The Ultimate Guide to What Is Cryptocurrency

what is cryptocurrency

CryptoCurrencies are a big revolution in the financial industry and a powerful alternative to conventional banking institutions and financial currencies of the past.

CryptoCurrencies offer a better monetary system than the current finance industry. This is because CryptoCurrencies are backed by the blockchain. As an alternative to outdated traditional currencies in the banking system, CryptoCurrencies require no gold or bonds to back it up, essentially doing away with the need for involvement by any middlemen or government.

Instead, a blockchain works as a decentralised, distributed and public digital ledger to record transactions across many computers. This forms a global network of computers using blockchain technology to jointly manage the database used to record transactions.

A blockchain works like a continuously growing list of transaction records, which are stored in blocks. The validity of transactions is ensured by cryptography. Each transaction is digitally signed off by the users. This ensures it is authentic and that no one can tamper with it. In this way, the ledger manages itself to ensure all the existing transactions within it are reliable, honest and trustworthy.

Specifically, because there is no one central authority, the record cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the entire network.

How CryptoCurrencies work

Transaction records are collected in blocks. As transactions transfer ownership of CryptoCurrency balances, each block represents an update of the user’s balances on the network.

Blockchain technology underpins the global transactions of CryptoCurrencies ensuring transparency, enhancing security through a secure record-keeping system. It also allows for improved traceability of data and transactions across the different types of CryptoCurrencies, along with increased efficiency, speed and a reduction of costs compared to that of traditional banking systems.

Described as the ultimate smart currency, CryptoCurrencies represent a digital currency which is encrypted. It offers users a verifiable transfer of funds operating independently of a central bank across global networks.

The system keeps an overview of CryptoCurrency units and their ownership and also defines whether new CryptoCurrency units can be created. When new CryptoCurrency units are minted, all network participants are notified as the ledger is decentralized and is automatically updated.

How did CryptoCurrencies come about?

The first electronic money came about in 1983 when an American cryptographer developed a system of algorithms, cyphers and security priorities to secure sensitive information online. As an anonymous, distributed electronic monetary system, the process was further developed on a ‘reusable proof of work’ basis to finally form the first decentralised CryptoCurrency, Bitcoin, which was created in 2009 by Satoshi Nakamoto.

Who controls CryptoCurrencies?

First released as open-source software in 2009, Bitcoin is generally considered the first decentralized CryptoCurrency. Since this first release of bitcoin, over 4 000 altcoins (alternative variants of Bitcoin, or other CryptoCurrencies) have been created.

Being an open source code base, public contributors can take the code base and add to it. If the changes they add make sense following a peer review, then the changes are merged into the main code base. This allows anyone with sufficient technical background to contribute to the decentralized economy and the coin (or CryptoCurrency) they care about

For example, Ripple payment protocol was created to be a payment system, remittance network, and currency exchange with its own CryptoCurrency. Ripple enables near-instantinstant and direct transfer of value between two parties. Any type of currency can be exchanged, from fiat currency to gold to even airline miles. Ripple avoids the fees and wait times of traditional banking and even CryptoCurrency transactions through exchanges.

How does Bitcoin work?

Similar to gold, Bitcoins are minted by miners and there is a limited supply. Unlike legacy financial ecosystems, where banks can print money and deflate the value of the currency, Bitcoin has a limit of 21 million and therefore acts as a hedge against centralised power over traditional money. However, unlike physical gold, Bitcoin is devisable and easily transferable. You can own as little as 0.00000001 of Bitcoin and easily send it to anyone in the world. There are only 21 million Bitcoins that can be mined in total. Once miners have unlocked this many Bitcoins, the planet's supply will come to an end, unless Bitcoin's protocol is changed to allow for a larger supply – and as it stands the quantity of minted bitcoins is decreasing with every block making them a rarer commodity to acquire.

There are currently close to 3.6 million Bitcoins left that aren't in circulation yet. With only 21 million Bitcoins that will ever exist, this means that there are about 17.4 million Bitcoins currently available. As of 2018, there are approximately 1500 bitcoins mined per day. On average 122 blocks per day are mined, where every block contains 12.5 bitcoins until the next halving in 2020.

A Bitcoin halving is a fixed event and will occur after every 210,000 blocks are mined, or confirmed by the system and means the bitcoin mining reward is halved. There have been two since Bitcoin’s formation in 2009.

How do I transact with CryptoCurrency?

If you want to transact with CryptoCurrency, you will need a CryptoCurrency wallet, which is a software program that stores private and public keys and interacts with various blockchains to enable users to send and receive digital currency and monitor their balance.

A CryptoCurrency transaction sees the transfer of value between Bitcoin wallets that gets included in the blockchain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet.

How can I acquire CryptoCurrency?

You can buy bitcoins using an online or mobile platform such as Crypto Fish, using your credit or debit card. Once your payment and wallet address is confirmed you will receive your CryptoCurrency.

You can also earn CryptoCurrency by accepting it as a means of payment, fo,r example if you are selling a house, you can accept payment for the property through a CryptoCurrency transaction. You can earn CryptoCurrency from interest payments, by trading for other investors and even earn it as a regular income.

How to buy and sell CryptoCurrency?

A CryptoCurrency wallet allows you access to your CryptoCurrency and sign off on transactions. There are various types of wallets and you will need to decide which is the best for you based on security, anonymity and control. Desktop wallets allow users to create an address for sending and receiving bitcoins and provide a place to store the private key for doing so. This can be done by downloading software to an individual computer or by accessing an online wallet.

Mobile wallets, accessed through apps, allow users to transact on the go. While “full node Bitcoin” clients download the entire Bitcoin blockchain, mobile wallets are designed to utilise only a small fraction of the blockchain and rely on other nodes within that network to access the remaining necessary information. Non-custodial wallets or hot wallets which store private keys on the internet through centralised servers, also allow users to access their bitcoins from almost anywhere.

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