Everyone is talking about cryptocurrencies right now, but what does all of it mean? So welcome to our blog that will help you to understand cryptocurrency. So, in this article, we focus on telling about what it is? How does it actually work?
What is Cryptocurrency?
Cryptocurrency, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions. Cryptocurrencies use a decentralized system to record transactions, dont have a central issuing or regulating authority. The people who maintain the ledger and take responsibilities of cryptocurrency are miners. And to maintain and validate this process is mining. Cryptocurrency is base on peer to peer system which enable to send payment from one place to another with in a second.
Bitcoin was the first cryptocurrency that was founded in 2009. Other cryptocurrency like Ethereum, Tether, Binance Coin are also popular nowadays.
How Cryptocurrency actually works?
Cryptocurrency is a digital currency, which means it only exists electronically. Cryptocurrency doesnt work like most money. It isnt attached to a state or government, so it doesnt have a central issuing authority or regulatory body. Basically, that means theres no organization deciding when to make more bitcoins, figuring out how many to produce, keeping track of where they are, or investigating fraud.
So, lets take an example of Bitcoin. It is a fully digital currency, and you can exchange bitcoins between computers in a worldwide peer-to-peer network. The whole point of most peer-to-peer networks is sharing stuff, like letting people make copies of legal music or movies to download.
A bitcoin is actually an entry on a huge, global ledger called the blockchain. The blockchain records every bitcoin transaction that has ever happened. So when you send someone bitcoins, its not like youre sending them a bunch of files. Instead, youre basically writing the exchange down on that big ledger - something like, James sends Lara 5 bitcoins.
Even though the blockchain is a central record, theres no official group of people who update the ledger and keep track of everybodys money like a bank does - its decentralized. In fact, anybody can volunteer to keep the blockchain up to date with all the new transactions. It all works because there are lots of people keeping track of the same thing, to make sure all transactions are accurate.
So when you want to send or receive money, you have to announce it to everyone, so the people keeping track can update their ledgers.
So for every transaction, youre announcing a couple of things to the bitcoin network: your account number, the account number of the person youre sending bitcoins to, and how many bitcoins you want to send. And all the users who are keeping copies of the blockchain will add your transaction to the current block. Having a bunch of people keep track of transactions is a pretty good security measure.
Example of Cryptocurrency
Bitcoin is a fully digital currency, and you can exchange bitcoins between computers in a worldwide peer-to-peer network. It was founded in 2009 and the currency was developed by Satoshi Nakamoto.
Dogecoin was created by Billy Markus and Jackson Palmer in 8 December 2013. It is an open source peer-to-peer digital currency.
Ethereum was created in 2013 by programmer Vitalik Buterin. It is a public blockchain platform with programmable transaction functionality. It is an open source blockchain decentralized platform for money, other new kind of things.
Tether is a stablecoin cryptocurrency that is hosted on the Ethereum and Bitcoin blockchains, among others. The reason tether is called stablecoin is that one token of tether is equal to $1 USD.
History of Currency
Stage one, so when society was in its early stages, there was no such thing as money. The only way to buy something off someone was to go up to them and tell them I like your dog, Ill trade you my cow for it. The issue with this trading system is that even though you might be perfectly happy to give up your cow, but you just might not want a dog. So, that trade will never happen, but thats where currency came in.
Stage two, at that time coins, were made of precious materials like gold and silver. Everyone accepted that they were worth something. Youve heard of the British pound, the reason theyre called pounds is that one pound just used to be one pound of silver. As long as we have coins, we can trade for anything. Even if you have no use for the silver coin. You can always use it to trade for something.
Stage three, like banks, became established and governments had control. We realized that as long as there was trust in the system, we could move away from needing to carry blocks of coins towards something even more convenient and lightweight like paper money.
Stage four, everything is going online and people are using credit cards to buy things. People are doing online shopping nowadays and just using cashless transactions. We just dont see money any more.
Stage five, cryptocurrency is 100% virtual. With crypto, there is no gold, silver, or paper used in transactions. The concept of cryptocurrency is that, think of them as running spreadsheets of whose paid what to whom. But instead of multiple banks keeping their own separate records, with crypto there is just one spreadsheet of every transaction made using that currency and this is called a ledger.