What is Cryptocurrency?
Everything You Need to Know!
A Brief History of Cryptocurrency
Cryptocurrency or digital form of currencies back dates during the 90s. There have been many attempts for creating a digital currency. In 1982 David Chaum, a computer scientist, and Cryptographer published a paper called Blind Signatures for Untraceable Payment. This approach let to launching the Company DigiCash in the late 1980s. In 1995, the company DigiCash created the first digital currency called eCash.
Similarly, other systems like Flooz and Beenz emerged on the market. Afterward, all they were facing different issues, such as embezzlement, fraud, and financial problems, etc. System of these companies utilized the Trusted Third Party approach, but they failed and dropped from the market due to those reasons failure mentioned above! However, they were part of the inspiration behind Bitcoin.
On 31 October 2008, Satoshi Nakamoto published the whitepaper called Bitcoin: A Peer-to-Peer Electronic Cash System. No one knows Satoshi Nakamoto! Bitcoin was the first cryptocurrency to capture the public imagination. Satoshi Nakamoto could be a programmer or a group of programmers that introduce a decentralized ledger technology (DLT) that it no needed Trusted Thirty Party and no controlled by anyone and any central authority and even any government!
From there on;
A lot of has happened since that day. Ethereum and Ripple networks were launched. The cryptocurrency market continued to gain popularity and hosts over 2,000 digital currencies and still expanding.
What is a cryptocurrency?
Cryptocurrency is a digital or virtual currency which utilizes Cryptography science to provide secure online transaction. Cryptocurrencies are decentralized systems based on Blockchain. Blockchain is a decentralized ledger technology (DLT) to manage and record transactions which enforced by a disparate network of computers.
Let’s know more about some words mentioned above!
Digital: Like any currency, Cryptocurrency can be used to buy goods and services. Unlike any currency, cryptocurrencies are digital or virtual means exist only on computers. Therefore, there are no bills or coins to carry around.
Decentralized: A decentralized network means has not centralized on one computer, server, or center. Therefore, there are not behind them any government, group, or even any central authority.
Double Spending and Trusted Third Party: Most important problem all payments network have been facing is Double Spending meaning that spending the same amount twice. It’s a kind of fraud.
Trusted Third party was the traditional solution of Double Spending. Trusted Third Party means verification a transaction does by a system or company or any central authority which users have to trust them with their personal information to use their services. Therefore, users don’t have any choice but to trust them and their security system (Blind Trust).
Blockchain as a decentralized network solved these 2; Double Spending, and Security. Let’s keep on to read how blockchain it does.
How does work Blockchain?
Verifying transactions conduct in a process called Mining. When a transaction broadcasts in the peer-to-peer network containing many computers (known as nodes), every single participant as a miner can solve a cryptographic puzzle and spread across the network. Afterward, all nodes on the network verify and check the transactions information in the new block using an algorithm called PoW (Proof of Work). In the end, miners who confirm the new block of information receive reward plus transaction fees. All of this process could be happened by consensus decisions. When transaction as a new block adds to Blockchain, it becomes unforgeable and unchangeable.
What are the differences between Cryptocurrencies and the other currencies?
This section gives information about some of the outstanding features of cryptocurrencies distinguishes from other currencies. Though, it’s possible to find a cryptocurrency that has not all of those features.
Let’s take a look!
- Irreversible and Unforgeable Transactions. When miners verify and add the new block of the transaction to Blockchain transactions
- Accessibility to cryptocurrency happens by codes called Public key and Private Key. Under pseudonymous is a unique feature that the only cryptocurrencies give it to own users. That means you don’t need personal information for holding or using cryptocurrency. Therefore, No one can recognize who is behind a public key (anonymity). Public and private keys are a string of letters and numbers each. Private and public keys are kept in Wallets. A private key is like a password for cryptocurrency, and is used to sign transactions. Only the owner can see private key, but everyone can see a public key. Some cryptocurrencies are more private than others. The main aim of emerging some cryptocurrencies such as Dash, ZCash, or Monero have been providing more privacy-oriented for users, so these systems even are far more difficult to trace.
- Cryptocurrencies are currencies without borders! There is not restricted access to Cryptocurrencies, and everyone from everywhere can send Cryptocurrencies all over the world easily. While sending currency to everywhere in the world takes days with existent systems, sending cryptocurrencies around the world takes only minutes.
- Security is another outstanding feature of cryptocurrencies. Various encryption algorithms and cryptographic techniques such as encryption and hashing function provide secure online transactions. On the other hand, Due to public-private key pairs, users can manage their cryptocurrencies and keep safe from any accessibility by the others.
The Three Main Types of Cryptocurrency
1) Bitcoin; As you know, Bitcoin is the first Blockchain. We’ve now covered Bitcoin. Therefore, let’s get into the other types a bit.
2) Altcoin (Coin); There are thousands of alternate cryptocurrencies. The most of Altcoins are forks of Bitcoin that means to create with minor or major changes of bitcoin such as Litecoin. Therefore, they are alternate versions of Bitcoin.
On the other hand, some of Altcoins are completely different from bitcoin, such as Ethereum, Ripple.
3) Token; Tokens are the third type of cryptocurrency. Tokens do not have own Blockchain. They are used on Dapp (decentralized application). Dapps are built on other blockchains (Like Ethereum and NEO) and use smart contracts. So this is why they use tokens. Therefore, tokens utilize the power of another blockchain for verifying and confirming transactions. For example, a dApp is built on Ethereum. Thus, fees of the token transaction are paid by ETH for verifying each transaction. In result, user must have some altcoin which the dApp is built on that altcoin.
Bitcoin emerged and changed the world. A lot of has happened since that day. Bitcoin paved the way of other cryptocurrencies and was an inspiration behind cryptocurrency’s world. People around the world have been talking about cryptocurrency from then to now. Cryptocurrencies are popular and still expanding. Thanks to cryptocurrency, people no longer need to trust banks or the third party to handle their money, and they take back control of their money and their information.
We’ve tried to write everything you need to know about cryptocurrency. Thus, we hope this guide expanded your view a bit and help you to know more about cryptocurrency.