What Is Cryptocurrency? This is what You Should Know
In this techno-savvy world when and everything is digitalizing, even payment methods are being digitalized. Cash payment is almost out of trend nowadays. The world is opting for a virtual platform for transacting money and cryptocurrency is one of them. Studies have proved that very few people know and understand cryptocurrency.
Many people have a misconception that cryptocurrency is software just like any other payment application like google pay, phone pay, etc. So… here, this is the article that will provide you a brief account of what Cryptocurrency actually is, how it works, and its advantages.
A cryptocurrency is a digital currency used to exchange goods and services through a system of electronic transactions without going through any mediator or linkman. It is a method of buying goods and services or trade them for profit. In simple words, it’s just like how you buy a ticket in the theatre to watch the play by paying a specific amount or the way you buy a coupon.
Technically, cryptocurrency came into existence in 1983 in America. David Chaum, a cryptographer developed a cryptographic system called eCash. In 1995, he developed a similar type of system named DigiCash which used cryptography to make economic transactions confidential. But, the term “cryptocurrency” was the first time coined in the year 1998, by Wei Dai when he thought of designing a payment method with decentralization as the most important characteristic and with the help of cryptocurrency. Finally, in 2009, a mysterious person named ‘Satoshi Nakamoto’ whose identity is still a big mystery created the first cryptocurrency called ‘Bitcoin’, which now the king of cryptocurrencies.
At this point, many of you may have a question in your head that why there was a need to create a cryptocurrency? Let me clear this. Do you know about the global economic crisis that took place right one year before Bitcoin was invented, in 2008? It was a huge funding disaster that affected millions of citizens in America and coins were losing their value faster and faster. Also, as ‘Need is the mother of invention’ the need to make people realize that there is another type of money other than the conventional one, which they can use and get benefited.
Investment in cryptocurrencies is reaching heights day by day. Various companies issue their own currencies which can be traded specifically used for the goods and service that the company provides. One of the companies that are developing its own cryptocurrency is the multinational photography, design, and production company ‘KODAK’ which created ‘KodakCoin.’
Many people still wonder about the advantages of cryptocurrency so here I have noted down some of them:-
- It is decentralized: they are not controlled by the bank, the government, and any financial institution
2. It is Anonymous: your privacy is preserved when making transactions
3. It is International: everyone’s opera with them
4. It’s safe: your coins are yours and from nobody else, it is kept in a personal wallet with non-transferable codes that only you know
5. It has no intermediaries: transactions are carried out from person to person
6. Quick transactions: to send money to another country they charge interest and often it takes days to confirm; with cryptocurrencies only a few minutes.
7. Irreversible transactions: Bitcoins and any other virtual currency can be exchanged for any world currency
8. Not fake: It cannot be faked because they are encrypted with a sophisticated cryptographic system called ‘Blockchain’
Unlike currencies, the value of electronic currencies is subject to the oldest rule of the market supply and demand. Currently, it has a value of more than 1000 dollars and like stocks, this value can go up or down the supply and demand.
Blockchain
Now many of you may doubt that what this blockchain is? Let me clear you…
Blockchain is a type of system of recording information in such a way that makes it difficult or impossible to change, hack or cheat the system. It is essentially a virtual ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain has several transactions, and whenever a new transaction takes place on the blockchain a record of that is added to every participant’s ledger.
Blockchain is a type of DLT (Distributed Ledger Technology) in which transactions are recorded with an immutable cryptographic signature known as a hash. Hashing is an algorithm that keeps blockchain data manageable and secure. When a transaction has been verified and needs o to be added to a block in a chain, it will be put through a hash algorithm to convert it into a set of unique numbers and letters, in the same manner how the way passwords are generated. Hashes are said to be the key security feature of blockchain.
If the hashing process is repeated with the same transactions, the same hashes will be created. This allows anyone using the blockchain to check that the data has not been tampered with, because ANY change in any part of the data will result in a completely different hash, affecting every iteration of hashes all the way to the root. This is known as a Merkle Tree.
Merkle Trees serve the purpose of significantly reducing the amount of data required to be stored and transmitted or broadcast over the network by summarising sets of hashed transactions into a single root hash. As each transaction is hashed, then combined, and hashed again, the final root hash will still be a standard size.
For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have been anything but stable throughout much of their history. For example, while Bitcoin traded at close to $20,000 in December 2017, its value then dropped to as low as about $3,200 a year later. By December 2020, it was trading at record levels again.