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Cryptocurrencies Explained

Bitcoin was the first cryptocurrency, launched in 2009. All we know about the inventor is a name – Satoshi Nakamoto – but who the person or persons behind that name is, is the matter of much speculation.

Since then, many other cryptocurrencies have been launched, some more successful than others; bitcoin remains the best known and most successful. These other cryptocurrencies are collectively known as ‘altcoins’.

Cryptocurrencies use a protocol for storing data and exchanging it, called the blockchain. Transactions (sending bitcoins) are grouped into blocks and blocks are linked together to form the blockchain, a public ledger of all the currency's transactions. This it doesn’t live on a central computer somewhere – instead it is distributed across many different computers around the world which form a network.

The advantages of this are that nobody controls the currency. Unlike physical ‘fiat’ currencies which are controlled by the central bank of the country that issues them, eg the Bank of England in the UK or the Federal Reserve in the US, there is no clearing house for cryptocurrency transactions. That means transferring the money anywhere in the world is easier and faster, and has lower fees.

The magic of the protocol prevents the same piece of property existing in more than one place at a time – so you can’t spend a bitcoin more than once.

Digital coins such as bitcoins are created by computers running software to solve complex maths problems – known as mining. Read more about mining here.

Other Cryptocurrencies

Bitcoin is the cryptocurrency that everyone has heard of, and the two terms are often used interchangeably. Certainly it’s the biggest of the lot with the largest user base and market capitalization.

Many other cryptocurrencies have been invented since bitcoin burst onto the scene. Some have established strong footholds of their own, others have surged then faded away. Collectively they are known as altcoins.

The second biggest cryptocurrency is Etherium (ETH) with a market value about half that of bitcoin. Other altcoins that are going strong include: Litecoin (LTC), Zcash (ZEC), Ripple (XRP) and Monero (XMR).