A technology that is going to change your life and you should know about it
What is money?
According to some research, the creation of the first metallic coin used as a medium of exchange dates back to the seventh century B.C. in Greece, however, since the emergence of our species, we have already been using objects as a medium of exchange.[i]
A study conducted by Yale University researchers found that even primates can learn how to use currency and understand its exchange value. As such, it is safe to say that currency isn’t only made of paper or precious metals. In fact, currency is about any asset that has a value for its receiver.[ii]
The emergence of the electronic coins and why they are called cryptocurrency
Cryptocurrency is a decentralized and electronic currency, which can be used as a medium of exchange. However, it does not demand a central bank to be issued. The whole process is carried out by means of the code in which the cryptocurrency was generated, a Blockchain (a chain of blocks). This decentralization makes it so that the transactions are free from abusive taxes charged by the financial institutions, as well as free from political and geographical barriers.
There are many kinds of cryptocurrencies, but in this article, we are going to use the Bitcoin as an example. The Bitcoin was created by Satoshi Nakamoto in 2009, which is where the Blockchain originated. The Blockchain is one of the most important technologies of our century, making the Bitcoin one of the most valuable currencies in the world.
The electronic currency or “cryptocurrency” as it is known, received this name because it uses cryptography techniques to generate its transactions, guarantee security to its users and also for the creation of new units of currency.
After all, what is cryptography?
In the dictionary the word is defined as:
f.n. a set of principles and techniques used to cypher writing, make it unintelligible to those who do not have access to the combined conventions; cryptology.
We can say that cryptography is a technique used to hide information in the safest way possible.
How is the value of a cryptocurrency defined?
When we measure a value for a currency, whether it is made of paper or electronic, initially, an analysis of its financial backing is made. The financial backing is the wealth in assets, be it gold, petroleum or other goods that a country has, which serve as a value guarantee to its currency. As the cryptocurrency is electronic, decentralized and there is no direct relationship with governments or financial institutions, its financial backing doesn’t represent the wealth in assets, but it does represent its own foundation.
The Bitcoin was created with a limited quantity of 21 million units, and this control is made to keep the value from plummeting. Something similar happens to gold, which maintains its value due to its scarcity.
As such, we can presume that the financial backing of the Bitcoin is the code in which it was created, the Blockchain (Chain of Blocks), due to its high performance, possibilities and safety. Another great factor behind its growth is the investors, partner companies and the community that uses is as a means of exchange.
Today the Bitcoin operates in the Foreign Exchange, which operates inside the Stock Exchange in US, in China and also in other countries, and its value is quoted in relation to the dollar. At the present time of publication, the value of the Bitcoin was around USD 610.00.
Cryptocurrency Mining
But where are these 21 million BTCs (Bitcoin units)? At the beginning of the article, I explained what is cryptography and how the Blockchain itself benefits from the use of this technique to guarantee safety to its users. During the creation of new units of the currency and the processing of the transactions inside the Blockchain, a process which is the opposite of cryptography happens. This process is called de-cryptography of the blocks or “mining”.
Of these 21 million BTCs, approximately 15 million were already mined. There are different companies and hundreds of users around the world that invest in equipment to mine. These places are known as Mining Farms (farms for mining Bitcoins). These companies and users make use of super powerful computers and devices built to perform only this one task. Each Blockchain has its own mining code (script). The Bitcoin uses the SHA56 script and the installed application in these devices is called the ASIC (Application Specific Integrated Circuit).
Storing your first Bitcoin
Each user of Bitcoin or of another cryptocurrency can manage his or her own account without needing a bank as a middleman, and for this to happen, the creation of a wallet is necessary. In this way, various fees charged by financial institutions are cancelled, making its use even more viable. There are two ways of storing your Bitcoin, online and off-line.
Enterprises such as Blockchain.info offer the creation of wallets online, and its interface is even simpler and safer than the majority of the Internet Banking services around the world. The user can also opt for the purchase of a hardware wallet, which is similar to a pen drive, consisting of a device with a pre-installed security system. It allows the storing of the Bitcoin without needing an online service that may be subjected to hacker attacks and/or malicious users.
There is also another method of offline storage; however, it is rarely used. Each unit of cryptocurrency is represented by a unique and unalterable code; therefore, you can print these codes and keep them in a safe place, and later, to use them, it is necessary to transfer the codes to Blockchain again.
Understand its potential
I must remind you that the Bitcoin has a lifespan of seven years, and during this period the market went through many ups and downs. However, the cryptocurrency remained stable and according to market specialists, it is already possible to predict a great future. Proof of this is the increase of partnerships with great companies like Microsoft, Amazon, PayPal, EBay, and Dell, just to name a few.
Recently, IBM announced the creation of a laboratory destined to research and responsible for the development of solutions using the Blockchain. [iii]
On March 21, 2016, the economist and correspondent of the German magazine Hannes Grassegger published in the Motherboard section of the site Vice.com, the following article:
“I went to a pro-Bitcoin meeting at Richard Branson’s private island”.
I recommend reading this article to all who are interested in cryptocurrency. In it, Hannes Grassegger describes his experience when he was called to the Blockchain Summit, an event where the greatest minds behind the Bitcoin met to discuss, analyze and predict the future of cryptocurrency and own technology. Throughout the text he says the following:
A Dutchman in his 50s, who introduces himself as Marc, wanted to try paddleboarding, so I decided to join him. Marc invests in startups. He flew in from Vancouver. “Why did you come?” I asked him. The trainer positions the board on some calm water for us.
"Bitcoin is gradually turning into a serious thing,” Marc said as he tried to stand on the wobbly board. “Look at who’s here—a president of Samsung, a chief strategy officer of Ernst & Young. Did you hear that Obama’s favorite economist, Larry Summers, has gotten involved with a bitcoin bank? And the founder of Visa?”
In another excerpt, H. Grassegger cites some other names attending the event:
Michael Zeldin - Specialist in money laundering detection
Michael J. Casey - Columnist for the Wall Street Journal
Oliver Luckkett - CEO of Audience Company has in its portfolio, names like Obama, Disney and others.
More: http://motherboard.vice.com/read/bitcoin-blockchain-summit-with-richard-branson-on-necker-island
Curious fact
In 2002 a Marketing Management book was published, which is now considered by the marketing professionals as the Bible of Marketing, written by the renowned authors Kotler and Keller. In this book, they already predicted the electronic currency,
Today we discuss the new currency of trading. In these studies, the system of conventional credit cards tends to go through a revolution. They tend to evolve into smart cards - new generation of smart cards loaded directly from the bank account, and that are capable of storing a large amount of information, protecting them from access by unauthorized persons.
These cards make up part of the concept of electronic (or digital) money, which will become the new trading currency, i.e. the currency in the form of digital bits and bytes. According to studies, the digital money will be like paper money - the bank account balance will be converted to a digital code, stored on a microchip, which can be in a pocket card (smartcard) or on the computer’s hard disk and can be used in transactions as long as those involved (bank, buyer and seller) recognize its value. The internet should be the natural environment in which digital money will develop.
P. 134-135 –Marketing Management, Kotler e Keller.
Straight to the point
The creation of the Blockchain technology is one of the most important technological advances of our age.
The use of cryptocurrency is a reality and soon it will become just as common as the use of credit and debit cards. The benefits and possibilities that technology will bring in the coming years are immeasurable.
I hope that you liked this article. My objective with this article and others is to promote the use of technology in Latin America and also to make educational content available in Portuguese, Spanish and English.
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[i] http://super.abril.com.br/cultura/como-surgiu-o-dinheiro
[ii] http://www.nytimes.com/2005/06/05/magazine/monkey-business.html?_r=0
[iii] http://www.ibm.com/blockchain/