What is Cryptocurrency?
What Does Cryptocurrency Mean?
Cryptocurrency can be defined as a digital currency which uses cryptography for security purpose. Its security features are so unique that it cannot be counterfeited making this digital currency immune to any kind of attempt for manipulation by government. It has an organic feature that it cannot be managed by any central authority. In simple words, cryptocurrency is a digital asset that makes use of strong cryptography to work as a medium of exchange so as to secure financial transactions, verify transfer of assets and control the creation of additional units.
If you think of the cryptocurrency market as a football ground, then Bitcoin is the player in that marketplace. Bitcoin was the first cryptocurrency invented in 2009 by a mysterious individual named Satoshi Nakamoto. Since the creation of the first cryptocurrency (Bitcoin), more than 4,000 Altcoins have now been introduced to the market.
Cryptocurrency In Use
How is Cryptocurrency Used?
Cryptocurrencies are basically used by buyers and sellers in the digital marketplace because of their unique capabilities for transferring funds and anything of value between two parties. A cryptocurrency can facilitate the method of exchange by using a combination of public and private keys for transactions. These keys are simply strings of numbers and letters that are used to store data which is secured by mathematically encrypted algorithms. The public key is like an address of a user where another user can transfer Bitcoins (or any other Cryptocoin) and the private key is like an ATM pin which is set by the owner to authorize the transmission.
Blockchain and Transparency
How do Blockchain and Cryptocurrency Work Together?
The greatest advantage of blockchain technology is that it is open and public. Cryptocurrency transactions are recorded and stored in the decentralized public ledger, and are accessible to all members within the Blockchain Network. Entries can be updated within the ledger, only if everyone within the network has validated the transaction. Because of this high level of transparency within the network, it eliminates the need for checks and balances traditionally performed by humans.
Despite the high level of transparency, Blockchain Networks can be susceptible to corruption, however, such chances are very rare. For example, a government can target and destroy or seize the blockchain mining hardware, if said mining hardware was in a concentrated pool, located in one location. In other cases, pool peers with high levels of hash power can also collide and alter some transactions.
Blockchain and Security
Is a Cryptocurrency Secure?
Since blockchain networks are fully decentralized, there is no central controlling authority that has the power to control each network. Thus, it becomes impossible for hackers to access all the data from different servers and make use of it. Also, it is impossible to overwrite or change the data as it is stored and recorded in the hash functions.
Cyber hackers and criminals often target those centralized locations where there are high chances to manipulate the data. But fortunately, the decentralized nature of blockchain ledgers make this more difficult to do. The changes which occur within a Blockchain Network are immediately visible to the network participants which are there to further approve the transaction. All of this makes a blockchain network extremely secure.
The Process of Creating Cryptocurrency
How Does Cryptocurrency Work?
Before we get into the process of mining cryptocurrency, it is better to first understand how the blockchain technology works. Blockchain can be defined as a digitized, decentralized, public ledger which is most frequently used for cryptocurrency transactions. General Ledgers in the traditional field of financial public accounting, provides a company provides account information such as assets, liabilities, revenue, and expenses of that company, as well as a complete record of financial transactions of the company. Decentralized Ledgers are just the opposite of centralized networks which means it is not managed by any central authority.
Blockchains are essentially chronological “chains” of “blocks” which hold the records of newly generated digital currencies, such as Bitcoin. Once a block is completed, a new block is subsequently created after it, in the chain. Blocks cannot be changed or removed by other users. This process is how cryptocurrencies are created and how we make crypto coins. Cryptocurrency mining is a process where various forms of cryptocurrency are authenticated and added to the digital ledger to create new blocks. Throughout this process, the cryptocurrency miner’s job is to ensure the verification of data and update the blockchain database system. Cryptocurrency miners earn a nominal amount of cryptocurrency if they are able to “crack the code” first to verify the transaction, in return for the service provided. Crypto miners compete with each other to solve the code by calculating as many as hashes as possible and validate the block. Slowly over time, it becomes harder-and-harder to mine new blocks in a blockchain, as the difficulty of “cracking the code” automatically adjusts to become incrementally more difficult.
Digital Wallet & Cryptocurrency
How Do You Store Cryptocurrency?
In short, cryptocurrency is stored in a Digital Wallet. There is a digital wallet on every blockchain where cryptocurrency is stored. Users can access these digital wallets from anywhere around the world, though a strong internet connection is required. If you were to look at a top list of cryptocurrencies, you would see that Bitcoin is by-far the most widely used cryptocurrency for many reasons. As such, we will use Bitcoin as an example to discuss how the transaction process works. The transaction begins when the user comes online and converts their fiat money (e.g. US Dollars) into Bitcoins (or any other Cryptocurrency). The request comes to the blockchain network to make the purchase, and once completed, the newly purchased Bitcoins are then sent into the digital wallet.
Once the Bitcoins hit the digital wallet, Cryptocurrency miners start counting “hashes” on the decentralized peer to peer network system. to confirm that indeed the Bitcoins are secured in the digital wallet. It takes minimum ten minutes to verify the operation and update it on the blockchain.
The Architecture of a Cryptocurrency
What is Cryptocurrency Comprised of?
The architectural construction of a cryptocurrency uses cryptography at its core. Here lies the concept of the validity of a cryptocurrency. The validity of a cryptocurrency is the value that holds the originality and whether or not it has been copied. This validity is provided through blockchain technology which is the core concept on which cryptocurrency is based upon. The structure is mainly an array of blocks that contains constantly growing information. All of these blocks are linked and protected through cryptography. This array of blocks are combined or linked through a hash pointer where every consecutive block points towards its previous block with the help of a hash pointer. Once a certain data has been set in these blocks they cannot be modified in future. This is an inherent property of these blocks, which makes Bitcoins as well as other cryptocurrencies so secure. The blocks also contain a timestamp which is specific to each and every block. To compile the whole definition of the architectural components of a cryptocurrency one can say that it is a distributed ledger or a distributed array of blocks that keep a record of the transactions that are occurring between two parties with the help of a particular cryptocurrency. The transaction and it’s corresponding data has been saved in these blocks and is verifiable at any point of time and cannot be changed once recorded.
What is Cryptocurrency Mining?
Cryptocurrencies can also be considered to be a network. Mining of a cryptocurrency has become very popular nowadays and to understand it properly, one must know that cryptocurrency is based upon the mathematical branch of cryptography. The mining of a cryptocurrency validates a certain transaction that takes place between two parties. It also increases the processing power of a certain block of any cryptocurrency which further strengthens the network. In recent days multiple types of machines are used to mine Bitcoins such as FPGA and ASICS mining chips. These machines work on the basis of a certain algorithm that is specific to a certain system. These algorithms rely on hashing in nature; one of the most popular algorithms is SHA-256.
Are Cryptocurrencies Anonymous?
Everybody knows that Bitcoins provide its users with relatively anonymous ownership. To understand how the users of various cryptocurrencies remain anonymous, one must know how cryptocurrency wallets work. Cryptocurrency wallets are synonymous with real-world cash wallets which are used to store real money. Similarly, these digital cryptocurrency wallets are used to carry or store cryptocurrencies. These cryptocurrencies could be anything, be it Bitcoins (BTC) or Ether (ETH), and every individual cryptocurrency has its own form of a cryptocurrency wallet. Everything related to each and every transaction or cryptocurrency transfer that occurred, is information stored in these wallets on a blockchain.
Now as mentioned earlier these arrays of blockchain contain information and if someone wants to track particular information or anything of that sort, one must have the name of the owner who owns this cryptocurrency wallet. This is where the real magic takes place as these cryptocurrency wallets are not linked with any individual’s name. Similar to the structure of the cryptocurrency, as in the links that combines all the blocks aka hash pointers, there exists another set of hash pointers that links towards a certain address and these are the addresses of a certain cryptocurrency wallet. Every cryptocurrency wallet is linked to a certain address that exists on the internet and by no means is the address linked with any individual.
The architecture of how cryptocurrency work is simple yet effective. To summarize the whole working process one can say that there are a few blocks of information which are set up in an array structure, all these blocks are related via the hash pointer and these different blocks of information are linked to an address on the internet which acts as a cryptocurrency wallet. This whole process or idea enables the feature of anonymity in the use of any cryptocurrency.
ICO (Initial Coin Offerings)
What is an ICO or Initial Coin Offering?
ICO, also known as Initial Currency Offering or Initial Coin Offering is a type of crowdfunding supported by making use of cryptocurrencies. In the process of an ICO, cryptocurrency is sold by it’s founders, in the form of tokens to investors desiring to participate in the crowdfunding process. Investors buy into ICOs using other popular cryptocurrencies such as Ethereum or Bitcoin. ICOs function similarly to equity. Founders of an cryptocurrency or blockchain-based project hold an ICO to raise funds (for various reasons) and provide the investors with cryptocurrency as a form of ownership (equity).