Satoshi Nakamoto is the pseudonym of the person who created the bitcoin cryptocurrency in 2009, as a response to the great financial crisis that shook the world's most famous stock markets the year before, and which showed all the weaknesses of the traditional financial system.
More than ten years later, cryptocurrencies have taken the world by storm with the potential to completely evolve money as we know it today, which has transformed over time, after the exchange of goods and products, into coins, then into paper, and then into widespread bank cards.
Cryptocurrency, by simplified definition, are digital currencies that are created in the form of computer codes relying on cryptography that provides anonymity, security during transactions, control. Thousands of computers with special software compete with each other to create cryptocurrencies, confirming transactions and releasing units into the system, creating new value.
Efforts to create digital currencies that will not be affected by the policies of the world economy have lasted for decades, but one of the reasons for the unsuccessful attempts lies in the fact that it was not possible to avoid a third party - an intermediary, who verified and enabled transactions.
It was with the appearance of a mysterious person or persons under the alias Nakamoto, whose identity/s have never been established, that the Bitcoin "white book" was created, the key foundation of the system whose purpose is to exclude the rules imposed by the banks.
Bitcoin has since then become and remains the most famous and valuable cryptocurrency, even though their figure has reached five digits.
(De)centralization
When the emergence of bitcoin solved the mentioned problem of intermediaries in transactions, cryptocurrencies got their main property - decentralization.
Then, and to a large extent still today, the financial world is dominated by a centralized system.
This means that money is centralized, in such a way that central banks are mostly located in the central part, which stamp money, control flows and determine the value of money, and thus everything revolves around them. A system in which there is one authority that oversees all others.
This is exactly the system bypassed by cryptocurrencies through a "direct" (peer to peer) network.
Such a network is composed of almost countless nodes, where each node represents a person, that is, his peer to peer software that he makes available to the system. This node is formed in direct contact by different users who use similar software, but they are also connected to all other users, regardless of where they are. Unlike a centralized network, a system set up like this always exists and functions, regardless of the case that a node (software) breaks/disappears, because no human being can threaten the set up network.
By the way, Nakamoto designed the system so that the total number of bitcoins will not exceed 21 million, of which about 90 percent have already been mined. Since about two million have been irretrievably lost, the same amount is left to be mined, which means, if we take today's value of one bitcoin, the total potential value of all exceeds 500 billion euros.
Blockchain and miners
In a centralized system, whoever is in charge (at the center) organizes the rules and maintains the system. However, in a decentralized system, everyone works together to make the system work, and it is maintained by "miners" through the use of specialized hardware, which they provide as a resource to maintain the open source network. As a maintenance reward, miners receive Bitcoin, and the reward is proportional to the strength of the hardware they use.
All this happens in the technology known as "blockchain".
Blockchain represents one big digital ledger with a huge database where all information is stored. Such a database is constantly growing because all transactions are remembered and recorded regardless of how closely they occur. Every node (hardware) monitors every action of the user, so it is impossible to carry out any manipulations. Information, that is, the database, is supplemented in blocks that are arranged chronologically, and connected together in a cryptographic chain (chain), which cannot be changed or deleted.
The obligation of each node (hardware) in the network is to validate information during transactions so that it can be passed on, so that no one abuses the system through false addresses and values. The people who do this are not miners, but are called "nodes" and use software that is adapted to the validation and transaction database, in order to know who can send how much and to whom.
Then there are the miners who, in a way, scramble around the validated transactions, which are in the digital space, in order to be the first to pack them into the aforementioned blocks through cryptographic hash functions. The first miner to pack the next block and confirm the transaction (validator nodes) awards himself 6,25 bitcoins (BTC currency). Such an approach is called "proof of work". It should be noted that the reward for the first block created is halved every four years, so it is estimated that the last bitcoin will be mined in 2140.
Where are cryptocurrencies kept?
Cryptocurrencies are stored in bitcoin wallets. In the decentralized world of cryptocurrencies, the account is not linked to personal data as with banks, but to an address which is actually a private key, which essentially represents an alphanumeric string of characters, i.e. a long code. That private key enables bitcoin transactions, as well as ownership of them. Therefore, the owner of a bitcoin is not a person with a first and last name, but one who has a specialized private key.
Precisely because the ownership of bitcoins is secured by a private key, a large number of bitcoins have been lost forever, because some simply forgot the code.
The private key gives users anonymity, which many point out as an advantage of cryptocurrencies, but this "advantage" has also been used by many people on the other side of the law. Bitcoins experienced expansion precisely among criminal clans that used anonymity to trade in illegal weapons and activities on the black market on the "Silk Road" site. However, after the crash of that market in 2013, bitcoin continued to grow and thus denied many allegations that its sole purpose was related to criminal activities.
Ethereum
In addition to Bitcoin, there are more than ten thousand cryptocurrencies in the world. Creating a new cryptocurrency is essentially not difficult, because they are all based on an open system (open source), which means that it is enough to change a few lines of the source code. But it is much more difficult than that to make a valuable cryptocurrency, because although many use more advanced technology than bitcoin, which is the most primitive, it is estimated that the value of more than 60 percent of total cryptocurrencies belongs to bitcoins.
Certainly next to bitcoin, the most famous and valuable cryptocurrency in the world is ethereum, and its ether currency is worth about two thousand. This currency became more widely known to the Montenegrin public when its initial founder, Vitalij Buterin, recently visited Podgorica at the invitation of the previous Minister of Finance, Milojko Spajić.
Ethereum uses a different system on its own blockchain technology compared to Bitcoin, so it is almost impossible to mine the two cryptocurrencies with the same hardware.
The key difference is that ethereum's primary purpose is not digital money, but an infrastructure platform that offers a variety of services.
So instead of you building your own expensive infrastructure and collecting resources trying to solve complex equations to verify transactions, those resources are provided by ethereum so that they can make any service on the blockchain, in principle you have an idea (smart contract), I implement it in work (with the help of infrastructure and machines). In this way, electricity is not consumed to the extent that it is the case with bitcoins.
Ethereum, unlike bitcoin, goes a step further, because it is not limited by anything (there are 21 million bitcoins). The approach used by ethereum is called "proof of stake", so a person can mine or confirm transactions in a block based on how many coins they own. The more coins a person holds, the more “mining power” they will have, a reward of three ethers awarded when a block is added to the blockchain, which will never be halved like Bitcoin. In order for your transaction to be successful, you must still have a certain amount of ether, which you give as a pledge.
With the "proof of work" principle, earnings are proportional to the strength of the hardware that represents your work, and with the "proof of stake" principle, it is proportional to the amount of coins that have already been acquired, which, for example, corresponds to the distribution of profits among the shareholders of a company, where the profit depends on the number of shares .
Thus, the value of bitcoin is one that is somehow understood and is inseparably connected with other users, while the value of ethereum is obtained on an infrastructure platform that allows other people to create their services and products drastically easier than if they were working independently.
The most famous service of the ethereum network is the creation and construction of "smart contracts" (smart contracts) that allow users to rewrite real things from life into program codes with the help of the ether currency, in order to automate and simplify their monitoring. A smart contract allows users to exchange almost anything of value: stocks, money, real estate, etc.
Minister Spajić previously announced that in this area, Montenegro could establish a new pillar of the economy, through the creation of an arbitration court that should assist in the execution of smart contracts, and which, as he said, would be among the best in the world.
How much electricity is that?
Cambridge scientists have estimated that Bitcoin's annual consumption is 121,36 terawatt hours (TWh), which is more electricity than Argentina consumes, the BBC reported.
This means that if all bitcoin miners were to be combined into one country, such a country would be among the top 30 largest consumers of electricity in the world.
Estimates say that each bitcoin transaction consumes about 1.173 kilowatt hours (kWh) of electricity.
For the sake of comparison, which is an order of magnitude, the average Montenegrin household consumes between 400 and 600 kWh per month.
Consequently, cryptocurrency mining is also a major threat to the environment, and is therefore prohibited by law in many countries, which has not prevented the Chinese for years from developing entire bitcoin mining hardware plants in addition to rice fields.
Token
Recently, there has been more and more talk about tokens, which are just one of the many spectrums of services provided by cryptocurrencies.
They do not have their own infrastructure, but use (parasitize) the blockchain of some other cryptocurrency, mostly ethereum. Tokens were introduced in order to develop many businesses that do not have basic capital, on a similar principle that is known as a crowdfunding platform, with slight differences.
In practice, it works in a way that someone lends you money (token) in order to develop their own business idea with the promise that you will return that money (token) when you successfully implement the project. In case that happens, you return the money (token) to the investor, which is then worth significantly more than when it was borrowed, and which can be used exclusively on your successful business model.
Such a setting was used by many in order to cheat the confidence of investors. One of the most famous ponzi schemes "One coin" generated four billion dollars worth of money in this way, and the applications "TRX" and to some extent "CheilWorldwide" operated on a similar principle, which recently became non-functional, and whose business model was based on " caught" and many Montenegrin citizens.
Variable value
Bitcoin's value is based on the relationship between price and demand and therefore changes every five minutes, which is why its measure of value is also its biggest flaw. Bitcoin today is worth about 28,6 thousand euros, while at the historical maximum of the previous year it was worth more than 60 thousand dollars.
However, as a custodian of value, bitcoin has proven itself well in the long run, because it generally grows, and therefore its owners keep it for a long time. The biggest advantage of bitcoin is that people use it as a means of exchange, because it is easily and quickly transferred, and every value is recorded, and therefore it is impossible to counterfeit it.
Bitcoin has been accepted as a means of payment by many well-known global companies, such as Microsoft, PayPal, Starbucks and others. A well-known case of buying bitcoins in Montenegro happened in March of the previous year, when the first cow was sold through the digital platform Seljak.me and paid for with this currency.
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