Last updated: August 20, 2017
You must be frequently encountering the question of what is crypto money lately. What is cryptocurrency (cryptocurrency, cryptocurrency, or digital currency)? Is it the uniform of the 21st century – or the money of the future?
With this introduction, we’ll be explaining the most important things about cryptocurrencies. After reading it carefully, you will have more information than many other people.
Today, cryptocurrencies have become a global phenomenon that most people are familiar with. Although it is still somewhat considered “clever but anti-social” and is not understood by most people; banks, governments and many companies are aware of its importance.
As of 2017, you’ll have a hard time finding a big bank, a big financial firm, a well-known software company, or a government that still hasn’t researched cryptocurrencies, published an article about them, or started a blockchain project.
“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, instilled fear in others, and stunned the rest.” – Thomas Carper, U.S. Senator
But beyond the noise and press releases, the overwhelming majority of people, including bankers, consultants, scientists, and developers, have very limited knowledge about cryptocurrencies. They fail to understand the basic concepts.
So let’s take a look at the whole story, what do you think? What is cryptocurrency? What is cryptocurrency?
What is the origin and origin of cryptocurrency?
Why do you have to learn about cryptocurrencies?
And what do you want to know about cryptocurrencies?
Few people know, but cryptocurrencies have emerged as a byproduct of another invention. Satoshi Nakamoto, the unknown inventor of Bitcoin, the first and most important cryptocurrency, never intended to invent a currency.
In Bitcoin’s announcement in late 2008, Satoshi said he had developed the “Peer-to-Peer Electronic Cash System.”
Its purpose was to invent something that many people should have created before digital money.
“I’m announcing the first version of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double spending. It is a completely decentralized system without any servers or central authority.” – Satoshi Nakamoto, January 09, 2009, Bitcoin announcement on SourceForge.
The most important part of Satoshi’s invention was that he found a way to build a decentralized digital cash system. In the nineties, many attempts were made to create digital money, but all failed.
“… After over a decade of failed Trusted Third Party-based systems (Digicash, etc.), they see it as a lost cause. I hope they can make a distinction, this is the first time we’re trying a system that doesn’t rely on trust.” – Satoshi Nakamoto in an email to Dustin Trammell.
After seeing that all centralized attempts failed, Satoshi attempted to build a digital cash system without a centralized asset. Such as a peer-to-peer network for file sharing.
Thanks to this decision, cryptocurrency, was born. Satoshi had found the missing piece needed to bring digital money to life. The reason is a bit technical and complicated, but if you do, you’ll know more about cryptocurrency than most people. So let’s try to make it as easy and simple as possible:
To cash digitally, you need a payment network with accounts, balances, and transactions. Easy to understand. The most important problem that each payment network needs to solve is to avoid dual spending: that is, to prevent a business from spending the same amount twice. This work is usually done by a central server that keeps a record of balances.
You do not have such a server on a decentralized network. So you need every single asset of the network to do this job. Each peer on the network needs a list of all transactions to check whether double spending attempts and future transactions are valid.
But how can these entities reach consensus about these records? How can a common consensus be formed?
If the spouses in the network do not accept only a single, small balance, everything will be broken. They need a definite consensus. In such a case, you usually need a central authority to verify the correctness of the balances. But how do you reach consensus where there is no central authority?
No one knew the answer to this question until Satoshi suddenly appeared. In fact, no one even believed it was possible.
Satoshi proved it. His greatest innovation was to achieve consensus without a central authority. Cryptocurrencies are part of this solution – the part that excites the solution, makes it impressive, and helps spread it all over the world.
When you take all the noise in cryptocurrencies and reduce it to a simple definition, you realize that there are limited entries in a database that no one can change without fulfilling certain conditions. This may seem mundane, but believe it or not: that’s exactly how you can define currency.
Think about the money in your bank account: what is more than entries in a database that can only be changed under certain conditions? You can even think of physical coins and banknotes in the same way: what currency other than limited entries in a physical database, and if coins physically match more conditions than your own, can they be changed? Money is all about a verified login for a number of accounts, balances and transactions.
Let’s take a look at the mechanism that governs the databases of crypto coins. A cryptocurrency like Bitcoin involves cryptocurrency and a peer network. At each spouse there is a complete history of all transactions, and therefore a record of the balance of each account.
A transaction is a file signed by Bob’s private key that says “Bob gave X Bitcoin to Bob.” These are the most basic public key encryption topics we’re talking about, nothing but that. Once signed, a transaction sent from one peer to the other is broadcast across the network. This is the basic P2P technology. Again nothing special. Infographic explaining the concept of crypto money.
The process is known to almost the entire network. Only after a certain period of time is it confirmed.
Approval is a critical concept in cryptocurrencies. All cryptocurrencies are confirmations.
Unless a transaction is verified, it is pending and can be fraudulent. Once a transaction is confirmed, the stone is placed on the block. It can no longer be changed, it cannot be reversed, it is part of the immutable record of historical transactions called Block Chain.
Only miners can confirm transactions. This is their job in the cryptocurrency network. They take the transactions and legally stamp them and spread them on the network. Once a transaction is confirmed by a miner, each node must add that transaction to the database. It becomes part of the blockchain.
For this work, miners are rewarded with a token of cryptocurrency, for example, Bitcoin. Since the miner’s activity is the most important part of the cryptocurrency system, we should stay on this topic for a while longer and take a deeper look.
“In the next few years, we will see national governments make great strides to develop a cashless society where people will transact using centralized digital currencies. At the same time, decentralized cryptocurrencies will show increasing use across all sectors.” – Caleb Chen, London Trust Media
In essence, anyone can be a miner. Since a decentralized network does not have the authority to delegate this task, cryptocurrency needs some sort of mechanism to prevent a ruling party from abusing it. Imagine if someone created thousands of spouses and spread fake transactions. The system would break down immediately.
Because of this, Satoshi made the rule that miners must invest some of their computing power to qualify for this task. They actually have to find a hash (a product of a cryptographic function) that combines a new block with the previous one. This is called Proof of Work. Bitcoin SHA is based on the 256 Hash algorithm.