Abstract and yet very much impactful, the rise of cryptocurrencies has made waves in many circles. Though Bitcoin is the most well-known cryptocurrency and the one that has achieved the most mainstream success, others such as Ethereum have become popular as well. Since its inception, many companies have begun to incorporate cryptocurrency into their businesses. Developers Baroness Mone and Douglas Barrowman have taken to using Bitcoin for pricing their upscale Dubai apartments. Some of these apartments are being advertised at 30 Bitcoins—the equivalent of over 130,000 US dollars at time of writing.
So, given the fluctuation of cryptocurrency, why would businesses want to rely on Bitcoin when it comes to doing business?
The short answer is that they don’t. Anybody purchasing an apartment will have to convert their Bitcons to dollars in order to complete the transaction. Still, the exact benefits of using Bitcoin in transactions are somewhat murky for many, with Mone’s main justification being its popularity.
“The Bitcoin model trades half a million pounds a day,” said Mone. “We cannot ignore it.”
If you’re not entirely sure how cryptocurrency works, you’re not alone. However, a good place to start understanding the workings of cryptocurrency is understanding that the investment process is more like trading stocks than anything else. The value of different currencies fluctuate overtime, both appealing to more niches in the market and undermining Bitcoin’s previous dominance.
Digital currencies have been attempted before, but Bitcoin was the first to do so successfully. Developed by an individual operating under the pseudonym Satoshi, Bitcoin operates with a decentralized network reliant on peers to regulate transactions.
As there is no central entity, such as a bank, controlling Bitcoin, Bitcoin miners perform one of the most important jobs in the network. Every time a transaction takes place, it needs to be validated and added to what’s called the blockchain, a complete record of every balance and transaction in the network. It is the job of the miners to find a hash that connects every block in the blockchain together. The reason for this system is to prevent any one entity from controlling the process, making peers necessary for it to function. Miners are entitled to Bitcoins for their work in supporting the network, making mining the only way to generate new currency.
While other cryptocurrencies may vary in their methods, they inevitably share many elements with Bitcoin, namely the cryptography used to secure transactions (hence the “crypto” in “cryptocurrency”), irreversible transactions, and lack of permissions required to use the software.
The critical mass of users is necessary for a strong cryptocurrency, the reason why Bitcoin remains the most successful. Monitoring usage is one of the reasons why cryptocurrencies has proved so successful, and many strive to invest in different varieties. Some can prove successful, but others may die out in the opening months if there is no interest, with any investments lost completely.
The cryptocurrency market is doing very well, with more and more investors and businesses incorporating it into their ventures. As with any investment, there are inherent risks, but many financial portfolios have been bolstered by cryptocurrencies, and the benefits of instant and secure trade have not been lost on online communities.