What is cryptocurrency
The world is now digitalized that almost everything bears affiliation with the internet in one way or the other. There is a new money trend known as cryptocurrency (or crypto currency) which is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency. Cryptocurrencies are classified as a subset of digital currencies and are also classified as a subset of alternative currencies and virtual currencies.
Cryptocurrency is derived from the Greek word Kryptos which means hidden or secret. So cryptocurrency literally means hidden or secret currency. Cryptocurrencies use cryptographic protocols, or extremely complex code systems that encrypt sensitive data transfers, to secure their units of exchange. Cryptocurrency developers build these protocols on advanced mathematics and computer engineering principles that render them virtually impossible to break, and thus to duplicate or counterfeit the protected currencies. These protocols also mask the identities of cryptocurrency users, making transactions and fund flows difficult to attribute to specific individuals or groups.
Cryptocurrencies are also marked by decentralized control. Cryptocurrencies’ supply and value are controlled by the activities of their users and highly complex protocols built into their governing codes, not the conscious decisions of central banks or other regulatory authorities. In particular, the activities of miners – cryptocurrency users who leverage vast amounts of computing power to record transactions, receiving newly created cryptocurrency units and transaction fees paid by other users in return – are critical to currencies’ stability and smooth function.
I still find the crypto word stuff so geeky and nerdy that I would vouch for a kind of analog cash. Lol. If there is actually anything like that. Explaining cryptocurrency to many people is one hell of mathematics class, where you don’t even know what you know. I just came up with this and tried to simplify and modify the cryptocurrency brouhaha into what everyone can relate to.
HISTORY OF CRYPTOCURRENCY
Cryptocurrency had already been in existence long before the digital era. It seems that cryptocurrency is the financial modification of cryptography. Cryptography had long begun since the 9th century. The earliest known use of cryptography is some carved cipher text on stone in Egypt (1900 BC ), but this may have been done for the amusement of literate observers rather than as a way of concealing information. The word ‘crypt’ is strictly meant as codes. It is the unique use and study of codes to communicate securely in the presence of third parties, which prevents the third parties from intruding into the private communication. The first known description of cryptocurrency was created in 1998 by Wei Dai, an anonymous publisher of distributed electronic cash system. A currency system based on a reusable proof of work was later created by Hal Finney who followed the work of Dai and Szabo. The first decentralized cryptocurrency, bitcoin, was created in 2009 by Satoshi Nakamoto, an anonymous developer Satoshi Nakamoto is the name used by the unknown person who designed bitcoin and created its original reference implementation. There are no known actual facts established about him as he liked to keep his personal life out of technical/business matters. Nakamoto has claimed to be a Japanese, born on 5 April 1975. However, there are many speculations on what his real identity is. As of 24 May 2017, Nakamoto is believed to own up roughly one million bitcoins, with a value estimated at approximately $4.2 billion US Dollars.
HOW CRYPTOCURRENCY WORKS
Cryptocurrency works with the merging of the block chain, private keys, miners, wallets, finite supply and cryptocurrency exchange; A cryptocurrency’s block chain is the master ledger that records and stores all prior transactions and activity, validating ownership of all units of the currency at any given point in time. As the record of a cryptocurrency’s entire transaction history to date, a block chain has a finite length – containing a finite number of transactions – that increases over time.
Identical copies of the block chain are stored in every node of the cryptocurrency’s software network – the network of decentralized server farms, run by computer-savvy individuals or groups of individuals known as miners, that continually record and authenticate cryptocurrency transactions. Cryptocurrency transactions are not finalized until it is added to the block chain. A finalized transaction is not reversible because cryptocurrencies have no built-in refund functions.
PRIVATE KEY: Every cryptocurrency account holder has a security key that authenticates their identity and gives them access to exchange units. The users are allowed to create their own keys (a kind of password) that allows them to exchange units with other users. The formatted passwords are numbers between 1 to 78 digits long. The key is a vital component of it, as loss of the key could mean the entire loss of the user’s holdings. Without the key, users can’t spend or convert the cryptocurrency. Users can create another key and start accumulating cryptocurrency if the former is lost but the holdings are not recoverable until you can recover the former one.
WALLETS: Cryptocurrency users have “wallets” with unique information that confirms them as the temporary owners of their units. Whereas private keys confirm the authenticity of a cryptocurrency transaction, wallets lessen the risk of theft for units that aren’t being used. Wallets used by cryptocurrency exchanges are somewhat vulnerable to hacking. Wallets can be stored on the cloud, an internal hard drive, or an external storage device. If a wallet is lost, a backup is recommended. It is important to note that wallets don’t duplicate the cryptocurrency units but serve as a record and prove of ownership.
MINERS: Miners serve as the record-keepers for cryptocurrency communities and deciders of the currencies value. The term “miners” relates to the fact that miners’ work literally creates wealth in the form of brand-new cryptocurrency units. In fact, every newly created block chain copy comes with a two-part monetary reward: a fixed number of newly minted (“mined”) cryptocurrency units, and a variable number of existing units collected from optional transaction fees (typically less than 1% of the transaction value) paid by buyers. Thus, cryptocurrency mining is a potentially lucrative side business for those with the resources to invest in power- and hardware-intensive mining operations.
FINITE SUPPLY: Although mining periodically produces new cryptocurrency units which are designed to have a finite supply. This means that miners fewer new units per new block. Eventually miners receive transaction fees for their work.
CRYPTOCURRENCY EXCHANGE: Many lesser-used cryptocurrencies can only be exchanged through private, peer-to-peer transfers, meaning they’re not very liquid and are hard to value relative to other currencies – both crypto- and fiat. More popular cryptocurrencies, such as Bitcoin and Ripple, trade on special secondary exchanges similar to forex exchanges for fiat currencies.These platforms allow holders to exchange their cryptocurrency holdings for major fiat currencies, such as the U.S. dollar and other cryptocurrencies (including less-popular currencies). In return for their services, they take a small cut of each transaction’s value – usually less than 1%.
ADVANTAGES OF CRYPTOCURRENCY
1. It can’t be faked and counterfeited.
2. It is universally acceptable.
3. It is managed by its network not by any central authority.
4. Instant transfer that saves time.
5. It is free from government control and monopoly.
6. It has fewer barriers and international cost transactions.
DISADVANTAGES OF CRYPTOCURRENCY
- It increases the chances of illicit activity like black market activity.
- It is vulnerable to financial and data loss.
- Sometimes it can’t be exchanged for fiat currency.
- It has limited provisions for refunds and charge backs.
EXAMPLES OF CRYPTOCURRENCY
Bitcoin is not the only cryptocurrency. But is the most dominant and popular one. The other cryptocurrencies are called altcoins(alternative coins).
Note that there are other types of cryptocurrencies but the above listed ones are the most common.
Cryptocurrency is the new financial trend that is replacing physical money. It is more exciting because it is coded and on the internet. It is a decentralized technology that allows users to secure payments, save, and spend money without the need to use a bank account. You could love to try it out and I hope you found this write up useful.