Cryptocurrency is the new ‘it’ word for those in the finance world. You can’t look online or turn on the news today without seeing terms like blockchain and Bitcoin, the latest and most popular cryptocurrencies and technologies available today. To understand what cryptocurrency is and how it works, there are some basics you should be familiar with.
Key Cryptocurrency Terms
Cryptocurrency is a form of exchange many refer to as ‘digital money’.
Blockchain is the technology behind cryptocurrency that enables it to operate.
Bitcoin is the most popular cryptocurrency and is the sole reason blockchain technology was created.
Cryptocurrencies, like Ethereum and Bitcoin, use cryptography as well as blockchain technology for safe and anonymous transactions. Here’s a breakdown of cryptocurrency and the technology behind it.
What is Cryptocurrency?
While cryptocurrencies have become popular the last few years, many people still do not completely understand exactly how it works. The trend is growing however with all the recent talk of the skyrocketing value of this digital currency. Each day more people and companies are becoming aware of its value and importance in today’s digital world.
Cryptocurrency is a type of currency, comparable to the U.S. dollar, with the main difference being that cryptocurrency is virtual and does not have the security of the assets that back the dollar. Cryptocurrency is digital and uses encryption to control the creation of monetary units and verify the transfer of funds. Quite simply put, cryptocurrency is digital money.
Invented in 2009 by a person (or group of people) who are only known by the pseudonym Satoshi Nakomoto, Bitcoin was the first cryptocurrency introduced to the world. Nakomoto’s goal was to develop a “Peer-to-Peer Electronic Cash System “using a decentralized digital cash system. He succeeded where many others had failed and created ‘digital cash’.
If you own cryptocurrency, you essentially have key codes or passwords to the cryptocurrency’s “address” within the blockchain to allow you to manage the account. There are two different types of key codes issued – a public key code and a private key code. The public key code allows people to send cryptocurrency to your account. The second key code gives you access to your cryptocurrency and allows you to withdraw the currency as you would like. However, if you lose the password, you will no longer have a way to access the currency and there is no way for you to get your money back.
What is Blockchain Technology?
When speaking of cryptocurrency, a record of new transactions is called a block. A block could refer to any number of things including the location of cryptocurrency, secure medical data, or a state’s registered voters. Once each block of information is completed it is then added, which creates a chain of blocks known as a blockchain and it continues to grow. Each new transaction is documented and added to the chain in chronological order. This enables those in the market a way to keep track of the cryptocurrency transactions without the need for centralized accounting. Each time the blockchain is updated, everyone connected to the network receives an automatic download of the blockchain.
Blockchain can be used for a variety of processes, especially in the world of finance because it offers a secure, digital platform that can easily compete and surpass current banking processes that tend to be expensive, time consuming, and lead to tons of paperwork.
The Creation of Blockchain Technology
Blockchain technology was ironically invented during the creation of Bitcoin and is the world's leading software platform for digital assets. Creator Satoshi Nakomoto needed an original accounting method and a way to power the virtual currency…hence blockchain was born. The blockchain technology created provides an accounting network with accounts, balances, and transactions that lets