Timanie S Mills
Since Bitcoin’s arrival online in 2009 cryptocurrencies have become immensely popular throughout the world. This paper will examine how the various cryptocurrencies come into being and how their creators utilize them for their businesses. With Bitcoin’s meteoric rise at the beginning of 2013, a large number of competing currencies have been developed with some targeting specific niches to dominate while others have been formed to simply imitate Bitcoin. The most ambitious cryptocurrencies have aimed to not only imitate Bitcoin’s success but to completely displace its status as the gold standard of the cryptocurrency world.
These various cryptocurrencies will be examined, and their creation and function will be discussed in this essay. Cryptocurrency is a word used to describe the various digital currencies that have come about in recent years including bitcoin and the various altcoins. A more complete definition of what a cryptocurrency is can be found in the Oxford English dictionary and is as follows:” A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.”
The generation of the currency units is accomplished by leveraging computer processing power to solve various algorithms.
The first cryptocurrency was Bitcoin; this was the first and to date most successful digital currency and has gained widespread adoption as well as respect as not only a currency but an investment. Bitcoin was developed by multiple individuals with Satoshi Nakamoto being most often credited due to his publication of the first Bitcoin specification proof of concept in 2009 (bitcoin.org). Bitcoin is highly decentralized and as such the Bitcoin network is not owned by any one person but is controlled by all Bitcoin users. The cryptocurrencies that followed have tried in various ways to implement their predecessor’s success; these are referred to as altcoins. Altcoin is the name given to all cryptocurrencies except Bitcoin, essentially all altcoins are cryptocurrencies but not all cryptocurrencies are altcoins.
Cryptocurrencies are generated by “mining” which involves utilizing processing power to work through the algorithms used in the coin causing “blocks” to be released. These blocks contain a set number of coins as a reward for working through the algorithm. One of the main differences between national currencies and digital currencies such as bitcoin is that national currencies can be produced in limitless numbers whereas cryptocurrencies have set amounts. For instance, Bitcoin is limited to 21 million coins, which means that eventually they will all be mined out. This happens over very long periods of time however as more algorithms are solved and blocks released the rewards get increasingly small. Subsequent blocks contain fewer and fewer coins and tend to halve of a certain number of months resulting in increasing difficulty for miners.
The benefits of cryptocurrencies for the business community are immense, ranging from ease of use to low transaction costs, digital currencies are a major benefit for many companies. (Forbes bitcoin) Driving the popularity of these coins is the low transaction costs associated with currencies like bitcoin that are well below the standards of many visa and credit card systems. In addition to the lower costs there is also a great degree of anonymity and thus security in such currencies. These currencies leave no digital trial as visa and credit cards do and so identity theft and other compromises regarding personal information are not a concern. In this respect, cryptocurrencies are almost indistinguishable from paying in cash. This security has resulted in growing popularity among both consumers and businesses who enjoy the low risk associated with these currencies.
A number of investors have begun purchasing and trading this coin and there is evidence to suggest that in the future other digital currencies will join it. Litecoin is the best candidate for this as it has gained a reputation as being the silver to bitcoin’s gold. Though it enjoys respect it has not yet attained widespread adoption by investors though it is the most successful of all the altcoins. Other plausible competitors for bitcoin include dark coin and nextcoin which have also gained greater recognition among speculators. Other cryptocurrencies that have been growing in popularity include dogecoin and reddcoin, however, these are not meant to directly compete with bitcoin and are mostly used as a tipping devices for various online writers and bloggers. These are predominantly used on social media services and do not have the same potential for substantial increases in value due to their extremely high levels of production and inflation. These are however being adopted by a growing number of businesses and have been contributing to the growing popularity of cryptocurrencies by members of the general public. Further evidence of the growing acceptance of cryptocurrencies can be found in the latest report from the Sveriges Riksbank – the Swedish Central Bank- that clearly stated the benefits of these digital currencies. The positive views espoused by the Swedish Central bank are especially prevalent in the following quote from the report: “It can contribute to meeting new payment needs and to making payments cheaper and more secure. Those who choose to use a particular payment service can be expected to do so because it gives them added value in relation to other payment services. This also applies to virtual currencies, which can for instance make some cross-border payments simpler, faster and cheaper.
Another advantage is if the payer does not need to share sensitive information, such as card number or bank account number, with the payee.”In addition to the growing popularity online and among the financial elite and various speculators, cryptocurrencies are beginning to gain traction among a growing number of average people. Today it is possible to access various cryptocurrencies at ATMs around the world. Although they are not in every city and cannot provide access to every altcoin, they are nonetheless a strong indicator of what is to come. Millennials are an extremely important factor in the growth of digital currencies
In conclusion, cryptocurrencies are to become a major force in the financial world and businesses will necessarily have to accommodate this new trend. There is a multitude of platforms and software systems that are built specifically to facilitate the use of these new mediums of transactions that management of all businesses will need to familiarize themselves with in order to remain relevant. From simple tipping on social media to access at ATMs cryptocurrencies are moving into the mainstream and will remain so for the foreseeable future.