What are cryptocurrencies?
A cryptocurrency is a medium of exchange just like your normal everyday currency such as the USD but designed for the purpose of exchanging digital information through a process known as cryptography.
The first ever-successful cryptocurrency emerged from the invention of
Bitcoin, by Satoshi Nakamoto. This was then followed by the birth of other
types of cryptocurrencies competing against Bitcoin.
How Do Cryptocurrencies Work?
The main reason why cryptocurrencies are such in demand right now is that
Satoshi Nakamoto successfully found a way to build a decentralized digital cash
system.
What is a decentralized cash system?
A decentralized cash system is the network is powered by its users without
having any third party, central authority or middleman controlling it. Not the
central bank or the government has power over this system.
The problem with a centralized network in a payment system is the so-called
“double spending”. Double spending happens when one entity pays the
same amount double. For instance, when you purchase things online, you have
to incur on unnecessary and expensive transaction fees. Usually, this is done
by a central server that keeps track of your balances.
This is most commonly known as the Blockchain Technology. Cryptocurrency is obtained from Cryptography, which refers to the consensus-keeping
process secured by powerful cryptography.
Blockchain technology functions in managing and maintaining a growing set of
data blocks, and this is by using the decentralized or known as the P2P (Peer to
Peer) network. In blockchain, once a piece of data is recorded it cannot be
edited or changed.
To put it in simpler terms, it allows you to send a gold coin via e-mail. The P2P
the way is a consensus network, which allows a new payment system and the
transactions of new digital currency.
Let’s illustrate an example. Cryptocurrency like Bitcoin consists of its own
network of peers. Every peer has a record of the complete history of all
transactions as well as the balance of every account. By the end of every transaction and upon confirmation, the transaction is known almost immediately by the full network. A transaction involves a process where A gives X amount of Bitcoin to B, and is signed by A’s private key.
After approved, a transaction is broadcast in the whole network. The information
is sent from one peer to every other peer on the network.
Confirmation is an important step in the cryptocurrency system. Confirmation is
everything. When the transaction is not confirmed, it has the possibility of
being hacked and forged.
When a transaction is confirmed, it is set in stone. It can’t be modified, it is
impossible to be hacked, it is not forgeable as it is part of a permanent record
of the historical transaction: The Blockchain.
The blockchain can be likened to an online ledger, where all transactions are
recorded and made visible to the whole network.
This comes to show that cryptocurrencies are not secured by people or trust,
but by complex mathematical equations. It is very secure and it’s highly
unlikely that the address of a currency is compromised.
Like most things tech, the realm of cryptocurrency can be a bit complex to control and is still new to many. But the power of purchasing this currency is surely worth your investment in both time and money.
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You will learn:
How many kinds of Cryptocurrency work and what they are used for.
How to set up a digital wallet to start investing now.
The top 6 effective strategies to invest in Cryptocurrency.
Simple methods on converting a Bitcoin escrow agent
And much more…