A cryptocurrency is a digital or virtual currency created to function as a medium of exchange just like cash.
Here are 4 helpful guides to know more about cryptocurrency.
It works with cryptography to protect and validate transactions together with to manipulate the production of new units of a particular cryptocurrency. Basically, cryptocurrencies are small entries in a data bank that nobody can modify unless certain conditions are met.
Generally, there have been many undertakings at creating a digital currency during the 90s tech boom, with systems like Flooz, Beenz, and DigiCash arising on the market but unavoidably failing. There were various different factors for their downfalls, like fraud, financial issues or even frictions between companies’ employees and their bosses.
Noticeably, each of those systems used a Trusted Third Party approach, meaning that the companies behind them verified and helped in the transactions. Inevitably, the transaction is broadcasted on the network, but it needs to be validated. Due to the failures of these companies, the creation of a digital cash system was viewed as a lost cause for a long while.
2. Peer-to-peer transaction
Then, in very early 2009, an anonymous programmer or a group of programmers under a false name Satoshi Nakamoto exposed Bitcoin. Satoshi described it as a ‘peer-to-peer electronic cash system.’ It is fully decentralized, meaning there are no servers included and no central controlling authority. The concept closely resembles peer-to-peer networks for file sharing.
Among of the most important problems that any payment network must solve is double-spending. It is a forged technique of spending the same amount twice. The typical solution was a trusted third party – a central server – that kept records of the transactions and balances. However, this method always entailed an authority basically in control of your funds and with all your personal details on hand.
In a decentralized network like Bitcoin, every single participant requires to do this work. This is completed via the Blockchain – a public ledger of all transaction that ever happened within the network, readily available to everyone. Everyone in the link can see every account’s balance.
Every single transaction is a file that consists of the sender’s and recipient’s public keys (wallet addresses) and the number of coins transferred. The transaction also needs to be signed off by the sender with their private key. All this is just basic cryptography. At some point, the operation is broadcasted on the network, but it needs to have to be confirmed first.
4. No third party
Within a cryptocurrency network, only miners can confirm transactions by solving a cryptographic puzzle. They take transactions, mark them as legitimate and spread them across the network. Later, every node of the network includes it to its database. Once the transaction is verified it becomes irreversible and unforgeable and a miner receives a reward, plus the transaction fees. These individuals take transactions, mark them as legit and spread out them across the network.
Cryptocurrencies are actually so referred to as because the consensus-keeping method is guaranteed with a very strong cryptography. This particular, together with the above-mentioned aspects, makes third parties and oblivious trust as a concept completely unnecessary.Please follow us on