Cryptocurrency is simply the digital currency that resides in a network of computers on the internet called ‘blockchain’. Decentralized cryptocurrencies exist virtually outside of traditional banking but can still be traded like any other currency.
Although the original and best-known currency is Bitcoin, there are now thousands of cryptocurrencies based on the same technology. HOW DO CRYPTO-CURRENCIES WORK?
Cryptocurrencies are a type of digital currency that is not tied to the central authority, not controlled by any person or organization (such as a central bank). The end-to-end network logic in file sharing applies here as well; everyone on the network shares files, files aren’t just stored on one computer.
The lack of a central authority eliminates the need for any institution to be trusted for the control of accounts, balances and transactions. In other words, transparency is increased and the risk of errors such as fraudulent accounting or ‘duplicate spending’ within the system is reduced.
Newly created cryptocurrencies like Bitcoin are being entered into the database known as the blockchain. Currencies are formed when computers solve a series of complex algorithms in a process called mining. These algorithms make use of cryptography to secure transactions and regulate the creation of additional cryptocurrencies.
Within the network, each end keeps a complete history of all transactions, and therefore of each account balance. Cryptocurrency is a way to showcase financial transactions. Below you can see the lifecycle for a process.PROCESS LIFECYCLE
What is blockchain technology?
All cryptocurrency transactions; the decentralized, digital common ledger is recorded on the blockchain. Each new transaction represents a new ‘block’ in the entire transaction ‘chain’. The blockchain leverages distributed ledger technology (DTK) to account for digital currency transactions. Cryptocurrency users can track all transactions made through the blockchain, but the name of the user who made the transaction is anonymous. A copy of the blockchain is downloaded to each network node, creating the need for centralized record backup. What Is Cryptocurrency Mining?
Cryptocurrency (or Cryptocurrency or Altcoin) mining is the process by which cryptocurrency transactions are verified. Digital Miners use powerful computer algorithms instead of digging to solve complex cryptographic puzzles. Miners are rewarded with a certain amount of new coins per transaction verified and added to the blockchain. Anyone with the right hardware can be a miner, but mining Bitcoin, Ethereum and other popular cryptocurrencies is now driven by large-scale businesses located in regions with low electricity costs. What is Cryptography?
Cryptography uses mathematical codes to ensure that information remains confidential. The user can only read the encrypted message if they know the password to translate the message into the regular language. Because cryptography in the computer age is too complex for the human brain to decipher, computer algorithms both encrypt and decipher. One of the most famous examples of the use of cryptography is Enigma, which was used by Nazi Germany during World War II and eventually deciphered by British cryptologists at Bletchley Park. HOW ARE CRYPTOCURRENCIES USED?
Cryptocurrencies are designed to provide an alternative way to pay and transact online, but they are not yet widely used. It is believed that cryptocurrencies, which have caused speculation over the past few years, will one day be widely used (or will not be used). In essence, investors bet that cryptocurrencies will be used as money.
As a reminder, money serves three purposes:
There is a lot of debate about whether cryptocurrencies can provide services with these qualities.
The main problem with the use of cryptocurrencies as money, at least for now, is the volatility in prices. The fluctuation in prices is so great that cryptocurrencies are not accepted as a payment method by most traders. The price of a product or service needs to change from day to day to stay current, and prices change too much to inspire confidence in preserving its value. When prices stabilize, all that can start to change.” DISCUSSION ABOUT ‘INCOMPETENCE’
On the subject of Bitcoin, mainstream economists are overly convinced that the economy will not be able to function with only 21 million units to be produced in total. In the current financial system, banks are able to create an unlimited supply of money through bank loans. The ‘fiat’ currencies in the current monetary system (such as USD) are depreciating over time due to inflation.
Allegedly, Bitcoin was modeled after precious metals (mining) such as gold on the basis that inadequacy helps maintain value. There is a lot of gold that can be extracted from the ground, and one day this resource will run out or become too expensive to mine. Bitcoin supporters argue that when the total supply of bitcoin is subtracted, the coins will appreciate by dividing into smaller units.
Bitcoin is the most well-known and most expensive original cryptocurrency. Bitcoin was created by Satoshi Nakamoto in 2009, whose true identity has never been fully revealed. Bitcoin has made such a remarkable debut that it has been called altcoin (alternative to Bitcoin) with all other crypto money. The high price for each Bitcoin caused investors to turn to altcoins. Investors are trying to find altcoins that can co-exist with Bitcoin or replace Bitcoin in the future. Most altcoins claim to find solutions to some of Bitcoin’s flaws, especially when it comes to its limited scalability. So far, Bitcoin’s market capitalization is far beyond the closest alternatives. Ethereum (ETH)
Ethereum is a distributed public blockchain network created in 2015. The main difference between Ethereum and Bitcoin is the network function. Instead of keeping track of who owns the cryptocurrencies, Ethereum is used to run programming code for decentralized applications. The Ethereum network has its own tokens called Ether. Traded Ether is often confused and referred to as Ethereum. The basic premise is that anyone who wants to use the blockchain can take advantage of Ethereum without having to create a new application from the beginning. Many new altcoins launched through the Ethereum network (the big ones EOS, Zilliqa, and RChain) are ultimately offered as independent blockchains. Ripple (XRP)
Ripple, the means of money transfer, operates differently from the Bitcoin network. It does not use blockchain technology and is not limited to the transfer of its own coin. Ripple enables all types of currency transfers, including cryptos, fiat currencies, gold, and even flight miles. Due to its fast transaction feature (10,000 times faster than Bitcoin), banks are closely interested in Ripple. The Ripple protocol has its own tokens that can be traded, but 100,000 of them were created as company shares, not mining. EOS (EOS)