Cryptocurrency is the buzzword around the financial landscape now following the meteoric rise of Bitcoin and other altcoins towards the end of last year. Their popularity continues to grow as more people seek to understand them and use them as an alternative asset class.
A cryptocurrency is known as a digital or virtual currency that has been designed to serve as a medium of exchange. The currency makes use of cryptography to secure and verify transactions which are also used in controlling the creation of new units of a cryptocurrency. Basically, cryptocurrencies also known as cryptos are limited entries in a database that are developed in such a way that no one can alter them unless some certain conditions are fulfilled.
The biggest feature of cryptocurrencies still remains decentralization as no central body controls the cryptocurrencies.
Even though Bitcoin is the first crypto developed, there have many attempts at creating a digital currency during the 90s tech boom. Flooz, Beenz, and DigiCash were all created back then but the systems failed as the internet was not yet equipped to handle virtual currencies.
However, all that changed in 2009 when an anonymous programmer, or a group of programmers dubbed Satoshi Nakamoto created Bitcoin. It was described as a ‘peer-to-peer electronic cash system that is fully decentralized. This concept is somehow similar to peer-to-peer networks for file sharing.
The creation of Bitcoin was only the first as more cryptocurrencies like Ethereum, Litecoin, Ripple, and others emerged. At the moment, there are more than 1,000 cryptocurrencies in existence and it is expected to increase over the coming years.
In decentralized cryptocurrencies like Bitcoin, there are several participants involved and everyone does their jobs to keep the network functioning. The work is done via the Blockchain, which is a public ledger that records all the transactions that ever occurred within a network. The ledger is made public and available to everyone.
A transaction that occurs using cryptocurrency will consist of the sender’s and recipients public keys and the number of coins that were transacted. The transaction would have to be signed off by the sender using their private key. After the transaction has been signed by the sender, it would be broadcast in the network after which it would be confirmed.
Confirming transactions within a crypto network is the work of “miners” and they do that by solving a cryptographic puzzle. The first miner to solve the computational puzzle would confirm a transaction by marking them as legitimate and spread them across the network. For doing this, the miners are rewarded with some of the crypto profits.
Every node on the network records the transaction on its database and the transaction become unforgeable and irreversible afterward.
There must be a consensus among all the participants regarding the legitimacy of balances and transactions before a crypto network can fully function
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