What is Cryptocurrency? Logically, it can be said that it is the Money of The Future. In this era, cryptocurrency has become a global phenomenon known to most of the people.
After having a lot of research and collecting beneficial data about cryptocurrecy. In this post, we are going to elaborate to you all that you need to know as a novice about cryptocurrency and its share in the global economic system.
- Cryptocurrency is an internet-based medium of exchange at a higher level that uses cryptographical functions to conduct financial transactions. Cryptocurrency influences blockchain technology to gain transparency, decentralization, and immutability.
- It can be shared directly between the two parties using private and public keys. It can be done with minimal processing fees, allowing users to avoid excessive charges by traditional financial institutions.
- The most unavoidable feature of a cryptocurrency is that it is not controlled or regulated by any central authority. It has the decentralized nature of the blockchain that makes cryptocurrencies theoretically antidote to the traditional ways of government control and interference.
Let’s go through the complete analysis of cryptocurrency from origin to fostering:
1. What is cryptocurrency?
If you wanna have a simple definition for cryptocurrency, you will find it to be just limited entries in a database that no one can change without fulfilling certain conditions. Yeah, it can be seemed to be ordinary, but believe it or not. This is how you can define a currency.
Cryptocurrency is a digital payment system or virtual currency that doesn’t rely on banks to verify transactions. It’s a peer-to-peer system that enables anyone anywhere to send and receive payments. It isn’t physical money that is carried around and exchanged in the real world. Cryptocurrency payments exist simply as digital entries to an online database that describes certain transactions. When you transfer cryptocurrency funds, the transactions get recorded in a public ledger file, in a kind of digital wallet.
Cryptocurrency is named after encryption to verify transactions. There is advanced coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledger files. The purpose of the encryption is to provide security and safety to the transfer.
2. How does cryptocurrency works?
A few people know, but cryptocurrencies emerged as a side product of another invention of currency. Satoshi Nakamoto who invented Bitcoin, the first and still most important cryptocurrency, never intended to invent a currency.
He wanted to invent something; many people failed to create before digital cash.
Satoshi‘s invention was to find a way to build a decentralized digital cash system. In the 90’s, there had been many attempts to create a digital currency, but they all failed.
When all centralized attempts failed, Satoshi tried to build a digital cash system without a central entity, it’s a Peer-to-Peer network for file sharing.
To realize the experience of digital cash you need a payment network with balances, accounts, and transactions. That’ll make easy to understand.
In a decentralized network, you don‘t need the server. But you need every single entity of the network to do this job. Every peer in the network must have a list of all transactions to have a check on future transactions. That they are valid or an attempt to double spend.
But how can entities keep a consensus about those records?
If the peers of the network disagree about just a single one, minor balance then everything can be broken. They need an absolute consensus about it. Usually, you need to take, again, a central authority to declare the correct state of balances. But how is it possible to achieve consensus without a central authority?
Satoshi proved it to be possible. His main innovation was to achieve consensus without a central authority. Cryptocurrency is a part of this solution – the part that made the solution fascinating, thrilling and helped it to roll over the world furiously.
3. Blockchain and Cryptocurrency
The transaction is known immediately by the whole network. But it gets confirmed only after a specific amount of time.
Confirmation is a critical concept in cryptocurrency. You could say that cryptocurrency is all about confirmation.
Until the transaction is unconfirmed, it keeps pending and can be forged. As a transaction is confirmed, all is done and it is set in stone. It can‘t be reversed, no longer forgeable, it becomes part of an immutable record of historical transactions of the so-called blockchain.
Transactions can only be confirmed by minors. It is their job in a cryptocurrency-network. They take transactions, stamp them as legit and spread them in the whole network. After a transaction get confirmed by a miner, every node has to be added to its database. Then it becomes part of the blockchain.
For this job, reward with a token of the cryptocurrency is given to the miners. For example, Bitcoins. Since the miner‘s activity is the most important part of the cryptocurrency-system. we should take a deeper look at it.
4. What is cryptocurrency mining?
Since a decentralized network has not any authority to delegate the task, cryptocurrencies require a kind of mechanism to prevent a ruling party from abusing it. If someone creates thousands of peers or spreads forged transactions, the system would get broken immediately.
Therefore, Satoshi set the rule that the miners need to invest some work of their computers to qualify for this specific task. In fact, they need to find a hash – a product of a cryptographic function – which connects the new block with its predecessor. This is called the Proof-of-Work. In Bitcoin, this mechanism is based on the SHA 256 Hash algorithm.
Thus, a miner can build a block and can add it to the blockchain. He as an incentive has the right to add a specific coinbase transaction which provides him a specific number of Bitcoins. This is the very way to create valid Bitcoins.
Bitcoins are created by solving a cryptographic puzzle by miners. As the difficulty of this puzzle increases, the amount of computer power, whole miner invest. There is only a specific amount of cryptocurrency token that can be created in a specific amount of time. This is part of the consensus cannot be broken by no peer in the network.
5. Revolutionary Properties
Simply, Cryptocurrencies are the entries for token in decentralized consensus-databases. They are called cryptocurrencies because the consensus-keeping process is highly protected by strong cryptography. Cryptocurrencies are built on special cryptography. They are not secured by any people or by any trust, but by math. It is more probable that an asteroid might fall on your house than that a bitcoin address is compromised.
6. Properties of cryptocurrency
1) Irreversible: After confirmation, the transaction can‘t be reversed. By absolutely nobody. Not you, not your bank, not the president of the nation, not Satoshi, not your miner, literally nobody. If you send money, it means you sent it. You are the only responsible for it. No one can ever help you if you sent your funds to a hacker or a scammer. If someone stole them from your computer, there is no safety net.
2) Secure: Cryptocurrency funds are digitally locked in a public key cryptography system. Only the owner of the private key can transmit cryptocurrency. Strong digital cryptography and the magic of big numbers make it impossible to break this incredible scheme. A Bitcoin address is one of the security systems.
3) Pseudonymous: Neither accounts nor transactions are connected to real-world identities. You receive Bitcoins on specific addresses, which randomly seems chains of around 30 characters. It is rarely possible to analyze the transaction flow and to connect the real-world identity of users with those addresses.
4) Permissionless: You no need to ask anybody to use cryptocurrency. It‘s just a kind of software that everybody can download for free. Once you have installed it, you can easily receive and send Bitcoins or other cryptocurrencies. No one can forbid you. There is no biding gatekeeper.
5) Fast and global: Transactions are propagated frequently in the network and are confirmed in just a couple of minutes. Since they are in a global network of computers that are completely indifferent to your physical location. It won’t matter if you send Bitcoin to your neighbor or to someone on the other side of the globe.
7. Cryptocurrency: Dawn of a new economy
Having revolutionary properties, cryptocurrencies have become a success. Their inventor, Satoshi Nakamoto, dared to dream it. While any other attempt to create a digital or virtual cash system didn‘t attract a critical mass of users. But Bitcoin had something that emerged enthusiasm and fascination.
Cryptocurrencies are called digital gold. As money promises to preserve and increase its value over time. Cryptocurrency is also a frequent and comfortable means of payment with a worldwide scope. They are private and uncredited enough to serve as a means of payment for black markets and outlawed economic activities.
8. Cryptocurrency list
Bitcoin is the most famous cryptocurrency and most other cryptocurrencies have zero non-speculative impact, investors and users must keep an eye on other cryptocurrencies too. Here we present the most popular cryptocurrencies of today’s world.
Bitcoin is a digital payment currency which is the most preferable today. It utilizes a digital medium of exchange, cryptocurrency. It is a peer-to-peer (P2P) technology to create and manage monetary transactions, opposed to a central authority. The open-source Bitcoin P2P network creates the bitcoins and manages all the bitcoin transactions altogether.
In simple words, Ethereum aims to completely represent how the internet functions. Ethereum’s vision is to create a common “World Computer” – a huge network of many private computers that run various internet applications without the involvement of any third parties.
Whereas Bitcoin functions on proof-of-work, P2P– an energy-zapping and computing-intensive system. Ripple is upheld by a common ledger file managed by a network of independently validating servers that are consistently comparing transaction records.
Ripple uses a shared public database that employs a consensus process between the aforementioned validating servers to ensure integrity.
It is fully decentralized system of cryptocurrency. Litecoin ensures that all the transaction must not confined to a single server, but are available to every single server. Every information is stored in the ledgers cannot be further deleted or modified
Monero features a kind of open-source blockchain that records transactions and creates new units through mining.
The market of cryptocurrency is fastest and wildest. Approximately every single day, new cryptocurrencies emerge, old die, early adopters of them get wealthy and investors lose money. Every cryptocurrency emerges with a big story to turn the world around. Only a few survive the first months, and most are kicked-down and kicked-up by speculators and live on as zombie coins until the last bagholder loses hope ever to see a return on his investment.