Cryptocurrency is a form of digital money that is designed to be secure and, in many cases, anonymous.

It is a currency associated with the internet that uses cryptography, the process of converting legible information into an almost uncrackable code, to track purchases and transfers.

Cryptography was born out of the need for secure communication in the Second World War. It has evolved in the digital era with elements of mathematical theory and computer science to become a way to secure communications, information and money online.

The first cryptocurrency was bitcoin, which was created in 2009 and is still the best known. There has been a proliferation of cryptocurrencies in the past decade and there are now more than 900 available on the internet.

What is it?

A digital currency, used to make payments of any value without fees. It runs on the blockchain, a decentralised ledger kept running by “miners” whose powerful computers crunch transactions and are rewarded in bitcoins

Who invented it?

Satoshi Nakamoto, a secretive internet user, invented bitcoin in 2008 before it went online in 2009. Many attempts to identify Satoshi have been made without conclusive proof

What’s it for?

People see value in money free from government control and the fees banks charge; as well as the blockchain, to verify transactions. Bitcoin has been seen as a tool for private, anonymous transactions, and it’s the payment of choice for drug deals and other illegal purchases

Is it worth anything?

Yes. As of July 2017, there were around 16.5m bitcoins in circulation. In March 2017, the value of a Bitcoin, at $1,268, exceeded that of an ounce of gold ($1,233) for the first time.

What is Bitcoin Cash?

In August 2017, the blockchain forked to support another cryptocurrency, Bitcoin Cash, which is optimised slightly differently. People who held Bitcoin received an equal value of Bitcoin Cash following this ‘hard fork’.

What are the most common cryptocurrencies?

·        Bitcoin: Bitcoin was the first and is the most commonly traded cryptocurrency to date. The currency was developed by Satoshi Nakamoto in 2009, a mysterious figure who developed its blockchain. It has a market capitalisation of around $45 billion as of July 2017.

·        Ethereum: Developed in 2015, ethereum is the currency token used in the ethereum blockchain, the second most popular and valuable cryptocurrency. Ethereum has a market capitalisation of around $18bn as of July 2017. However, ethereum has had a turbulent journey. After a major hack in 2016 it split into two currencies, while its value has in recent months reached as high as $400 but crashed briefly to as low as 10 cents.

·        Ripple: Ripple is another distributed ledger system that was founded in 2012. Ripple can be used to track more kinds of transactions, not just of the cryptocurrency. It has been used by banks including Santander and UBS and has a market capitalisation of around $6.3 billion.

·        Litecoin: This currency is most similar in form to bitcoin, but has moved more quickly to develop new innovations, including faster payments and processes to allow many more transactions. The total value of all Litecoin is around $2.1 billion.

Why would you use a cryptocurrency?

Cryptocurrencies are known for being secure and providing a level of anonymity. Transactions in them cannot be faked or reversed and there tend to be low fees, making it more reliable than conventional currency. Their decentralised nature means they are available to everyone, where banks can be exclusive in who they will let open accounts.

As a new form of cash, the cryptocurrency markets have been known to take off meaning a small investment can become a large sum over night.

But the same works the other way. People look to invest in cryptocurrencies should be aware of the volatility of the market and the risks they take when buying.

Because of the level of anonymity they offer, cryptocurrencies are often associated with illegal actvity, particularly on the dark web. Users should be careful about the connotations when choosing to buy the currencies.

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History of Bitcoin: The journey of a virtual currency

The biggest thing to hit the global market since the invention of currency is the word “Bitcoin”. What started merely as an alternate electronic payment system soon became the seventh wonder of modern economy. But while most of us are following the ups and downs of the Bitcoin market, most of us probably don’t know everything about its history. So let’s look at how it all started.

It all started with “a paper” – October 2008

Satoshi Nakamoto (which may be a pseudonym for a group of people) published a paper revealing a breakthrough. The paper described a peer-to-peer electronic currency system that used software code to authenticate and protect transactions. The idea was to remain anonymous from any centralized bank or government authority.

The journey begins – January 2009

As Bitcoin started its journey, many began to voice theories about why it was created in the first place, and many views were brought forth at the time. Most of them stated that it was simply a response to the global financial crisis, which was a vital concern during that period.

An appetite for Bitcoin – May 2010

The famous ‘Bitcoin Pizza Day’: the day when the Internet witnessed the first real-world transaction with cryptocurrency. On 22nd May 2010, programmer Laszlo Hanyecz announced on the Bitcoin Talk forum that he would pay 10,000 BTC for two Papa John’s pizzas. At the time, this amount of Bitcoin was worth $25. A fellow forum user accepted the challenge and the pizzas were delivered to Hanyecz. These pies quickly became likely candidates for the most expensive pizzas of all time: at Bitcoin’s all-time high in December 2014, the pizzas would have been worth an eye-watering $11.47 million.

Safety concerns – July 2011

Bitcoin’s growth quickly attracted the attention of criminals. Question marks were raised when several Bitcoin accounts started getting hacked and were found empty. People immediately started to think that Bitcoin and other virtual currencies were just as vulnerable as fiat currency.

Going legit, putting everything aside – July 2012

By July 2012, Bitcoin was up and running, but still hiding in the online shadows. At the time, the cryptocurrency was largely used to purchase illegal items at dark web-based black markets. But, on the other side, some startups were paving the way for Bitcoin’s legitimacy by boosting a new trading environment. One of the biggest names born during this period was Silicon Valley startup Coinbase.

The market got bigger and bigger – April 2013

In the beginning of 2013, the Bitcoin market was skyrocketing, and by April Bitcoin’s total market cap surpassed the billion-dollar mark. This was big news for the cryptocurrency ecosystem and for the outside world as well. This helped Bitcoin becoming a global media sensation.

The main reason behind this surge was the boom of the Cypriot economic crisis, part of the overall Euro collapse. People were tempted by a currency that was free from any kind of government regulations. However, it was also obvious at the time that Bitcoin also had a dark side. Silk Road, a perfect anonymous marketplace for controlled substances and narcotics, became extremely popular and a priority target for the authorities.

A new proposal – July 2013

The Winklevoss twins, who owned nearly 11 million dollars’ worth of Bitcoin, brought a new proposal to the table. They wanted to create a stock-like system for Bitcoin, where any investor could trade cryptocurrency. The plan was to have an exchange-traded fund to track a basket of stocks, or in this case Bitcoins. It was a comprehensive attempt to protect digital money from regulatory questions and enforcement actions. At the same time Mt. Gox turned into the world’s largest trading exchange for Bitcoin.

Stakes were high – September 2013

By September 2013, services like SecondMarket changed the ecosystem once again: Bitcoiners were now able to buy shares of red-hot private companies like Twitter. And there was also betting on the future price of Bitcoin provided by the Bitcoin Investment Trust.

Say goodbye to Silk Road – October 2013

FBI agents arrested a 29-year-old man named Ross Ulbricht, accusing him of being the mastermind of the Silk Road marketplace. Silk Road, a Bitcoin black market that began operating in 2011, was a deep web online marketplace where substances like marijuana, LSD and prescription pills were traded in large amounts.

Bitcoin’s anonymous nature was the main advantage exploited by drug dealers, and it made it harder for law enforcement agencies to find any trace of the operation, let alone shut it down. It was a hard task, but the authorities eventually managed to end Silk Road’s winning streak.

First Bitcoin ATM ever appears Vancouver – November 2013

On one end, the Bitcoin community was being threatened by security questions; on the other hand, the world’s first Bitcoin ATM started operating at a trendy coffee shop in Vancouver, British Columbia. The ATM used a barcode scanner and hand scanner to confirm the users’ identity. Users could transfer funds from a virtual wallet to their smartphone. To prevent money laundering and other types of fraud, the maximum transfer amount was limited to $1,000 a day.

Regulators took Bitcoin into consideration

On November 18th, at a Senate hearing, United States federal officials shared information about the real benefits of digital currency, despite all the avenues provided for money laundering and illegal activity. It was a clear indication that the Bitcoin revolution was starting to attract the attention of the government.

Value surpassed $1000 – January 2014

At this point Bitcoin was probably well beyond Satoshi’s wildest dreams, as the market price touched the $1000 mark. The total Bitcoin market was worth more than $7 billion. With all the questions pointed at the Bitcoin community, cryptocurrency was running at its own pace and reaching all kinds of landmarks. Specialists predicted the market to touch the $1000 mark and it did.

Time for some correction – February 2014

Bitcoin users enjoyed a happy run while it lasted, but the virtual technology was bound to balance out at some point. The market was faltering slightly and some major hiccups followed the trend. Apple officially banned Bitcoin apps from their App store. Mark Karpeles, ex-CEO of collapsed exchange Mt. Gox, resigned from the Bitcoin Foundation and Silk Road 2.0 was hacked. It was stated that about 4,000 BTC were lost, which was about $400 million according to the market price at that time.

Time to boost adoption – May 2014

At this point the market price was well below the $1,000 mark reached in January. But there were some positives as Circle launched world’s first Bitcoin bank. It was a revolutionary step with the help of the virtual currency technology. Features like zero percent deposit fee or maintenance of full reserves were the new trends in the market. Dish network became the biggest merchant to accept Bitcoin payment through Coinbase.

Still showing volatility – July 2014

The Bitcoin market still remained volatile with the price fluctuating consistently. But the community was getting bigger each day, and new members were joining and adopting Bitcoin. Services like Newegg.com started accepting cryptocurrency, opening a whole new dimension for Bitcoin users. BitPay announced new offer to provide unlimited transactions, instant conversion from BTC to USD and daily bank deposits. Bitcoin was still the talk of the town when DELL decided to accept digital money as a payment option.

Support on the way – September 2014

By the time September arrived, it was clear that Bitcoin had become a global sensation. PayPal announced their decision to integrate Bitcoin through Braintree. They partnered with BitPay, Coinbase and GoCoin. Bitcoin users were about to get a taste a decentralized eBay through OpenBazzar Beta 1.0 launch.

Another strong end – December 2014

Bitcoin ended another year on a positive note, not from a market price point of view, but from an adoption perspective. Microsoft decided to join the Bitcoin community through BitPay. Although Silk Road 2.0 was shut down, it paved the way for many other marketplaces for Bitcoin users.

Slow start – January 2015

It was a slow start of the year for Bitcoin in terms of market price, at least when compared to 2014. Microsoft planned to take their Bitcoin program onto the global stage. Bitstamp suffered a major setback as $5 million worth of BTC were reportedly stolen during a hack. The Bitcoin Foundation planned a series of events to boost core development process. UK banks raised their voices to support Bitcoin while Europe’s biggest payments processor Ingenico adopted the world’s most famous cryptocurrency.

Bitcoin technology revolution – March 2015

At this point, global companies were more interested in Bitcoin’s technology – the blockchain – than in Bitcoin itself. They recognized the blockchain as being a technology with vast potential to completely change the global financial and networking community. IBM decided to study Bitcoin’s technology and Intel announced their plan to further explore the blockchain.

Time for some change – June 2015

The Bitcoin market seemed to have a steady flow in 2015, but a discussion was born among Bitcoin’s team of core developers. Gavin Andresen put out a proposal to increase the block size limit, allowing Bitcoin’s network to process a higher amount of transactions in the same period of time. The proposal divided up the community and Andresen decided to act by creating BitcoinXT. Also, the blockchain tech continued to be praised by global groups like Santander and Barclays.

Searching for a brighter future – August 2015

There was a lot of chatter about Bitcoin’s future after the market price plunged from the $1,000 mark. But as time passed by, people realized that Bitcoin is more about innovation than about profit. Amsterdam, for instance, became Europe’s leading Bitcoin community in the eyes of many experts, but London has also expressed their plans to become a global Bitcoin hub. So, apart from some market hiccups, the future of Bitcoin looks pretty promising as of now.

Bitcoin has come a long way since it began its journey back in 2008, and it certainly has had its difficulties along the way. But that didn’t stop it from establishing a global community. One thing is for sure: with a huge market already in place, Bitcoin will be a part of the global economy and it will make way for a completely new financial era.

So You Want to Invest in Bitcoin: Here's What You Should Know

Earlier this year the U.S. Securities and Exchange Commission rejected a bid by Tyler and Cameron Winklevoss, the twins infamous for claiming that Mark Zuckerberg stole the idea of Facebook from them while they were undergrads at Harvard, to launch a bitcoin-based ETF (exchange-traded fund). The decision from the SEC came nearly four years after they filed for regulatory approval. In the immediate aftermath of this news, the price of bitcoins, which had nearly tripled over the last year, significantly dropped to less than $1,000.

Although other bitcoin-based ETFs are awaiting approval, and this decision did not directly affect their status, the wording of the SEC ruling did not initially appear to bode well for the prospects of bitcoin-based exchanges anytime soon.

The SEC determined that the proposed bitcoin ETF failed to meet these standards because the markets for bitcoins were unregulated. Of course, the primary problem for future bitcoin-based ETFs is that by their very nature, bitcoins will always trade on an unregulated market. It was surprising then, when just a couple of months later on April 24th, the SEC agreed to review its decision on the creation of a bitcoin ETF. In the four months since the SEC's decision to review its earlier rejection, bitcoin prices have rallied an amazing 163%.

What is bitcoin?

Bitcoin is a digital payment system with no intermediaries or banks; it was invented by a person or group using the alias Satoshi Nakamoto, and released as open-source software in 2009. The U.S. Treasury has categorized it as a decentralized virtual currency though some believe it is best described as a "cryptocurrency." OxfordDictionaries.com helpfully defines cryptocurrency as "a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank."

Bitcoin uses blockchain technology to record its transactions. Essentially, the blockchain is a publicly distributed ledger for certain financial transactions. It is currently mostly used for bitcoin, but many believe it could be used in a wide variety of financial applications in the future.

As used in bitcoin, blockchain is a public ledger of all bitcoin transactions that have ever been made. When a transaction is completed, it is recorded on a new "block." When the block is full of such transactions, it is added to the end of the "chain" in sequential order, and a new block is created. Full blocks are a part of the blockchain's permanent database. Each node -- a computer connected to the bitcoin network for the purpose of verifying transactions -- automatically gets a downloaded copy of the blockchain upon joining the network. The blockchain records information like the time and amount of each transaction, but it does not store any personal information on the parties involved.

Even industry experts who believe that bitcoin is not a sustainable monetary unit think blockchain technology could radically change the way financial transactions are facilitated in the future. The benefits of this system are that it is transparent, secure, and streamlined, so that there are less parties involved in facilitating each and every transaction.

Even as the existing payments system in developed countries becomes ever more convenient and secure, the space is still littered with middle parties taking a small amount from each transaction. These players include payment processors, payment networks, issuing banks, and acquiring banks. The dream of bitcoin and other monetary systems based on blockchain technology is for payers to be free of these inherent costs of exchanging currency for goods.

For a much more detailed explanation of what bitcoin is, where bitcoins come from, and how they work, please check out fellow Fool Matthew Frankel's article on this subject from earlier this year, "What Is Bitcoin?"

The potential problems with investing in bitcoin

There are a few primary concerns surrounding bitcoin that potential investors should be aware of. First, it is not backed or regulated by the good faith of a government or other entity. This stands in stark contrast to the dollar, yuan, pound, and other forms of currency used around the globe. So, many people view bitcoin as something akin to Monopoly money, because it is neither a fiat currency nor is it based on something of tangible value like gold. In other words, a bitcoin is worth exactly what people perceive its worth to be. While, in a sense, this is true of any currency, the value of a bitcoin is much more fickle than other forms of currency because of its unregulated nature.

Second, bitcoins are not traded on Wall Street. They cannot be bought or sold through a brokerage. Instead, one must set up a bitcoin "wallet," which can probably best be thought of as a bank account exclusively for bitcoins. Once this account is set up, its holder can link to a traditional banking account and use those funds in local currency to buy and sell bitcoins.

If this process sounds a bit cumbersome, it is. This means bitcoin is much less liquid than traditional equities, creating more volatility and wild swings. For instance, in the past month alone, the value of one bitcoin fell from prices over $2,500 to under $2,000 before regaining all-time highs over $3,400. Those are incredibly volatile swings within one month -- something virtually unheard of with any other type of currency!

Finally, the unique way of buying and selling bitcoins not only contributes to its illiquid nature, but has also contributed to higher rates of fraud and theft through uninsured bitcoin exchanges. While these problems were far more prevalent in years past, it should still be mentioned that none of the bitcoin exchanges have yet established a long business track record.

This brings us back to the SEC's review of the Winklevoss twins' proposal to launch a bitcoin-based ETF. Such an ETF would have solved at least some of these problems. It would have made trading bitcoin much more liquid, and assuaged many investors' fears of potential theft. Viewed in this light, bitcoin's massive sell-off on the initial news of the rejection and subsequent rise on the appeal of the decision makes a lot of sense.