Been hearing about cryptocurrency a lot lately? Curious to know more about what it is and how it works? Worry not! You are not alone. A lot of people are hearing about cryptocurrency for the first time these days; some even though have heard of it before, do not really have a clear understanding of what it is and how it actually works.
As the values of many cryptocurrencies have hit their all-time highs lately, cryptocurrencies have managed to catch the attention of many enthusiasts. Thus a hike in google searches about what cryptocurrency is. Even though the concept of cryptocurrency is relatively new to all of us, there literally are thousands of these assets in the crypto world and there are many new coins and tokens coming up each day. Let us go ahead and find out what this cryptocurrency is and how it works?
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What is Cryptocurrency?
For our understanding, let’s begin with the word ‘Cryptocurrency’. The word ‘Cryptocurrency’ is made of two words ‘crypto’ and ‘currency’. We all know what Currency is, it is a medium of exchange and Crypto means encrypted. So in total, we can say that cryptocurrency is the medium of exchange or digital currency protected by encryption.
Unlike our regular currencies, cryptocurrency is decentralized, meaning that there is no centralised authority or government controlling or looking after the transactions. Many cryptocurrencies that we know today are based on blockchain technology, from which they gain transparency, immutability and decentralization. Because of its decentralized nature, no government or any authority can control or interfere with cryptocurrency. The transactions here occur from person to person, without the need for any intermediaries like banks.
Nowadays everybody is talking about cryptocurrency, but not many of them know what cryptocurrency actually is. Do you know what the first cryptocurrency was? You most probably would have guessed it right, yes! It is Bitcoin. But what you might not know is that when Satoshi Nakamoto, the founder of Bitcoin, invented the cryptocurrency, his main aim was to build a” peer to peer electronic cash system” and he never intended to invent a currency.
He developed Bitcoin, as a way to prevent double-spending, which is usually done by the central server that keeps a record of all the transactions. Many have tried to address this issue with digital cash before Satoshi Nakamoto. But he developed an entirely new method and came up with something a lot of others missed. He introduced a decentralized system that lacks central authority. Because it is decentralized, there are no central servers to keep the transaction records, so the peers in the network will keep note of the transactions. So all the peers in the network will review the transaction and check if it is a valid transaction. When all the parties in the network are in consensus then only the transaction will be marked valid. But how is this consensus achieved? Let’s find out.
Let us assume that ‘A’ sent 2 bitcoins to ‘B’ after signing it with their private key. This transaction is now broadcasted all over the network and everyone in the network knows of the transaction. But it will only be confirmed after it is verified by the miners. Yes, Miners, not the ones with a head torch and cutting equipment, but the other type with nodes and computers. These miners validate the transactions by solving complex cryptographic problems and in turn receive rewards, in the case of Bitcoin mining, they receive Bitcoins as rewards. Mining is the only valid way Bitcoins are generated. Once the miners validate and confirm the transaction the message will be broadcast across the network and be added to all the nodes and a block will be added to the blockchain marking the transaction and it stays permanently.
Some even claim that a cryptocurrency is an original form of currency because of its trustless nature. The currency that we have in our accounts are controlled and monitored by a central authority that governs and controls it. One day you might wake up and realise you have lost it all because of a change in the rules that the central authorities make. But with cryptocurrency, there is no central authority and your money is truly secured. If you actually look into it and understand how it works you might also agree that it is more a currency than our traditional currency.
Properties of Cryptocurrency
Since you now have a basic idea about what cryptocurrency is, let us go ahead and look into some of its properties.
Irreversible
One thing about the transactions of cryptocurrencies is that they are irreversible. That means once a transaction is done and confirmed, no one can reverse the process. We all might have heard about banks accidentally depositing money in people’s accounts and taking it back. Well, that won’t happen here as there is no central authority for cryptocurrencies. Also, if someone transfers cryptocurrency to your wallet, they are yours and no one can take it back from you, not the sender, not the miner who validated the transaction, not even the founder of that cryptocurrency. So the point to understand is that the crypto transactions that are completed are marked on a permanent block on the blockchain and cannot be reversed.
Secure
The funds in your crypto wallet are secured by a public key cryptography system. This system of complex numbers and cryptography makes it impossible for anyone to tamper with the funds. Unless the person has a private key, no one can send cryptocurrency out from the account.
Pseudonymous Transactions
We can’t exactly say that the transactions are anonymous with cryptocurrency, but, we can assure you that no one can trace the transactions back to your real identities. The nature of the cryptocurrency is what we call pseudonymous. That means the people on the network can keep a track of the transactions but they don’t really know the people behind the transactions. The transactions are made to 30 character addresses that seem random.
Permissionless
Being permissionless means that you don’t need anyone’s permission to use cryptocurrency. It’s software that anybody can just install and start using. After the installation, you can send or receive cryptocurrency. No one can stop you from doing so.
Global
Cryptocurrency works on a global level. It is spread across a global network of computers around the world. Because of this, it is indifferent to your physical location. Your transaction can be validated anywhere on the globe. So it doesn’t matter how far or close your receiver or sender is, the transaction is most likely going to take just a couple of minutes to be processed.
In Conclusion
Like we learned above, all that cryptocurrency was just an accident in the process of inventing something else. Even Satoshi Nakamoto might not have dreamed of success this big. But now cryptocurrencies have brought up a revolution. There is a vast majority of people that believe cryptocurrencies are the future. There are plenty of cryptocurrencies coming up each and every day. And more and more interesting projects are being developed to make the crypto space even better. This is the currency that is purely yours, not the banks, not the government and not someone else’s. When you are in possession of the cryptocurrency no one can take it away from you. People are also making profits by investing and trading cryptocurrencies too. And it seems to be not so far away from a world dominated by permissionless and trustless modes of exchange. Found this information helpful? For more such articles visit Zeen
