By now, everyone has heard of cryptocurrency. But what exactly is it? It’s not tangible like a dollar or pound, but it does hold value. Before we get into the mechanics of it, let’s take a look at the word itself. Crypto- means hidden in Greek. This alone may give some pause about it. And with something new, there are people who will tear it down starting with a simple thing such as a prefix. However, cryptocurrency will become the norm in the near future.
Cryptocurrency, simply, is digital money made by code (algorithms) that is created and stored digitally in a blockchain. How can we trust a unit of money made from code you ask? In the same way you trust your cellphone to make a payment — using technology (code). According to blockgeeks.com, the first form of cryptocurrency was Bitcoin. It was created by Satoshi Nakamoto as a solution to prevent “double-spending,” meaning to prevent a payment network (a centralized server) from making a transaction twice. Ironically, he did not set out to create a new form of currency.
Cryptocurrency uses encryption to create the “currency” and verify the transaction. Each transaction is recorded in a digital ledger — blockchain. These transactions happen simultaneously around the world. There are many benefits of cryptocurrency:
- It doesn’t use a centralized location (server) like banks do. It uses blockchain, which is a network of computers (nodes) that store each day’s transactions into a “block.” Each block is stored at a different location (decentralized).
- It is secure because it is decentralized and built on a key cryptography system. A person must have a “private key” to send a transaction.
- A transaction cannot be altered, which makes it fraud-proof.
- Transactions are pseudonymous since they are not connected to an “entity.” You do not know who is making the transaction – only the cryptocurrency address.
The key to each transaction going through is confirmation. Each one must be confirmed by a miner. A miner is a developer, whose job is to confirm the transaction by time stamping it and adding it to a block. Thus, it becomes part of the blockchain. Miners get rewarded with cryptocurrency (e.g. bitcoin). However, to get rewarded they must find a hash that connects the new block with its predecessor.
While cryptocurrency was created to function like real money, it is unique in many ways. A cryptocurrency transaction cannot be reversed nor deleted. Once a transaction is made, it is set in stone. Third parties connected to cryptocurrency do not have the same level of security as a coin’s network. Tax laws on cryptocurrency aren’t uniform and consistent yet. And not every vendor accepts them. But not for long.
The future of cryptocurrency is bright. Soon governments will be backing them, where people will be using centralized digital currencies. There are new cryptocurrencies being utilized every day. Some popular cryptocurrencies include bitcoin and Ducatus coin. You don’t need permission to use them (or any cryptocurrency) and trading them is easy!