close to 21 million (just slightly below). Since the supply of new bitcoins is exponentially decreasing, there are already close to 17 million bitcoins in circulation, even though only nine years have passed.

Bitcoin has focused heavily on stability rather than innovation, which has provided its fair share of criticism. There are regular BIPs (Bitcoin Improvement Proposals), but any that take an extreme approach to change something radically get rejected by the community quite rapidly. This makes it hard to try out new concepts, but Bitcoin wants to stand its ground for being “digital gold.” When all crypto-hell breaks loose, Bitcoin wants to be here to stay. It has the largest community, the widest acceptance, the greatest market capitalization, and the lowest volatility.

Ethereum - ETH

If you consider Bitcoin to be a 1st generation blockchain, Ethereum deserves to be called a 2nd generation blockchain, where way more functions are possible. Ethereum was proposed by “child prodigy” Vitalik Buterin in late 2013, who suggested that instead of using a blockchain only for currencies, one could expand its functionalities into acting more like a decentralised computer. Instead of storing how many coins each participant has, this Ethereum computer, also called Ethereum Virtual Machine (EVM) would execute actual code. In order to fund the development, the Ethereum Foundation did an ICO crowdsale in the summer of 2014, where, depending on the time one participated, 1 BTC could get the buyer between 1,337–2,000 ETH. In total, they received a little bit over 31,529 BTC, which represented the desired 15 million USD at the time, putting the initial Ethereum price at around 30 cents. The system went live around a year later on July 30th, 2015.