What is cryptocurrency?
Published 7 months ago
No one can dispute the fact that Bitcoin’s price growth in late 2017 has a lot to do with the excitement surrounding cryptocurrency. When it launched in 2009, its value was a fraction of the US dollar. And many people knew nothing about it. Increased interest in cryptocurrency It can be attributed to the exponential growth in value of bitcoin in 2016 and, especially, 2017. Within a short time, several people became what the world has come to know as “Bitcoin millionaires.” And that’s exactly why so many people want to know about this virtual currency. Well, it isn’t just bitcoin that performed well. Several other cryptocurrencies like Ethereum, Litecoin, and Ripple had spectacular growths, culminating in what some predicted was the peak and that the bubble would burst. Although the prices have gone down over the last two months (January and February 2018), cryptocurrency is still here. And it appears it is here to stay. If you are new to this, then you must have numerous questions about this phenomenon and the technology behind it. Here is what you need to know about cryptocurrency. What is a cryptocurrency? A cryptocurrency is simply a digital currency. In other words, it is an asset (mostly tokens) that functions as would the normal legal tender. One of its primary uses is to facilitate the exchange of goods and services online. It is sometimes referred to as crypto in short. There are over 1500 cryptocurrencies listed on CoinMarketCap.com. The most common ones are Bitcoin, ethereum, Litecoin, and Ripple. The term cryptocurrency relates to the link these digital currencies have with cryptography. It is cryptography that helps to secure all the transactions as well as regulate the creation or release of new units. We can, therefore, say that a cryptocurrency is a form of digital cash created over a network of connected computers using cryptography. These forms of currency are transacted in a peer-to-peer framework without the input of any intermediary or third party. What else should you know about it? A cryptocurrency purely exists in digital form and utilizes something called a ledger stored on a blockchain. All transactions are carried out using that particular blockchain to record all the transactions. Whereas traditional currencies are regulated and fall under the control of a central financial institution, cryptocurrency isn’t. With traditional fiat currencies, a government, through the banks, issue new currencies. On the contrary, crypto is only created through the use of consensus algorithms. We’ll look at this when we examine how cryptocurrency works. One more thing is that cryptocurrencies are decentralized and thus are borderless. You can access and use it to transact from anywhere in the world. What’s the connection between cryptocurrency and blockchain? Once you’ve understood what a cryptocurrency is, the next thing you may want to know is how it works. This is a very important aspect of what makes digital currencies distinct from fiat. The first thing to understand is that cryptocurrencies leverage blockchain technology. So, before we describe how they work, let’s find out how blockchain and cryptocurrency connect. A blockchain is basically a digital ledger, sometimes called database, on which an immutable record of all transactions to ever take place is kept. A network of computers all work together to ensure all the transactions are valid. This is what makes the blockchain decentralized, as everybody on the network has to verify that indeed the transactions are valid. A group of transactions put together forms a single “block.” The first block is called a genesis block and contains a batch of all the transactions verified by several people (computers) around the world. The process continues as more blocks are added, forming a kind of chain. That’s what a blockchain is. Although originally designed to help keep a record of all the transactions, blockchain technology has helped create cryptocurrencies that allow development of smart contracts and decentralized applications. How cryptocurrency works Cryptocurrencies utilize cryptography to make transactions secure and immutable. For cryptocurrency to work there should be digital coins that are sent from one person to another. This is called peer-to-peer or p2p. It’s important to note that, there are cryptocurrencies that generate new coins and there are those that create all the needed coins at the beginning. The whole total number of coins to ever exist is called maximum supply, while the current quantity in use is called circulating supply. How to acquire cryptocurrency You can get cryptocurrency in several ways, but the two common methods include buying and mining. One can also be paid for work, get donations or play games to earn cryptocurrency. If you want to know how to buy the most popular cryptocurrency, visit abitgreedy.com/buy-bitcoin for more information. You can also buy cryptocurrency from local exchange, visit localbitcoin.com, if you are you want buy from Africa. To send these coins, one needs to have a wallet. This is software or device that stores, receives or allows you to send the crypto. It is more like your normal bank account or PayPal account. The wallet has two keys- public and private. The public key is like your bank account number. The private key is equivalent to your PIN or password. Anyone can view your public key on the blockchain and be able to send you money. However, to access that money (in the wallet); one must have the private key. When someone sends some cryptocurrency, let’s say bitcoin, the record is added up with other transactions to form the “block.” Everybody can see the amount of money sent, but they cannot see the sender or the recipient. This is possible because of encryption- a process that hides all the personal details. To verify the transactions, special computers or hardware on the network (nodes) compete to secure the block containing a specific number of crypto, i.e., they “mine.” What is mining in cryptocurrency? We mentioned that when a transaction is carried out on the cryptocurrency network, it is immediately broadcast to the miners. The process of verifying the particular transaction is what we call mining. Currently, there are several ways of securing the blocks including staking. For those coins that carry out mining, the nodes reach consensus by solving difficult algorithmic puzzles. Initially, you could mine Bitcoin using your CPU or GPU. At the moment the difficult levels of mining have increased to a point miners combine their computational power to increase chances of success. However, you can still mine a few of the cryptocurrencies with your GPU. The first node to discover the block is rewarded “new coins.” For instance, miners are awarded 12.5 Bitcoins as a block reward. So, in cryptocurrency, mining plays a very crucial role. It helps to release new coins into circulation. Final word Cryptocurrency is continuously growing to encompass several uses other than just being used as a medium of exchange. Therefore, to fully understand what cryptocurrency does or could do, you need to keep updating your knowledge about it. Read and get involved.