The short and simple answer to the title question is that cryptocurrency is decentralized digital money. But what exactly does that mean and just how does it work? In this particular guide, I will answer all the questions you have about cryptocurrencies. I’m planning to inform you when it was invented, how it works and why it’s going to be very important down the road. In the end of this guide, you’ll be able to answer the question, “what is a cryptocurrency?” for yourself.
The industry of cryptocurrency moves fast so there’s almost no time to waste. Let’s begin! After I hear a new word, I look up its definition inside my dictionary. Cryptocurrency is a new word for most of us so let’s write a crypto definition.
Mining – Miners try to solve mathematical puzzles first to put the next block on the blockchain and claim a reward.
Exchange – An exchange is a business (normally a website) where one can buy, sell or trade cryptocurrencies.
Wallets – Cryptocurrency wallets are software applications that store public and private keys and enable users to send and receive digital currency and monitor their balance.
Crypto Definition – Below is a list of six stuff that every cryptocurrency must be in order for so that it is known as a cryptocurrency;
Digital: Cryptocurrency only exists on computers. You can find no coins and no notes. There are no reserves for crypto in Fort Knox or even the Bank of England!
Decentralized: Cryptocurrencies don’t have a central computer or server. These are distributed across a network of (typically) thousands of computers. Networks without a central server are classified as decentralized networks.
Peer-to-Peer: Cryptocurrencies are passed individually for each person online. Users don’t deal with each other through banks, PayPal or Facebook. They deal together directly. Banks, PayPal and Facebook are all trusted third parties. There are no trusted third parties in cryptocurrency! Note: They may be called trusted third parties because users have to have confidence in them making use of their private information in order to use their services. As an example, we trust the bank with this money and that we trust Facebook with our holiday photos!
Pseudonymous: Because of this you don’t have to give any private information to obtain and use cryptocurrency. There are no rules about who are able to own or use cryptocurrencies. It’s like posting on a website like 4chan.
Trustless: No trusted third parties means that users don’t must trust the device for it to work. Users have been in complete control of their money and data constantly.
Encrypted: Each user has special codes that stop their information from being accessed by other users. This is called cryptography and it’s extremely difficult to hack. It’s also where the crypto area of the crypto definition arises from. Crypto means hidden. When information and facts are hidden with cryptography, it is encrypted.
Global: Countries have their own currencies called fiat currencies. Sending fiat currencies around the globe is difficult. Cryptocurrencies may be sent worldwide easily. Cryptocurrencies are currencies without borders!
This crypto definition is an excellent start but you’re still quite a distance from understanding cryptocurrency. Next, I want to inform you when cryptocurrency was created and why. I’ll also answer the question ‘what is cryptocurrency trying to achieve?’
The Foundation of Cryptocurrency – In early 1990s, many people were still struggling to know the internet. However, there have been some very clever people that had already realized just what a powerful tool it really is. Many of these clever folks, called cypherpunks, believed that governments and corporations had excessive power over our everyday life. They wished to use the web to provide the folks around the world more freely. Using cryptography, cypherpunks wished to allow users from the internet to possess more control over their cash and knowledge. That you can tell, the cypherpunks didn’t like trusted third parties whatsoever!
At the top of the cypherpunks, the to-do list was digital cash. DigiCash and Cybercash were both attempts to create a digital money system. Both of them had some of the six things should be cryptocurrencies but neither had every one of them. At the end in the the nineties, both had failed. Satashi Nakamoto creator of bitcoinThe world will have to delay until 2009 before fmlxdu first fully decentralized digital cash system was developed. Its creator had seen the failure from the cypherpunks and believed that they might do better. Their name was Satoshi Nakamoto and their creation was called Bitcoin.
Bitcoin became popular amongst users who saw how important it may become. In April 2011, one Bitcoin was worth one US Dollar (USD). By December 2017, one Bitcoin was worth greater than twenty thousand US Dollars! Today, the cost of just one Bitcoin is 7,576.24 US Dollars. Which is still a pretty good return, right? In 2010, a programmer bought two pizzas for ten thousand BTC at one of the first real-world bitcoin transactions. Today, 10,000 BTC is equal to roughly $38.1 million – a big price to cover satisfying hunger pangs.