The following article is a Quick Guide for anybody who wants to get educated on the Cryptocurrency.
What is Cryptocurrency
Cryptocurrency is simply a medium of exchange just like your normal everyday regular currency except it exchanges digital information and its separate units are called -coins-.
This exchange is protected through a process known as cryptography that is used to secure its transactions, control creation of additional units, and to verify the transfer of assets.
Usually government and banks control the supply of currencies through centralized financial systems essentially by “printing” units called fiat currency and this centralized “fiat system” often is characterized by an inflation whereas cryptocurrencies are are produced based on a protocol at a predetermined set rate, not controlled by one person or organization, and their specifications are not easily altered without consensus on the network.
The excellent thing about cryptocurrencies is that you can send and receive money anywhere in the world at any given time whereas you don’t have to worry about bank hours, formal permission or any other limitations, therefore it also protects against identity theft, also the payments are irreversible and secure, meaning that merchants don’t have to worry about the cost of fraud and the fees involved are usually also low.
Introduction about Bitcoin
The first ever-successful cryptocurrency was emerged from the invention of Bitcoin, by Satoshi Nakamoto. This was then followed by the birth of other types of cryptocurrencies. It was the first ever-successful decentralized digital currency and has had time to gain acceptance among both merchants and consumers.
It is considered very safe compared to other digital currencies, it has no third parties, and the protocol is open source (i.e. its code is peer-reviewed by a large community of programmers and developers).
From restaurants and coffee shops, to real estate companies and online shops, Bitcoin is now accepted, as a method of payment, by a wide variety of establishments. It is also described as digital cash, an international payment network, the internet of money – but whatever you call it, it is a revolution that has changed the way everyone sees and uses money.
Road map of Bitcoin
Satoshi Nakamoto is an anonymous person or group who has successfully found a way to build a decentralized digital cash system which means that the network is powered by its users without having any third party, central authority or middleman controlling it.
He published the invention on October 31, 2008, to the Cryptography Mailing list called metzdowd.com.
The research paper (whitepaper) was titled “A Peer-to-Peer Electronic Cash System” and describes the road-map for Bitcoin and it was implemented in its first client and released to the open source community in January 2009.
The Bitcoin network came into existence on January 3, 2009, with the release of the first Bitcoin software and the issuance of the first bitcoins. Satoshi Nakamoto continued to collaborate with other developers on the bitcoin software until mid-2010. Around this time, he handed over control of the source code repository to the bitcoin developer Gavin Andresen.
Nakamoto also transferred several related domains to various prominent members of the bitcoin community, then stopped his involvement in the project and prior to his absence and handover, Satoshi Nakamoto made all modifications to the source code.
How Do Cryptocurrencies Work
Cryptocurrency emission or production process is called mining and this mining could be done by anyone on the condition that he provides enough processing power to be used to solve sophisticated mathematical equations and such mathematical calculations results will create new coins which are saved forever into the Blockchain.
Blockchain is a global decentralized database or register, protected by a special cryptographic algorithm (a consensus-keeping process secured by strong cryptography). It consist on managing and maintaining a growing set of data blocks using the decentralized, known as Peer to Peer, Network.
Each s register consists of its own network of peers, every peer has a record of the complete history of all transactions as well as the balance of every account and by the end of every transaction and upon confirmation, the transaction is known almost immediately by the whole network.
Confirmation is everything and it is a critical stage in the cryptocurrency system because if the transaction is not confirmed, it has the possibility of being hacked and forged but when confirmed, it is set in stone forever
A transaction includes a process where A gives X amount of Bitcoins to B, and is signed by A’s private key. After signed, a transaction is broadcasted in the network. The information is sent from one peer to every other peer on the network. It can’t be reversed, impossible to be hacked and it is not forgeable as it is part of a permanent record of the historical transaction called The Blockchain.
Blockchain can be compared to an online register, where all transactions are recorded and made visible to the whole network. This comes to show that cryptocurrencies are not secured by people or trust, but rather by complex mathematical equations.
Only coin mining creators are able to confirm a transaction by recording transactions, verifying them and disperse the transaction information in the network and for every completed transaction monitored and facilitated by the miners, they are rewarded with a token of cryptocurrency
Anyone can mine coins but the actual high level of computational complexity makes those interested to unite into pools to mine coins together
More information about this will be subject of a separate article.
All coins that have ever been mined are stored in special cryptocurrency wallets and the information of their content is also protected from any unauthorized changes thanks to the blockchain technology.
The Coins & the Tokens
Technically, as explained above, cryptocurrency is basically a Rewarding system to solve mathematical problems and this is done through the three following types of rewards
- A coin: like bitcoin mainly used for a decentralized digital payment system
- A Utility token: Designed to run a system better, faster and more efficient and
- An Internal Token : Only internally purchased in its system or environment to be used withing this environment then cashed out when exit that system and this purchase is done with a third party currency (fiat or cryptocurrency).
Withing this rewarding system there is technically two sets of reward coins (or token)
- Prove of work coin: A coin that is mined by a third party at a profit and have a high value so highly desirable; it’s a business in box especially for exchanges. As example: BTC, LTC , Menero, ..
- Algorithm based coin: Called also Prove of service coin, it is Not mined by a third party so stable with low value. An example of that is ripple which is now $1.40 and if lucky will max $5-6.
How Cryptocurrencies Values are Determined
The values of cryptocurrencies are dependent on the market and, like any other products, its price is dependent on demand and supply therefore more units are mined to balance the flow however, most currencies limit the supply of their tokens
For instance the total amount of Bitcoin issued is only 21 million. Therefore Bitcoin’s supply will decrease in time and will reach its final number by 2140. It also explains why it’s value is higher as compared to other cryptocurrencies.
How to spend Cryptocurrencies
Cryptocurrencies can be spent for different purposes through online transactions and there are mainly three different transactions that can be performed when using cryptocurrency
- Trading: This is very profitable for both professionals and beginners
- Personal Spending: You can pay for services and purchase almost anything with cryptocurrency
- Crowd Funding: You have complete control over donation to society or to fund projects worldwide
Other properties of Cryptocurrencies
Apart from cryptocurrency being very secure and is run through a decentralized network, we can list the following properties
- Potentially a vehicle for investment because Crypto-transaction are fast and global
- The monetary properties because The currencies are in controlled supply
- The revolutionary property because You have more control of what is going on in your account and how the system works and operate which is due to the decentralized network of peers that keeps a consensus on account balances and the transactions made. As compared to your physical bank account, which can be changed and controlled by people you don’t see and governed by rules you don’t even know!
Additional materials that may help you
- Get Started with BITCOIN
- The Types Of Cryptocurrency Available
- How To Open An Account To Invest
- Strategies To Invest
- How To Collect More Bitcoin
- Why Buy Cryptocurrency?
- Are There Any Drawbacks?
- The Future Of Cryptocurrency
We hope this article helped you understand Cryptocurrency
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