What is Cryptocurrency? This question might be one of the most popular searches on Google nowadays. As cryptocurrency market continuously evolves, educating yourself on the key facts about this nascent technology is a must.
29 August, Rainmakrr – We bet there is almost no person in this progressive world that did not hear about cryptocurrency. Cryptocurrency craze has taken over all of the news’ headlines earlier last year when the leading cryptocurrency Bitcoin has surged to the record highs.
But what is cryptocurrency exactly? If that is the question you’ve had in mind, consider yourself in the right place. In this short article, we will discuss the key facts and definitions that are related to the cryptocurrency market.
What is cryptocurrency?
Simply put, a cryptocurrency is a digital or virtual currency that is created to act as a medium of exchange. Cryptocurrency utilizes the special technology called cryptography in order to secure and verify transactions. Digital currency also controls the creation of new units of cryptocurrency via cryptography.
Speaking differently, cryptocurrencies are limited entries in a database, which cannot be altered unless some specific conditions are met. This database is called the Blockchain. We will discuss this soon as well.
History of cryptocurrency: Who is behind it?
In fact, there have been numerous attempts at creating a cryptocurrency during the technology boom times in the 90s. However, most of the firms have failed to do so due to some complications, involving financial obstacles, fraud, and high competition.
Noteworthy, all of those systems have been using a Trusted Third Party approach. This implies that the companies that controlled them verified and assisted the transactions. Then, due to the failure of these companies, the formation of a digital cash system has been considered as something quite difficult to achieve.
This sentiment has been present until early 2009 when an anonymous programmer or a group of them introduced Bitcoin. The person/s responsible for the creation of the cryptocurrency-pioneer went under the alias, Satoshi Nakamoto. Satoshi has described Bitcoin as a “peer-to-peer electronic cash system.”
Satoshi Nakamoto announced his creation on 9 January 2009 on SourceForge:
“Announcing the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority.”
Bitcoin is completely decentralized, which means that there are no servers that are involved in the transaction process. In addition, this implies that there is no central authority that monitors transactions. The concept is very much similar to peer-to-peer networks for file sharing.
What is the purpose of Bitcoin?
One of the key problems that almost any payment network is aiming to solve is double-spending. This issue is widely known as a fraudulent technique of spending the same amount of money two times. The conventional solution for this problem always involved a third party that kept records of the balances and transactions.
Yet, Bitcoin offered a revolutionary method for solving this issue. While a third party authority method carries the lack of privacy and control over your funds, Bitcoin is able to eliminate both of these.
How, you may ask? By using the unique technology called Blockchain.
What is Blockchain?
The Blockchain is a public ledger of all transactions that have ever happened within a network. This information is available for everyone in this network.
Every transaction is represented by a file that comprises the sender’s and recipient’s public keys, or wallet addresses and also the amount of assets transferred. The transaction on Blockchain needs to be signed off by the sender with their private key. Eventually, the transaction is broadcasted in the network, next, awaiting the confirmation.
Here is where the magic happens.
A block in a Blockchain is a complex mathematical problem that is based on a cryptographic technology. As the new block is created, it takes the date from the previous block, thus creating a connection.
Within a Blockchain, miners confirm transactions by solving this cryptographic puzzle. When they do so, they mark transactions as legitimate and spread them across the network. Then, every node in the network adds them to the database. Once the transaction is confirmed, it cannot be altered anymore, as it also becomes irreversible. For solving a puzzle and confirming a transaction, a miner receives a reward and a transaction fee.
What is cryptocurrency use?
Cryptocurrency does not have a broad usage in the payment sector as of now, but it is rapidly developing. For instance, many shops, cafes, and even airports in various countries are moving to accept Bitcoins for their products and services. In addition, you can pay online with particular cryptocurrencies in a number of web-based shops.
However, the most usual use of cryptocurrencies involves investors – retail and institutional ones. People buy cryptocurrencies via cryptocurrency exchanges and then trade them based on their expectations regarding a value of a particular cryptocurrency. This is done with the ultimate goal of gaining profit, just like in trading in Forex and stocks markets.
Ending thoughts on what is cryptocurrency and its history
After reading this short article, you might be well-equipped to start exploring the world of cryptocurrencies. In our next articles, we will cover the basics of cryptocurrency trading and other essential topics related to this market. Stay tuned!
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