What is Cryptocurrency?
A cryptocurrency is a virtual or digital currency that can be used to buy goods and services; which implies there’s no physical coin or bill used and all the transactions take place online. It used an online ledger with strong cryptography to ensure that online transactions are completely secure. Here, we have included all the details pertaining to cryptocurrency such as types, how it works, uses, how to buy and store it.
What is Cryptocurrency?
It is a purely virtual line of currency that runs on the system of cryptography. It functions as a decentralized medium of exchange where cryptography is used to verify and facilitate each transaction. Cryptography also underlines the creation of units of different cryptocurrencies.
This mode of exchange primarily runs on the blockchain technology – that which lends cryptocurrencies the decentralized status. It is a shared public ledger that contains all the transactions that have ever taken place within a network. Therefore, everyone on the network can see each transaction that takes place and also view others balances.
The Blockchain technology addresses
one of the primary concerns with digital payment platforms, i.e.
double-spending while ensuring there is no monopoly of authority. That
is because, in blockchain technology, parties to a transaction
themselves verify and facilitate every such activity.
How was the Idea of Cryptocurrency Conceived?
The concept of digital currency gained considerable traction in the 90s tech boom. Multiple organizations and programmers ventured to create a parallel line of currency that would be out of any central authority’s reach. However, ironically, the companies that tried to create this digital currency themselves assumed the authority of verifying and facilitating transactions.
It not only defeated the purpose but founded the venture as well. Moreover, the digital currencies back then were riddled with frauds and other financial challenges. For a long time since then, this idea of digital currency was considered a lost cause. This idea was falsified when Satoshi Nakamoto – a programmer or a group of programmers – introduced and explained what is Bitcoin in 2009, the first-ever cryptocurrency.
How does Cryptocurrency Work?
According to Satoshi Nakamoto, the founding father of Bitcoin, it is a peer-to-peer electronic cash system. In that, it is much similar to peer-to-peer file transactions, where there is no involvement of any central authority or regulator.
Ergo, cryptocurrencies are mere
transactions or entries in a shared ledger that can only be changed upon
meeting certain prerequisites. Typically, in a blockchain technology
like the Bitcoin network, each transaction consists of the involved
parties’ – sender and receiver – wallet addresses or public keys and the
amount of such transaction.
What attributes the safety net in such a network to avoid fraud is that the sender needs to confirm a transaction with their private key. After confirmation, the transaction is reflected in the shared ledger or database.
However, only miners are authorized to confirm transactions within a cryptocurrency network. They need to solve cryptographic puzzles to confirm any specific transaction. In exchange for their service, they receive a transaction fee in that particular type of cryptocurrency and a reward.
Once miners confirm a transaction, they spread it to the network, and every node in that automatically updates its ledger accordingly. Furthermore, once a miner confirms a particular transaction, it becomes irreversible and non-modifiable.However, there is a crucial catch in mining. It is that as a particular type of cryptocurrency gains popularity and more and more miners join the bandwagon, the miners’ fees and reward per transaction go down. For instance, initially, miners could get 50 bitcoins (BTC) as a reward for mining; however, due to the recent halving in May 2020, miners’ rewards have gone down to 6.25 BTC.