BlockchainTechnology

What cryptocurrency actually is

Cryptocurrency and Blockchain

 

What cryptocurrency actually is?

 

How and why was it created?

 

 

Preface

Since the past, money has started in the form of barter. People will exchange goods and services for other goods and services.

It paved the way for precious metals to be used as currency.

Gold evolved into paper currency. It is light and easy to carry. The paper currency is issued by a centralized bank or authority. Often controlled by the government, they can decide the flow of money in the economy.

Then came the credit cards. You no longer need cash to spend.

During all these years, Government oversight and control over people’s accounts increased.

Money is no longer the freedom to do things you like. It is more of a control exercise government uses to monitor the behavior.

Bitcoin for the first time gave people a hope that the currency can work without any central authority.

We need Cryptocurrencies because they are letting you buy goods and services, or trade them for profit.

Like any currency, cryptocurrencies can be used to buy goods and services. But unlike other currencies, cryptocurrencies are digital and use cryptography to provide secure online transactions.

In the developed countries traditional Financial institutions like a credit card, check, and paper money are not suitable for our digital lifestyle so it’s actually very difficult to use the financial system in 1995 s and online to do electronic commerce.

All of the people suffer from failure to identify theft, transaction unsuccessful, credit card theft.

Maybe when you pay, vender does Transaction more than the actual amount.

Another problem is in traditional financial institutions.

In the traditional system, Venders are telling you the fee and Says the price higher.

It, s the best advantage that having new digital currency is on the internet so doing anything like making payment online. It, s amazing because it, s faster and safely. It, s harmonious with digital and modern lifestyle.

So you can make a beautiful and modern digital lifestyle with us

To learn and use this technology is worth it because Value is a really meaningful

The world is changing and it’s better to keep up with it

But in digital currency, the fee is lower and you can save. All of these things reduce the cost of doing commerce and engaging commerce online

Think about how we were communicating before email. Think of the first computer you worked on and the laptop you are currently using

In fact, you know the difference between both of them.

you can make a beautiful and modern digital lifestyle with us

Understanding:

A cryptocurrency (or crypto currencies) is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.

Cryptocurrencies use decentralized control as opposed to centralized digital currency and central banking systems.

In simple terms, cryptocurrency is a type of digital or virtual money. It serves as ordinary money, such as dollars, pounds, euros, yen, etc. But it has no physical counterparts — banknotes or coins that can be carried around, that is, the cryptocurrency exists only in electronic form.

cryptocurrency is an actual product of the digital age with has no banks, government or any middleman involved for that matter.

 

History

How this cryptic currency exchange medium came into being?

bitcoin was first released as an open-source software in 2009

To this day, even after many people have come forward and claimed to be the inventor of bitcoin, speculation is still ongoing.

Satoshi Nakamoto is presumably a single-handedly genius person or a pseudonymous name for a team of geniuses that came up with the first-ever blockchain technology for developing bitcoin in 2008.

But added a level of difficulty by using a hash function method to record time on the blocks without requiring them to be signed by the third party trusted source.

Ever since then, many other cryptocurrency types have followed through.

According to recent publications, there are over 3000 outcomes in existence right now with even more to come. To put it briefly, Cryptocurrency is a digital alternative to our standard cash money that holds its value in terms of the supply and demand rather than a centralized regulatory authority.

With all these different types of cryptocurrencies having their own functional variations, each digital currency is supported through a similar decentralized peer to peer network.

Cryptocurrency is nothing more or less just a medium of exchange.

What makes it different is that it is a digital asset designed using strong cryptography to make financial transactions more secure, control additional units being created as well as the verification of the transfer of assets.

Cryptocurrency uses decentralized monitoring systems in contrast to the centralized controlling and regulatory networks of digital currency and banking.

Bitcoin was the first of all cryptocurrencies for many things. One of them was bitcoin established the system in which the main proxies that are the sender and the receiver of these coins were to abide by certain rules.

They had to sign off on each payment and create a digital signature.Each person had a public as well private encryption key to make it possible.

Every transaction had to be first verified for accuracy.

These rules gave the system its guaranteed privacy and anonymity. It became so transparent for people dealing through bitcoin that it was successful in the domain where it was launched. At the core of this system resides ledger.

 

 

How is it working?

Cryptocurrencies can be sent directly between two parties via the use of private and public keys.

These transfers can be done with minimal processing fees, allowing users to avoid the steep fees charged by traditional financial institutions.

In the other word, Cryptocurrency is an internet-based medium of exchange which uses cryptographic functions to conduct financial transactions.

Cryptocurrencies leverage blockchain technology to gain decentralization, transparency, and immutability.

Cryptocurrencies can be sent directly between two parties via the use of private and public keys.

These transfers can be done with minimal processing fees, allowing users to avoid the steep fees charged by traditional financial institutions.

Transactions are sent between peers using software called “cryptocurrency wallets.”

The person creating the transaction uses the wallet software to transfer balances from one account (AKA a public address) to another. Many transactions are added to a ledger at once.

All types of cryptocurrency have this ledger where transactions are made public to ensure the system’s transparency as promised. It basically forces everyone to play fair by taking away the risk of spending extra.

Cryptocurrency is designed to play according to the up-and-coming digital age.

Powered by similar blockchain technology, this much-awaited project is all set to allow users to not only shop, but even send currency via Facebook’s own safety checked applications such as Messenger, WhatsApp, and Instagram.

It is going to include other channels such as Uber, Spotify, and MasterCard under the umbrella domain to make payments and usage more comfortable.

Facebook’s reputation is trusted enough that people will consider getting their hands on any new technology associated with the organization. A quick look at its promised features is enough to tell you that the platform is soon going to become a reliable source of transnational exchange and a rich medium of payments for many people.

Using Cryptocurrencies

Using cryptocurrencies isn’t like using fiat currency. You can’t hold cryptocurrency in your hand and you can’t open a cryptocurrency account. Cryptocurrency only exists in the blockchain.

Users access their cryptocurrency using codes called public and private keys.

This is how private keys work. Private keys are like passwords for cryptocurrency. Public keys can be seen by anyone, but private keys should only be seen by you.

If there is one paramount detail you should learn from this What is Cryptocurrency guide, it’s that keeping your private keys safe is extremely important!

CryptocurrencyPrivate and public keys are kept in wallets. Crypto wallets can be online, offline, software, hardware or even paper.

Some can be downloaded for free or are hosted by websites. Others are more expensive. For example, hardware wallets can cost around a hundred US Dollars.

You should use several different kinds of wallets when you use cryptocurrency.

Whoever has the private and public keys owns the cryptocurrency, so don’t lose your wallets! Cryptocurrency is pseudonymous, remember? There is no way to prove your own cryptocurrency unless you have the keys to it.

 

Cryptocurrency mining

It is the job of a miner in the cryptocurrency network to confirm transactions.

They take transactions, mark them as legitimate, and allow them to be spread all over the system. When a transaction is confirmed by the miner, every intersection of the transaction has become a part of the database – in turn, becoming a part of the blockchain.

Miners are then rewarded within the existing domain of cryptocurrency through whatever type of currency is being used. For example, if it’s bitcoin, a miner will be rewarded with a said particular number of bitcoins as there are no specifications attached to becoming a miner.

Cryptocurrency mining is an essential aspect of the system.

Since a miner’s job is the core activity within the cryptocurrency system. As a decentralized network is working at the core of this system, there is no superior authority to delegate these tasks.

Therefore, a correct and fixed procedure that cryptocurrency follows is to stop the ruling party from abusing it. The mechanism works in a way that even if somebody plans to enter the system and crash it, there is no loophole present in the network, mining, or blockchain to cause the system to break immediately.

 

 Types of cryptocurrency

There are two types of cryptocurrency: outcomes(Altcoins ) and tokens.

Altcoins

The term altcoins refer to alternatives of bitcoin, including namecoin, piercing, litecoin, dogecoin, and aurora coin, among others.

Namecoin is considered to be the first to call itself an alternate to altcoin since its inception in 2011. These altcoins have a limited supply, and in order to keep their balance in check and reinforce their perceived value, they claim to be better versions of bitcoin.

Tokens

Unlike altcoins, tokens are created and distributed through an ICO, which is the initial coin offering. Their values are represented through bitcoins, security token or utility token.

Their functionality works both ways that they can be used as an alternative to money as well as to describe a function. For example, bitcoin and ether from the theorem are considered to be crypto tokens and others are all altcoins.

 

Properties of the cryptocurrency

Digital: Cryptocurrency only exists on computers. There are no coins and no notes. There are no reserves for crypto in Fort Knox or the Bank of England!

Decentralized: Cryptocurrencies don’t have a central computer or server. They are distributed across a network of (typically) thousands of computers. Networks without a central server are called decentralized networks.

Cryptocurrencies are passed from person to person online. Users don’t deal with each other through banks, PayPal or Facebook.

They deal with each other directly. Banks, PayPal and Facebook are all trusted third parties.

There are no trusted third parties in cryptocurrency! Note: They are called trusted third parties because users have to trust them with their personal information in order to use their services. For example, we trust the bank with our money and our trust Facebook with our holiday photos!

Pseudonymous: This means that you don’t have to give any personal information to own and use cryptocurrency. There are no rules about who can own or use cryptocurrencies. It’s like posting on a website like 4chan.

Trustees: No trusted third parties means that users don’t have to trust the system for it to work. Users are in complete control of their money and information at all times.

Encrypted: Each user has special codes that stop their information from being accessed by other users.

This is called cryptography and it’s nearly impossible to hack. It’s also where the crypto part of the crypto definition comes from. Crypto means hidden. When information is hidden with cryptography, it is encrypted.

Global: Countries have their own currencies called fiat currencies. Sending fiat currencies around the world is difficult. Cryptocurrencies can be sent all over the world easily.

Cryptocurrencies are currencies without borders!

Coins can be bought in two ways, they may be mined through solving some complex equations and as a reward you get coins or they may be bought from exchanges.

 

Accessible: Advantage of digital currencies are all of the people can access in all of the world. It’s Accessible for all of the people in all of the world

People have money and want to use it in the everywhere but traditional money, Financial institutions and the bank are Limited. Traditional financial institutions, bank and it is limited

Security: the security of the blockchain relies cryptography.

Each block is connected to the data in the last block via one-way cryptographic codes called hashes which are designed to make tampering with the blockchain very difficult.

Offering new coins as rewards, the difficulty of cracking the cryptographic puzzles, and the amount of effort it would take to add incorrect data to the blockchain by faking consensus or tampering with the blockchain, helps to ensure against bad actors.

 The first cryptocurrency which was ever made was Bitcoin which was way back in 2009 by a person or a group named Satoshi Nakamoto.

It gained popularity only in 2013, and that made its prices reach the moon. The main reason behind its ever-increasing price was limited supply, they are only 21 million and everyone wanted to get hold of it and so there was a surge in demand and hence the price shoot up.

Advantages of using cryptocurrency are that they are secure, immutable and cryptography is used to encrypt them. They can be instantaneously transferred across the globe with minimal transaction charge and that makes them better than fiat currency.

 

Cryptocurrency and Hash

The keys that move balances around the blockchain utilize a type of one-way cryptography called public-key cryptography.

The “hashes” (the one-way cryptographic codes that tie together blocks on the blockchain) use a similar type of cryptography.

Meanwhile, transaction data sent and stored in the blockchain is tokenized (tokenization is a type of one-way cryptography that points to data but doesn’t contain all the original data).

The key to understanding these layers of encryption, which ensure a system like Bitcoin’s (some coins work a little differently) is found in one-way cryptographic functions (cryptographic hash functions, cryptographic tokens, and public-key cryptography are all names for specific, but related, types of one-way cryptographic functions). The main idea is that cryptocurrency uses a type of cryptography that is easy to compute one way, but hard to compute the other way without a “key.”

Very loosely you can think of it like this, it is easy to create a strong password if you are in your online bank account, but very hard for others to guess a strong password after it has been created.

 

Digital currency connection with blockchain

Each cryptocurrency uses Public Blockchain Technology to keep its currency and technology in a safe way.

All cryptocurrencies use distributed ledger technology (DLT) to remove third parties from their systems. DLTs are shared databases where transaction information is recorded.

The DLT that most cryptocurrencies use is called blockchain technology. The first blockchain was designed by Satoshi Nakamoto for Bitcoin.

A blockchain is a database of every transaction that has ever happened using a particular cryptocurrency. Groups of information called blocks are added to the database one by one and form a very long list.

So, a blockchain is a linear chain of blocks! Once information is added to the blockchain, it can’t be deleted or changed. It stays on the blockchain forever and everyone can see it.

The whole database is stored on a network of thousands of computers called nodes. New information can only be added to the blockchain if more than half of the nodes agree that it is valid and correct.

This is called consensus. The idea of consensus is one of the big differences between cryptocurrency and normal banking.

In a normal bank, transaction data is stored inside the bank. Bank staff makes sure that no invalid transactions are made. This is called verification.

 

How does cryptocurrency work in blockchain?

The blockchain is like a decentralized bank ledger, in both cases, the ledger is a record of transactions and balances. When a cryptocurrency transaction is made, that transaction is sent out to all users hosting a copy of the blockchain.

Specific types of users called miners then try to solve a cryptographic puzzle (using software) which lets them add a “block” of transactions to the ledger.

Whoever solves the puzzle first gets a few “newly mined” coins as a reward (they also get transaction fees paid by those who created the transactions).

Sometimes miners pool computing power and share the new coins. The algorithm relies on consensus. If the majority of users trying to solve the puzzle all submit the same transaction data, then it confirms that the transactions are correct.

Further, the security of the blockchain relies on cryptography.

Each block is connected to the data in the last block via one-way cryptographic codes called hashes which are designed to make tampering with the blockchain very difficult.

Offering new coins as rewards, the difficulty of cracking the cryptographic puzzles, and the amount of effort it would take to add incorrect data to the blockchain by faking consensus or tampering with the blockchain helps to ensure against bad actors.

Finally, People who are running software and hardware aimed at confirming transactions to the digital ledger are cryptocurrency miners.

Solving cryptographic puzzles (via software) to add transactions to the ledger (the blockchain) in the hope of getting coins as a reward is cryptocurrency mining.

For more information, check out my Blockchain Explained guide.

 

 What is Cryptocurrency Mining For?

It’s the way cryptocurrency networks like Bitcoin verify and confirm new transactions. It stops double spending without the need to trust centralized accounting as banks do. Cryptocurrency blockchains aren’t secured by trust or people. They are secured by math done by computers!

 

How does one obtain or trade cryptocurrency?

Cryptocurrency can be obtained most of the same ways other types of currencies can. You can exchange  goods and services for cryptocurrency, you can trade dollars for cryptocurrencies, or you can trade cryptocurrencies for other cryptocurrencies. Trading is generally done via brokers and exchanges.

Brokers are third parties that buy/sell a cryptocurrency, exchanges are like online stock exchanges for cryptocurrency. One can also trade cryptocurrencies directly between peers.

Peer-to-peer exchanges can be mediated by a third party, or not. Please be aware that cryptocurrency prices tend to be volatile. One should ease into cryptocurrency investing and trading and be ready to lose everything they put in (especially if they invest in or trade alternative coins with lower market caps).

 

 

Tax implications cryptocurrency

Like anything else in life, there are tax implications for trading or using cryptocurrency. Make sure you understand the tax implications. In short, you’ll owe money on profits (capital gains) and may owe sales tax or other taxes when applicable.

According to official IRS guidance, Bitcoin and other cryptocurrencies should be treated as property for tax purposes — not as currency. … Just like you would with trading stocks, then you are required to report your capital gains and losses from your cryptocurrency trades on your taxes.

People’s comments, Learn more about cryptocurrency and taxes.

 

What a new user needs to know?

Cryptocurrency is roughly the equivalent of using PayPal or a Debit Card, except the numbers on the screen represent cryptocurrency instead of fiat currency like a dollar.

All a new user needs to do is set up a Coinbase account. With Coinbase users can buy, sell, send, receive, and store Bitcoin, Bitcoin Cash, Ether, and Litecoin (Coinbase provides an all-in-one wallet, broker, and exchange service making them a one-stop-shop for new users).

 

The concept of digital wallet in digital currency

Transactions are sent between peers using software called “cryptocurrency wallets.”

The person creating the transaction uses the wallet software to transfer balances from one account (AKA a public address) to another.

To transfer funds, knowledge of a password (AKA a private key) associated with the account is needed. Transactions made between peers are encrypted and then broadcast to the cryptocurrency’s network and queued up to be added to the public ledger.

Transactions are then recorded in the public ledger via a process called “mining” (explained below). All users of a given cryptocurrency have access to the ledger if they choose to access it, for example by downloading and running a copy of the software called a “full node” wallet (as opposed to holding their coins in a third party wallet like Coinbase).

The transaction amounts are public, but who sent the transaction is encrypted (transactions are pseudo-anonymously). Each transaction leads back to a unique set of keys. Whoever owns a set of keys, owns the amount of cryptocurrency associated with those keys (just like whoever owns a bank account owns the money in it). Many transactions are added to a ledger at once.

These “blocks” of transactions are added sequentially by miners. That is why the ledger and the technology behind it are called “block” “chain.” It is a “chain” of “blocks” of transactions.

TIP: I’ve just described how Bitcion works and how many other coins work too. However, some altcoins use unique mechanics. For example, some coins offer fully private transactions and some don’t use blockchain at all.

 

Summary

Cryptocurrency is a digital currency, which can be used to transfer assets from person to person in a decentralized way. Decentralized means it is not regulated by any banks or central authority.

Today, there is more than 1500 cryptocurrency, out of which some are coins and tokens.

This is a new form of money that Introduce on the internet. It’s not Physical and exist digitally Trading as like an email.

Cryptocurrency works a lot like bank credit on a debit card. In both cases, a complex system that issues currency and records transactions and balances work behind the scenes to allow people to send and receive currency electronically.

Likewise, just like with banking, online platforms can be used to manage accounts and move balances.

The main difference between cryptocurrency and bank credit is that instead of banks and governments issuing the currency and keeping ledgers, an algorithm does.

They are not or cannot be handled by any banks or central authority which makes all the transactions privacy oriented. These are developed on the basis of the consensus algorithm.

cryptocurrency can be bought from the exchanges which can be stored in many places such as wallets, exchange wallets, hardware stores.

There is no physical presence of the coins and they are all digital. Cryptocurrencies are also distributed across the whole network so if one part fails then too the data is not lost and we have our data which gives trust and also the whole transaction is anonymous.

There is always one more term attached to this which is Blockchain, which is a chain of blocks hashed together or we can say it’s a distributed database.

All the transactions of the cryptocurrency are stored in these blocks. These blocks have a specific size.

Using digital technology like email has in the past improved the quality and quantity of your life

In the future, our children laughing at how hard and insecure the past traders have been trading.

The world is changing time by the time it’s so better than by the way, change your mind to a beautiful and modern lifestyle.

 

 

Conclusion

Cryptocurrency can be thought of as a digital currency like PayPal or bank credit (what you use with your credit or debit card).

Cryptocurrency transactions and balances are recorded on a public digital ledger called a blockchain.

Cryptocurrencies can be accessed through software called wallets (transactions are broadcast to the network to be added to the blockchain via transactions created in wallets).

This can be equated to online banking (where you have account numbers and passwords and move funds between accounts).

Cryptocurrencies can be bought through a broker or traded on online cryptocurrency exchanges (like a stock exchange).

There are many other cryptocurrencies beyond Bitcoin (some of which are better defined as digital assets).

Unlike bank credit, which represents a centrally controlled and issued fiat currency (like the US dollar), cryptocurrency is decentralized and thus not centrally controlled.

Instead of a central powering controlling cryptocurrency, an algorithm and users themselves control cryptocurrency.

The algorithm dictates how transactions work and how new coins are created, users create peer-to-peer transactions using software called wallets. Transactions are recorded in a public digital ledger.

Those who confirm transactions by breaking cryptographic codes are called miners. Mining is a process that creates new coins.

Of course, you don’t need to know any of that. All you need to do is set up a Coinbase account and use that to buy and sell Bitcoin, Bitcoin Cash, Ether, or Litecoin and to send and receive cryptocurrency. Just remember to pay your taxes.

TIP: If you find yourself interested in cryptocurrency, check out an exchange like Coinbase Pro and learn how to trade one cryptocurrency for another. Coinbase Pro is a Coinbase product.

 

About us
learn trade from us free

 

 

If you want to trade with simple and accurate tools, please be in touch with us

Reach to your goals with  ARANCO

Tags
Show More

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button
error: Content is protected !!
Close
Close