Everything About Cryptocurrencies You Ever Wanted To Know
Cryptocurrency is considered to be the money of the 21st century, which holds a lot of power for the future. This is a digital currency which is made of cryptographic protocols due to which transactions are secure, and there is no chance of faking transactions. The best part of cryptocurrency is that any authority does not control it. Due to the decentralization of blockchain, cryptocurrency is out of the control of governments and banks, theoretically. These days cryptocurrency transactions are easier for both security and privacy purposes. The charges required for transfer is very minimum and is called the processing fees.
Cryptocurrency has become a global phenomenon due to globalization and the rise of the internet. Even though today, many people are not aware of the importance of cryptocurrency. The reason why they are not mindful is they do not understand how it works. Cryptocurrency confuses some people, causes fear for others and has captured the minds of a growing number.
Bankers, consultants and developers who have minimal knowledge about cryptocurrency are working hard to gain understanding about it. Just look at JP Morgan’s foray into the space. Sometimes it has been found that they do not even understand the basic concept of cryptocurrency. To understand what it is we have to go to its origin.
The origin of cryptocurrencies
Cryptocurrency is a side product of digital cash and was invented by Satoshi Nakamoto. The inventor has also developed Bitcoin, and it is one of the most crucial cryptocurrencies to date. In the year 2008, he had an idea of Peer to peer electronic cash transfer. He wanted to invent something which made people transfer money more securely.
Announcing the release of Bitcoin, he said that this was a new way of electronic cash transfer method which was recently released without any Central authority or server. In the 90s, there were many on successful attempts digital money, but they have failed dramatically, so hence decentralized digital cash system by Satoshi Nakamoto was the need of the hour.
Now we need to understand that how can we keep a Census of all the records of the transactions. As any Central network was absent, the peer network had to work on minor balance, and if the system disagreed, everything was broken. Nobody believes that without Central authority consensus could be achieved. Hence Santoshi proved everyone wrong, and his major innovation was achieving consensus without a central authority. Today cryptocurrency is the result of the solution which proves the world wrong and provided fascinating and ceiling solutions all over the globe.
Now let us understand what cryptocurrency is
If we reduce the word cryptocurrency to a simple definition, it is stated that they are just limited entries in the database, which no one can change without fulfilling some specific conditions. Suppose we consider the money in your bank account, they are some entries in the database which can be changed in specific conditions like, physical notes and coins. In that way, we can define money to be a verified entry of some database of accounts and transactions. When we consider the money in your bank account, they can be limited to some physical entries in databases without satisfying specific conditions.
Now we need to understand that how can we keep a Census of all the records of the transactions. As any Central network was absent, the peer network had to work on minor balance, and if the system disagreed, everything was broken. Nobody believes that without central authority consensus could be achieved. Hence Santoshi proved everyone wrong, and his major innovation was achieving consensus without a central authority. Today cryptocurrency is the result of the solution which proves the world wrong and provided fascinating and ceiling solutions all over the globe.
Many entities tried, such as Digicash, but they all missed the magic component as they were all centralized. Satoshi Nakamoto decided that he wanted to build something like a peer to peer network of file sharing. This was the birth of cryptocurrency. Most people have difficulty in understanding digital cash because it involves a few technical complexities.
To understand about cryptocurrency and how they work, one needs to understand the way payment network works with accounts, transition and balance. Initially, the problem which arises was double spending, in which the person had to prevent the currency from spending it twice. There is a central server which keeps a record of the amount which is spent, but in cryptocurrency, you don’t have this server. Satoshi Nakamoto, created a single entity of the network to prevent double spending and to check that the future transactions were valid.
Now let us understand how miners create coins and help in the transaction
The mechanism on which cryptocurrency work is data mining. There is a different network of peers where a currency like Bitcoin works. And every Peer has the complete record of the transaction and balance of every account. There is a Private key which signs all the deals, like whenever a sale occurs and, Alice gives X Bitcoin to Bob, it is approved by private keys of Alice. This is also known as Peer to peer technology, and every e-transaction is broadcasted within the network and sent from one peer to another, which is a public key. Which is very simple to understand, and there is nothing special.
The step goes as follows:
Someone request for a transaction
The transaction is broadcast to a peer to peer which has computers called notes
The network of nodes validate the purchase using the algorithm
The verified transaction involves cryptocurrency
Once the transaction is confirmed, it creates other blocks of data
This new block of data is permanent, and it cannot be altered. It is then added to the existing blockchain
And this completes the transaction process
Now let us understand blockchain and cryptocurrency
When the transaction is pending, it can be forged, but when it is confirmed it cannot be reversed and becomes a part of past transactions, and that is called blockchain. Blockchain is nothing but a collection of all the transactions, and with every new transaction, the chain goes on getting longer. And miners can confirm transactions, that is their job in the cryptocurrency.
When the data miner approves the transaction, it is added to the database and node and hence becomes the part of a constant blockchain. And Miners get paid in the form of tokens of the cryptocurrency, like Bitcoin and for creating a cashless economy.
What do data miners do?
If you think data miners are some special people you are wrong, anyone can become a data miner. Since cryptocurrencies have a decentralized network and no one has the authority to delegate this task, there is a special kind of mechanism in the cryptocurrency so that the ruling party cannot abuse it. The system would immediately break if someone creates thousands of peers and starts spreading forged transactions. Hence, the inventor created a rule that the data miners had to invest some work in the computer to qualify for this task. This is called proof of work, which works on the hash algorithm, and they had to find a hash which is a product of cryptographic function which connects the older block, to the new one. This is also called the SHA 256 algorithm, the beauty of this is that you do not need to understand the details of SHA 256, all you have to solve the cryptographic puzzle so that you can add the newly constructed block to its predecessor.
And as an incentive, the data miner has right to the coin base transaction. To create valid Bitcoins, every purchase gives some specific amount of Bitcoins. One needs to understand that bitcoins can be only created when data miners solve. And after every step, it becomes difficult to solve the puzzle and requires an increasing amount of computer power.
What are the Revolutionary properties of cryptocurrency?
Bitcoin is a decentralized network of Peer to peer connection which keeps track of all the transactions of the accounts and balances. Cryptocurrencies are also defined to be the entries which are a token about decentralized consensus databases. The cryptocurrency is built on mathematics and is cryptography a trust or people do not secure it. A bitcoin address can never be compromised, but your address can be changed if an asteroid falls on your home. There are different properties of cryptocurrency like commercial properties and transactional properties, let us now talk about the features of cryptocurrency.
What are the transactional properties of cryptocurrency?
Irreversible: The transaction of cryptocurrency is irrevocable because, after confirmation, a transaction can never be reversed. It means that if money is sent, it cannot be undone. There is no safe way for you if you accidentally send money to a scammer. The network is unforgiving and immutable, but this is the property which makes the transactions secure. The government or any Central organization has no right on what you can and what you cannot spend. If you send the money it, you send it. No one can help you out. It can also be stolen if a hacker steals them from your computer.
Permissionless: You do not have to seek any permission before using cryptocurrency, and it is a software which everyone can download for free. After you download, it can be installed, and it can be used to send Bitcoins or other cryptocurrencies. As there is no gatekeeper, no one can prevent you from using it. The network through which you used is incapable of any discrimination, so after it is installed in your computer, you can receive and send as much or as little you want to. You can also participate in the confirmation of transactions by running a node.
Secure: Cryptocurrencies are locked in the public key. It takes very complicated pics and schemes which are impossible to crack; hence, it is considered to be very reliable. There are a lot of public and private key pairs, more than the number of stars in the Galaxy so it takes an unbelievable amount of time to crack a specific code. Hence it is next to impossible.
Global and fast: The transactions are instantly approved and confirmed within minutes. The transaction happens in a worldwide network of computers, and the physical location does not matter. It is a decentralized network of nodes across the world, so the transaction is unbiased based on your site, even if you send a transaction to your neighbor or across another part of a globe both will take the same amount of time.
Anonymous: The transactions and account are not connected to the identities of the real world. It is not possible to communicate with the real world user using the 30 characters of the Bitcoin address and hence maintaining good anonymity. Though it might be possible through intensive analysis to track the address, logically is the Bitcoin address has no connection with the real world address.
What are the commercial properties of cryptocurrency?
1. Having a controlled supply
The cryptocurrency has a limited amount of tokens and will reach its final number by the year 2140. A written code does the control of supply of the cryptocurrency, and the monetary amount of cryptocurrency can be roughly calculated due to this code. The amount of Bitcoin decreases with time.
2. No debt
The number present in your ledger is your debt. Bitcoin never represents debts, as they are money as hard as gold.
There are both positive and negative impacts of cryptocurrency, and you have to consider both the properties before you make any transaction, you need to understand that Bitcoin is anonymous, irreversible and permissionless that means you can be prone to attack any monetary transaction. This means that you cannot stop someone from using Bitcoin, you cannot undo a transaction and you cannot prevent someone from accepting the payment through Bitcoin. Any Central Institute cannot change the controlled supply for government; hence that can be attacked on monetary policy.
Cryptocurrency is the new economy and considered to be successful today even though people did not dream about the digital cash system. Initially, a lot of people refused using Bitcoins, but with changing time, people got more enthusiasm and fascination in using Bitcoins. According to reports, mobile payments are expected to hit $142 billion using cryptocurrency. Cryptocurrencies have also been named as digital gold, which is secure from political influence and promises to increase the value over time. They are also considered to be a high-speed and comfortable mode of payment with a wide range of scope. Cryptocurrencies give rise to a dynamic market for investors and speculators. Trading in cryptocurrency, in various European stock exchanges, have grown popular.
Let us look at the different types of cryptocurrencies which are available
This is one of the most popular cryptocurrencies, which acts as a digital gold and have set the standard in the cryptocurrency industry. It is a global way of making payment in 7 years the price of Bitcoin has increased from 0 to more than $650 and are used in more than 200 transactions daily. The Bitcoin is here to stay, and its value will increase over time. This is also the de facto currency of darknet markets. Bitcoin is considered to be the cryptocurrency.
Vitalik is considered to be the father of Ethereum, and it holds the second place in the list of cryptocurrencies. This is also one of the most famous currencies other than Bitcoin, and its blockchain is not based on the number of accounts and balances but states. The process of transaction in Ethereum is more complicated than Bitcoin. There are also many sub currencies like Ethereum classic and Augur. Hence it is known to be a family of coins rather than one single currency.
Ripple is way less popular than Ethereum and Bitcoin. This is also one of the most hated projects of cryptocurrencies. Ripple has its cryptocurrency named XRP tokens, this does not serve as an exchange value but is more protected against spam. Today XRP is not considered to be suitable for storing value and often considered to be a pre-mined in the community. With increasing pace, Banks have promised to adopt Ripple, in their system.
This one of the first cryptocurrencies and is coined to be the Silver of cryptocurrencies. It has a large amount of token and follows a new kind of mining algorithm. Due to this algorithm, many different cryptocurrencies which used the codebase emerged like Feathercoin and Dogecoin. Litecoin is considered to be a backup if Bitcoin fails. Currently, this is in the second number.
This is one of the best examples of a cryptonitic algorithm. Monero has many privacy features which were a plus, as compared to Bitcoin. The trail of the transaction in Bitcoin can be followed. And on the other hand, Monero brought the concept of ring signature in which the path can be cut after every cryptonitic algorithm. It got popular in the year 2016 when it was accepted in darknet markets. But the actual usage of this currency declined with time.
This is also a decentralized cryptocurrency which was developed in 2016. This uses much more privacy and transparency in the transaction; hence, it is known to be more secure. It keeps the details of the sender and the recipient in private. The thing which makes Z cash stand out is the choice of shielded transactions. Today it has a market cap value of 291 million dollars.
It is the most secretive version of Bitcoin, and it is also known as the dark coin. Providing huge anonymity and working on a decentralized master code, the transaction which happens through Dash is untraceable and was launched in 2014. The value of per token is $74 roughly, and it has a market value of $ 640 million.
Here are a few things you must know when you start using Bitcoins or any other cryptocurrency
1. This is the new future
People are getting more and more globalized. Hence there is a need for a global currency, and people do not want to deal with exchange rates. There are a lot of bank fees that come with the transfer in banks. People are also making a move away from cash and relying on phones and cards for large purchases and small purchase both. The future is going to be digital currency; hence, people are investing time in knowing what it does. The value of cryptocurrency is very volatile, and people are worried about it crashing.
2. It is created by mining and there is a limit to what you can own
Central Bank prints money, in the same way, data miners use the sophisticated algorithm on computers, for making cryptocurrency. The primary method of extraction is solving a cryptographic puzzle and building a block which can be added to the blockchain, and hence the transaction takes place. There is a limit for Bitcoin that a person can own a maximum of 21 million Bitcoins, but for Ethereum, there is no limit.
3. You can also buy fractions of Bitcoins depending upon the current digital value of the currency
The cost of the Bitcoin is volatile and can change significantly and quickly. Today everyone can afford cryptocurrency. But it is also said that you may not be able to buy 1 Bitcoin so you can buy a fraction of a bitcoin.
4. Cryptocurrency can be bought in online exchanges
One of the most asked questions on Google is where you can buy cryptocurrency. One of the most popular ways of buying cryptocurrency is through online transactions in which there is a marketplace for everything, and you can buy Digital currency. All the online transactions are not reputable, so they search a lot while purchasing cryptocurrency. You also need to research a lot on the specific type of cryptocurrencies if you want to make an exchange. You can also make use of Bitcoin ATM to deposit money for buying Bitcoins, for that you need to know about Bitcoin wallet. The Bitcoin wallet is nothing but a string of numbers and letters that are linked to the money.
5. Blockchains are records of the transaction in cryptocurrency
Blockchain is a chain in which blocks are added after every cryptocurrency transaction takes place. Since it uses a decentralized process, which means that no one can alter the transaction takes place. When you carry on a transaction, it is Peer to Peer, which means you are directly dealing with the person or the business, there is no bank or middle man to carry out the transfer.
6. Banks cannot affect cryptocurrency
Cryptocurrency does not influence centralized things. And it cannot be controlled by any institution, or it cannot use inflation. Transactions can also be made anonymously do not have any link up with the real world while cryptocurrency needs to be linked to an account, but the address cannot be traced in the real world.
Bottom note: If you are investing in cryptocurrency, you have to keep in mind that it is highly volatile, which means that it has chances of high reward and risk. You should know detailed information about all the coins before you start investing in cryptocurrency. Price swings are widespread in because it is mostly regulated. Safety and security must be kept in mind while dealing with cryptocurrency. Extra precaution should be maintained while investing; there have been many hacking events in the past and investors have lost thousands of dollars. And the worst part is as the transaction is not traceable you will not get to know about the hacker. You need to be a very savvy investor and keep in mind of every possibility, of both loss and substantial profit.