A lot of people know it as ‘the money of the future’ and many also refer to it as the best thing that happened online. Cryptocurrency is actually a form of digital money – and a global phenomenon known to most people. Even though at this point they still remain as somehow unexplained, crypto currencies are changing the world step by step.
The change can be best seen through Bitcoin, the most popular cryptocurrency out there and an official payment method in many places. The truth is, in today’s era you will hardly find a major bank or financial institution that doesn’t rely on cryptocurrencies one way or another.
However, crypto currencies are most traded by individuals – even bankers, scientists and developers who have at least some knowledge about them. Obviously, the greater mass falls to understand the basic concepts of these crypto currencies. That is why today, we are walking you through the complete story about the model of the first digital currency. So…
What Is Cryptocurrency And How Crypto Currencies Got So Popular Over The Years?
Even though only a few people know about them, crypto currencies have emerged as a side product of Bitcoin. As soon as Bitcoin was introduced to the masses, it saw tremendous growth. However, Bitcoin was not intended as a digital currency at all.
Instead, the founder of Bitcoin, Satoshi Nakamoto, spontaneously found that the system he is building can be decentralized – and that cash could flow without a single authority. Even though there were many attempts to create virtual money in this period, a lot of them failed.
After seeing that a decentralized digital currency can be easily built online, Satoshi gave the birth of crypto currencies. Even though they are entirely technical and hard to understand, the best way to simplify their meaning is as ‘a form of digital money that is unauthorized and anonymous’.
This set the backbone to decentralized networks, where servers were not needed. Instead, what was needed by peers who are continuously solving mathematical questions in the form of limited entries in a database that no one can change without fulfilling specific conditions.
This is how the first coins were created – and how the first cryptocurrency named Bitcoin emerged. Consisting of a network of peers, each one of the peers on Bitcoin has a complete history of all transactions and thus the balance of every account.
For example, ‘if Adam gives X Bitcoin to Eve’ – this is recorded as a transaction and is signed by Adam’s private key. As such, the storage of transactions is unlimited in crypto currencies and impossible to lose.
Mining Crypto Currencies: What Is It And Who Does It?
Every cryptocurrency runs on a blockchain, which is a shared ledger or document designed to be duplicated several times across a network of computers. Here, the updated document is distributed continuously and made available to all holders of the cryptocurrency itself.
Knowing that every single transaction made is recorder in the blockchain, the blockchain is run by miners who use powerful computers that record the transactions. Basically, their role is to update each time a transaction is made and ensure the authenticity of the information, thereby labeling it as secure and processing it safely.
As a payment for their services, miners are paid in physically minted cryptocurrency as fees by different merchants and vendors of each transaction. The value of a cryptocurrency bases on demand and supply and there is never a fixed value for each of them. Basically, buyers and sellers agree on a specific value and based on it are doing the trading elsewhere.
Mining is a process that includes two main functions:
adding transactions to the blockchain (securing and verifying them) and
releasing new currency
The process demands a computer and a special program which helps miners complete with their peers and solve the complicated math problems. This process also needs huge computer resources which power the software to solve a block using cryptographic hash functions. Here, the hash value is a numeric value or fixed length that can identify data and reward the first one who mined the block with a certain cryptocurrency value.
Why Are Cryptocurrencies Great?
Whether you already invested in crypto currencies or are planning to do it, you should know that each cryptocurrency is great because it is:
Irreversible – Meaning that a transaction cannot be reversed by anybody
Pseudonymous – There is complete anonymity and neither transactions nor accounts are connected to real-world identities
Fast and global – The transactions are made in lighting speed and confirmed in a couple of minutes
Secure – The cryptocurrency funds are generally secure, locked in a public cryptography system where only the owner of the private key can send cryptocurrency
Permissionless – You don’t have to ask anybody to send or receive cryptocurrency, coming from the decentralized network
However, there is a controlled supply of tokens when it comes to crypto currencies – which means that the monetary supply of a cryptocurrency in every moment can be roughly calculated at any time and there are no surprises.
Understanding The Revolutionary Impact Of Crypto Currencies
In order to understand the impact of crypto currencies nowadays, you need to consider everything about them. If we take Bitcoin for example, it is safe to say that it is a permissionless, irreversible and anonymous network where payments cannot be tracked or controlled by banks and governments.
That being said, it is clear to see why crypto currencies attack the scope of the monetary policy – and why they are attractive to many people. According to many, they are forming the dawn of a new economy and are already acting as a fast and comfortable means of payment to many people and businesses. Interested in learning more about cryptocurrencies? Read our blog for the latest crypto news!