The short and easy answer to the title question is that cryptocurrency is decentralized digital money. But what exactly does that mean and how does it work? In this guide, I will answer 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 essential in the future. 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 no time to waste. Let’s begin! After I hear a whole new word, I check out its definition within my dictionary. Cryptocurrency is really a new word for most of us so let’s write a crypto definition.
Mining – Miners attempt to solve mathematical puzzles first to put another block on the blockchain and claim a reward.
Exchange – An exchange is really 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 listing of six things that every cryptocurrency has to be to ensure it to be called a cryptocurrency;
Digital: Cryptocurrency only exists on computers. There are no coins and no notes. You can find no reserves for crypto in Fort Knox or perhaps the Bank of England!
Decentralized: Cryptocurrencies don’t possess a central computer or server. They may be distributed across a network of (typically) thousands of computers. Networks without having a central server are classified as 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 all trusted third parties. There are no trusted third parties in cryptocurrency! Note: They are called trusted third parties because users need to trust them using their personal data to use their services. For example, we trust the bank with this money and that we trust Facebook with this holiday photos!
Pseudonymous: Because of this you don’t have to give any personal information to obtain and use cryptocurrency. You will find no rules about that can own or use cryptocurrencies. It’s like posting online like 4chan.
Trustless: No trusted third parties means that users don’t must trust the program because of it to work. Users will be in complete charge of their cash and knowledge all the time.
Encrypted: Each user has special codes that stop their information from being accessed by other users. This is known as cryptography and it’s extremely difficult to hack. It’s also in which the crypto portion of the crypto definition arises from. Crypto means hidden. When information is hidden with cryptography, it is actually encrypted.
Global: Countries get their own currencies called fiat currencies. Sending fiat currencies all over the world is difficult. Cryptocurrencies can be sent all over the world easily. Cryptocurrencies are currencies without borders!
This crypto definition is an excellent start but you’re still a long way from understanding cryptocurrency. Next, I want to inform you when cryptocurrency was created and why. I’ll also answer the question ‘what is cryptocurrency attempting to achieve?’
The Origin of Cryptocurrency – In early 1990s, most people were struggling to know the internet. However, there have been some very clever folks who had already realized exactly what a powerful tool it really is. A few of these clever folks, called cypherpunks, thought that governments and corporations had a lot of control of our way of life. They wished to use the web to offer the folks around the world more freely. Using cryptography, cypherpunks desired to allow users in the internet to possess more control over their money and knowledge. As you can tell, the cypherpunks didn’t like trusted third parties whatsoever!
On top of the cypherpunks, the to-do list was digital cash. DigiCash and Cybercash were both attempts to create a digital money system. They both had a number of the six things needed to be cryptocurrencies but neither had all of them. At the end of the the nineties, both had failed. Satashi Nakamoto creator of bitcoinThe world would need to wait until 2009 before fmlxdu first fully decentralized digital cash system was created. Its creator had seen the failure in the cypherpunks and believed that they might do better. Their name was Satoshi Nakamoto along with their creation was called Bitcoin.
Bitcoin became very popular amongst users who saw how important it might 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 buying price of a single Bitcoin is 7,576.24 US Dollars. That is still a pretty good return, right? In 2010, a programmer bought two pizzas for 10,000 BTC in one of the first real-world bitcoin transactions. Today, ten thousand BTC is equal to roughly $38.1 million – a big price to cover satisfying hunger pangs.