The short as well as simple answer to the title question is that cryptocurrency is decentralized digital money. But what exactly does that mean and exactly how does it work? In this particular guide, I will answer all the questions you have about cryptocurrencies. I’m going to let you know when it was invented, how it works and why it’s going to be essential later on. By the end of this guide, you’ll be able to answer the question, “what is a cryptocurrency?” for yourself.
The realm of cryptocurrency moves fast so there’s virtually no time to waste. Let’s begin! When I hear a brand new word, I search for its definition inside my dictionary. Cryptocurrency is actually a new word for most people so let’s write a crypto definition.
Mining – Miners make an effort to solve mathematical puzzles first to place another block on the blockchain and claim a reward.
Exchange – An exchange is a business (often a website) where one can buy, sell or trade cryptocurrencies.
Wallets – Cryptocurrency wallets are software programs that store public and private keys and enable users to send out and receive digital currency and monitor their balance.
Crypto Definition – Below is a summary of six things which every cryptocurrency has to be in order for so that it is referred to 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 the Bank of England!
Decentralized: Cryptocurrencies don’t have a central computer or server. These are distributed across a network of (typically) 1000s of computers. Networks without having a central server are called decentralized networks.
Peer-to-Peer: Cryptocurrencies are passed from person to person online. Users don’t deal with each other through banks, PayPal or Facebook. They deal with one another directly. Banks, PayPal and Facebook are common trusted third parties. You will find no trusted third parties in cryptocurrency! Note: They may be called trusted third parties because users need to believe in them with their personal data in order to use their services. For instance, we trust the financial institution with our money so we trust Facebook with this holiday photos!
Pseudonymous: Because of this you don’t need to give any private information to own and use cryptocurrency. You will find no rules about that can own or use cryptocurrencies. It’s like posting on a website like 4chan.
Trustless: No trusted third parties signifies that users don’t have to trust the device for this to function. Users have been in complete charge of their funds and data at all times.
Encrypted: Each user has special codes that stop their information from being accessed by other users. This is called cryptography and it’s almost impossible to hack. It’s also where crypto part of the crypto definition comes from. Crypto means hidden. When information and facts are hidden with cryptography, it is actually encrypted.
Global: Countries have their own own currencies called fiat currencies. Sending fiat currencies around the world is tough. Cryptocurrencies could be sent worldwide easily. Cryptocurrencies are currencies without borders!
This crypto definition is a great start but you’re still quite a distance from understanding cryptocurrency. Next, I want to let you know when cryptocurrency was developed and why. I’ll also answer the question ‘what is cryptocurrency trying to achieve?’
The Foundation of Cryptocurrency – During the early 1990s, most people were struggling to comprehend the web. However, there were some very clever folks who had already realized what a powerful tool it is actually. Many of these clever folks, called cypherpunks, thought that governments and corporations had too much power over our everyday life. They desired to search on the internet to provide the individuals of the world more freely. Using cryptography, cypherpunks wanted to allow users in the internet to possess additional control over their funds and data. As you can tell, the cypherpunks didn’t like trusted third parties in any way!
On top of the cypherpunks, the to-do list was digital cash. DigiCash and Cybercash were both attempts to make a digital money system. They both had a few of the six things needed to be cryptocurrencies but neither had every one of them. By the end from the the nineties, both had failed. Satashi Nakamoto creator of bitcoinThe world would have to wait until 2009 before fmlxdu first fully decentralized digital cash system was made. Its creator had seen the failure from the cypherpunks and thought that they can do better. Their name was Satoshi Nakamoto as well as their creation was called Bitcoin.
Bitcoin became more popular amongst users who saw how important it could become. In April 2011, one Bitcoin was worth one US Dollar (USD). By December 2017, one Bitcoin was worth more than twenty thousand US Dollars! Today, the price of just one Bitcoin is 7,576.24 US Dollars. Which can be still an excellent return, right? During 2010, a programmer bought two pizzas for 10,000 BTC at one of the first real-world bitcoin transactions. Today, 10,000 BTC is equivalent to roughly $38.1 million – a huge price to cover satisfying hunger pangs.