What is actually a cryptocurrency: A Guide to Everything You Need To Know


What is cryptocurrency? Is it a 21st-century unicorn– or the money of the coming future?

This intro explains the most important aspect of cryptocurrencies. After you’ve read it, you’ll know more about it than most other humans.

Buying cryptos nowadays have become a global phenomenon known to most of the people who believes in it. Some people do not understood it still and somehow curious and not understood by most people, banks, governments and many companies are aware of its importance.

Way back in 2016, you’ll have a difficult time finding a major bank, some big accounting firm, a prominent software company or a government that did not research cryptocurrencies, publish a paper about it or start of what so-called blockchain-project.

But beyond the noise and the press releases the overwhelming majority of people– even bankers, consultants, scientists, and developers– have a very minimal knowledge about cryptocurrencies. They frequently fail to even understand the basic concepts.

    So let’s walk through the whole story. What are cryptocurrencies?

  • Where did cryptocurrency came from?
  • What are the things should you learn about cryptocurrency?
  • And what are the things you need to know about cryptocurrency?

What is cryptocurrency and how cryptocurrencies became a side product of digital cash.

Few people understand, but cryptocurrencies emerged as a side product of another invention. Satoshi Nakamoto, the unknown founder of Bitcoin, the first and still essential cryptocurrency, never planned to invent a currency.

In his statement of Bitcoin in late 2008, Satoshi said he created “A Peer-to-Peer Electronic Cash System.”.

His goal was to invent something; many people failed to create before digital cash.

The single most important part of Satoshi’s invention was that he found a way to build a decentralized digital cash system. In the nineties, there have been many attempts to create digital money, but they all failed.

After seeing all the centralized efforts fail, Satoshi tried to build a digital cash system without having a central entity. Like a Peer-to-Peer network for file sharing.

This choice ended up being the birth of cryptocurrency. They are the missing piece that Satoshi found to realize digital money. The main reason why is a bit technical and complex, but if you get it, you’ll know more about cryptocurrencies than most people do. So, let’s try to make things as easy as possible:.

To realize digital cash you need to have a payment connect with accounts, balances, and transaction. That’s easy to understand. To prevent that one entity spends exactly the same amount doubled, this is one major problem every payment network has to solve is to avoid the what we called double spending. Usually, this is done by a central host who keeps record about the balances.

In a decentralized network, you don’t have this server. So you need every single entity of the network to perform this job. Every peer in the network needs to have a list with all transactions to assess if future transactions are valid or a striving to double spend.

Yet how can these entities keep an agreement about this records?

If the peers of the network disagree about just one single, minor balance, everything is destroyed. They need an absolute consensus. Usually, you take, again, a main authority to declare the correct condition of balances. But how can you achieve consensus without a central authority?

No one did know until Satoshi emerged beyond nowhere. As a matter of fact, nobody believed it was even achievable.

Satoshi proved it was. His major breakthrough was to achieve consensus without a central authority. Cryptocurrencies are a part of this particular solution– the part that made the solution thrilling, fascinating and helped it to roll over the world.

What are cryptocurrencies really?
If you get rid all the noise around cryptocurrencies and turn it to a simple definition, you discover it to be just have limited entries in a database that no one can change without fulfilling specific conditions. This may seem ordinary, but, believe it or not: this is exactly how you can define a currency.

Take the money on your savings account: What is it much more than items in a database that can only be altered under specific conditions? You can even take your notes and physical coins: What are they else than limited entries in a public physical database that can only be changed if you match the condition than you physically own the coins and notes? Money is all about a verified entry in some kind of database of accounts, balances, and transactions.

How miners create coins and confirm transactions.

Let’s take a look at the system controling the databases of cryptocurrencies. A cryptocurrency just like Bitcoin is composed of a network of peers. Every peer has a record of the complete history of all transactions and thus of the balance of each account.

A transaction is a file that says, “Bob gives X Bitcoin to Alice” and is signed by Bob’s private key. It’s fundamental public key cryptography, nothing special anyway. After signed, a transaction is broadcasted in the network, delivered from one peer to every other peer. This is basic p2p-technology. Nothing special at all, again.

How it works:

1. Balances – block chain.
2. Transactions – private keys.
3. Processing – mining.

The transaction is recognized almost instantly by the whole network. But only after a specific amount of time it has confirmed.

Confirmation is a crucial concept in cryptocurrencies. You could say that cryptocurrencies are everything about confirmation.

Provided that a transaction is really unconfirmed, it is pending and can be forged. Everytime a transaction is confirmed, it is set in stone. It is no longer forgeable, it can’t be reversed, it is part of an unmodified record of historical transactions: of the so-called blockchain.

Only miners can confirm transactions. That is their task in a cryptocurrency-network. They get transactions, mark them as legit and dispersed them in the network. Soon after a transaction is verified by a miner, each node needs to include it to its database. It has entered into the blockchain.

Concerning this job, the miners get rewarded with a token of the cryptocurrency, for instance with Bitcoins. Since the miner’s activity is the single most important part of cryptocurrency-system we ought to stay for a moment and take a much deeper view it.

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