Cryptocurrency is an exciting new technology that is poised to disrupt the way financial transactions are taking place. Be it the money is sent, spent, or invested, the cryptocurrencies have created a paradigm shift in how to think about money.
Cryptocurrencies have been in the market for a decade. The media highlight on cryptocurrencies has paved the way for more and more people to involve in the cryptocurrency world and its applications. This starter guide may help to get a good understanding of what is cryptocurrency all about?
Cryptocurrencies are a form of digital cash that is distributed; they provide seamless, fast and direct transactions between the parties. The users have full control over the payments and their balance, with ease of transparency on how much is being spent and earned. As the user has full control of the cryptocurrencies, they need not rely on the central entity to validate the transactions. All the validation is done by the crypto network.
In the traditional form of transactions, the credit card companies, banks and other entities act as gatekeepers to the money. In cryptocurrencies, no central authority is required; they manage the transactions in a distributed fashion. In a bank, the database can be targeted for hacking and stealing money. Cryptocurrencies are not susceptible to such kinds of attacks. Adding to it the transactions with cryptocurrencies are done in a matter of seconds or minutes and not hours or days as that of the traditional ones.
Cryptocurrencies are usually referred to as coins and are stored in digital wallets to manage payments. Each wallet is protected with a private key, which is an extremely complex password. These wallets can be used to send or spend money by submitting the transaction from the user’s wallet to others.
Similar to conventional currency, crypto coins can be spent however the user wishes to do so. As the cryptocurrencies are digital, they can be paid with a wallet app through the phone, which makes cryptocurrency easier to use.
Cryptocurrencies were developed as an application called blockchain, which works on top of a cryptographic invention. Blockchain technology supports multiple technologies, and cryptocurrency is one of them. The most important cryptocurrencies which are available today would not have been possible without blockchain technology.
Blockchain can be defined as a block with a complex mathematical problem that is based on cryptographic technology called a hash. Once the complex mathematical problem is solved, a block is created or completed.
The best thing about the block is any changes done to the information inside, like the transaction data will break or make the block invalid. The only way to fix it again is to replace the data or correct it with the original data.
When a new block is created, it takes data from the previous one and creates a link hence, the term blockchain is coined. In the whole blockchain, if any data in any of the blocks is altered, then the entire blockchain from that point is broken, which is something similar to the tower of wooden blocks. If one block in the middle of the tower is broken, then all the blocks over it topple.
The only way to fix it is to correct the data that is tampered with. Blockchains are measured in terms of height, which means the total number of blocks in the tower. The older the data with blockchains, the more secure it turns. A block is generally considered valid when enough additional blocks are added to the chain to ensure security.
In cryptocurrencies, the blockchain stores the immutable transaction ledger of the currency. Miners are people who solve mathematical problems and they are responsible for bundling all the transactions together and then solving the mathematical puzzle.
Mining is computationally difficult and requires powerful computers to solve the puzzles. Miners are incentivized to mine by giving prizes for their work in the form of new coins or transaction fees or at times both.
The major part of the miner’s job is to ensure the transactions are valid or not. This is done by ensuring that the person sending coins has enough with him or not, by examining the existing blockchain to determine the balance of the wallet.
Every transaction made by every wallet is available to be viewed by everyone in the blockchain. Though this may seem like a privacy concern, the user may have any number of wallets he wishes to and also they provide complete anonymity and still maintain the integrity of the blockchain.
When a miner successfully solves a new block, he announces it to the network to get acceptance of the new block. The other miners then verify the transactions as it is a security measure to ensure that the rogue miner does not try making invalid transactions.
Then the new block is added to the latest blockchain. The more the blocks are added to the chain, the older transactions get confirmed. The more the confirmations, the more the blockchain is trusted. As the networks verify these transaction ledgers, it is called the distributed ledger.
This kind of ledger opposes the central ledger the bank maintains. The bank’s central ledger can be easily hacked, but the distributed ledger cannot be broken, hacked or counterfeited.
Security is the ultimate concern when dealing with money; Cryptocurrencies have many security measures designed to the technology to ensure that every individual and the entire networks are secure.
Each wallet of the user is secured by a private key where only the owner has access to it. The wallet is provided with the address which is used to place transactions from one wallet to the other. To place a transaction with the wallet, it needs to be signed with a private key to prove the user is authorizing the transaction.
In the case of the private key is lost and any transactions being altered. The underlying part of blockchain technology makes it impossible to edit the already occurred transactions. Cryptocurrencies are also not susceptible to double-spending. This increased safety of the network makes cryptocurrencies more safe and cheap than conventional currencies.
Check out the following infographic developed by our friends at Mrbtc.org. The infographic is titled 33 Cryptocurrencies described in four words or fewer.
List of 33 Cryptocurrencies
|Programmable contracts and money
|Enterprise payment settlement network
|Privacy-focused Bitcoin clone
|Batteries-included digital assets
|Private digital cash
|Ethereum contracts on Bitcoin
|Banking, remittance, and exchange
|Private digital cash
|Layered currency and contracts
|Price = 1 USD
|Decentralized applications on WebAssembly
|Decentralized applications in C#
|Blockchain for spawning blockchains
|Pay Binance exchange fees
|Decentralized prediction market
|Bitcoin with alternative governance
|Cryptocurrency credit card
|Rent other people’s computers
|Inflationary Dash clone