— In the 1990s, many attempts were made at creating digital currencies using centralized control, but they all failed for various reasons.
— In late 2008, Satoshi Nakamoto developed a peer-to-peer cash system, which he called Bitcoin. This was the first time someone was able to build a secure, decentralized digital cash system.
— Satoshi Nakamoto’s system also prevented double spending, traditionally something that only a centralized server could accomplish. Nakamoto’s innovation became the foundation of cryptocurrency.
— A decentralized network operates on a system of checks and balances, where every entity within the network checks to see there is no attempt to spend the same currency twice. No one thought it was possible to reach consensus without central authority, but the emergence of Bitcoin proved it was achievable.
As a decentralized currency, Bitcoin uses the peer-to-peer network and blockchain technology to issue currency, process exchanges and verify transactions. This makes it free of government interference or manipulation, unlike a fiat currency, which is controlled by a nation’s central bank.
Bitcoins are created by the mining process at a current rate of 25 Bitcoins every 10 minutes. The number of Bitcoins in circulation will be capped at 21 million, which is expected to be reached in 2140. The downside to cryptocurrency exchange is that the value of the currency is entirely dependent on demand from investors, and if the market drops, the value of Bitcoin drops as well.
Additionally, cryptocurrencies don’t represent debt, as money can in traditional banking systems. It is hard currency; as valuable as holding gold coins. However, most cryptocurrencies have set a limit on the supply of their tokens. As mentioned, Bitcoin has set their volume at 21 million.