Cryptocurrency – What it is? You should know how it works? More than 4000 cryptocurrencies are there in the world.
When we go outside to buy something, maybe like goods and services, we use a medium of exchange called money.
A more general definition is that a currency is a system of money in common use, especially for people in a nation.
Money is generally present in the form of paper or coins and is usually issued by a government and accepted at its face value as a method of payment.
But a new type of currency has emerged in the 21st century Called Cryptocurrency.
What is Cryptocurrency?
It is a type of digital currency designed to use as a medium of exchange, where all the transactions are stored in a chain of public ledgers using strong cryptography.
Currencies that we use every day are centralized and owned by governments, but cryptocurrencies are decentralized. And this decentralization is possible by using Blockchain technology.
What is the name of the first cryptocurrency, who and when it was introduced?
The name of the first cryptocurrency is Bitcoin.
It was first invented by a person(or a group of persons) with the name “Satoshi Nakamoto” in the year 2008. The identity remains secret to the date.
It was first implemented in the year 2009.
How does Cryptocurrency work?
All cryptocurrencies are possible only by using blockchain technology.
As the name suggests, Blockchains are the chain of blocks linked with the previous blocks and the block next to them.
Blockchain is a distributed ledger technology(DLT) based on a peer-to-peer(P2P) network. And this distributed ledger allows data to be stored globally on the computer servers connected to the same network.
Let me give you an example of how this works?
let’s say there are 100 computers or servers are connected to the blockchain network. A person X(has 10 crypto coins) wants to send 5 crypto coins to person Y(has 6 crypto coins). If the transaction is successful(which in this case it will), then the updated coin balance of both X and Y will be 5 and 11 respectively. And this transaction gets validated by those 100 computers and gets updated accordingly. The validation and update take time(10 mins. for the case of bitcoin).
If X again tries to send 6 crypto coins to Y (which in this case it should fail ), the new transaction gets forked(or copied) to another branch. When the previous transaction gets validated and updated, the new transaction gets compared with the previous transaction and updated accordingly.
Where can we get these cryptocurrencies?
Mainly two ways you can get those cryptocurrencies.
2-Buying from Exchanges
To validate a transaction, all the computers that are connected to the blockchain network are given a set of complex mathematical problems.
whoever solves this problem first and adds a block to the blockchain, gets rewarded as a token(12.5 in the case of bitcoin).
Mining nowadays takes lots of computational power.
To achieve that you need powerful CPUs and GPUs.
You need a stable Internet connection and Electricity.
2- Buying from exchanges.
Miners who mine cryptocurrencies sell their coins to many of the cryptocurrency exchanges
if you don’t want o to invest money in Electricity, Internet, CPUs, and GPUs you can always buy cryptocurrencies from these exchanges.
Buy crypto currencies from Binance(A crypto exchange).
People can send bitcoins to each other using mobile apps or their computers. It’s similar to sending cash digitally.
Is Cryptocurrency Secure?
To move anything of value over any kind of blockchain, the network of nodes must first agree that that transaction is valid, which means no single entity can go in and say one way or the other whether or not a transaction happened.
To hack a blockchain, you wouldn’t just have to hack one system like in a bank, you’d have to hack every single computer on that network, which is fighting against you doing that.
What are the types of Cryptocurrencies?
Since the first cryptocurrency Bitcoin, there are many cryptocurrencies are introduced. Some of them are forked (or copied ) from bitcoin like Litecoin.
Altcoins are the other cryptocurrencies launched after the success of Bitcoin. Examples of altcoins are Ethereum(ETH), Binance Coin(BNB), Bitcoin Cash(BCH), etc.
Stablecoins are designed to minimize the volatility of the price of the cryptocurrencies, relative to some “stable” asset or basket of assets. A stablecoin can be pegged to a cryptocurrency, fiat money, or exchange-traded commodities (such as precious metals or industrial metals). Examples of stablecoins are Tether, USDCoin, TrueUSD, TrueAUD, etc.
Points to Remember
- Cryptocurrencies are digital currencies designed to use as a medium of exchange.
- These are created by using Blockchain technology.
- These are decentralized.
- Bitcoin is the first and most used cryptocurrency.