The short and simple answer to the title question is that cryptocurrency is decentralized digital money. But what exactly does that mean and exactly how does it work? In this guide, I will answer all the questions you have about cryptocurrencies. I’m planning to inform you when it was invented, how it operates and why it’s going to be essential in the future. In the end of this guide, you’ll be able to answer the question, “what is a cryptocurrency?” for yourself.
The industry of cryptocurrency moves fast so there’s almost no time to waste. Let’s begin! After I hear a brand new word, I search for its definition inside my dictionary. Cryptocurrency is really a new word for many people so let’s write a crypto definition.
Mining – Miners attempt to solve mathematical puzzles first to put the following block on the blockchain and claim a reward.
Exchange – An exchange is a business (often a website) where one can buy, sell or trade cryptocurrencies.
Wallets – Cryptocurrency wallets are software programs that store public and private keys and enable users to deliver and receive digital currency and monitor their balance.
Crypto Definition – Below is a list of six things that every cryptocurrency must be to ensure that it is referred to as a cryptocurrency;
Digital: Cryptocurrency only exists on computers. You can find no coins and no notes. You will find no reserves for crypto in Fort Knox or perhaps the Bank of England!
Decentralized: Cryptocurrencies don’t possess a central computer or server. They are distributed across a network of (typically) thousands of computers. Networks without having a central server are called decentralized networks.
Peer-to-Peer: Cryptocurrencies are passed from person to person online. Users don’t deal with each other through banks, PayPal or Facebook. They deal together directly. Banks, PayPal and Facebook are trusted third parties. You will find no trusted third parties in cryptocurrency! Note: They may be called trusted third parties because users must trust them with their private information to use their services. For instance, we trust the financial institution with our money so we trust Facebook with our holiday photos!
Pseudonymous: This means that you don’t must give any personal information to own and use cryptocurrency. There are no rules about who can own or use cryptocurrencies. It’s like posting on a website like 4chan.
Trustless: No trusted third parties implies that users don’t must trust the system because of it to work. Users will be in complete charge of their money and knowledge constantly.
Encrypted: Each user has special codes that stop their information from being accessed by other users. This is known as cryptography and it’s nearly impossible to hack. It’s also where the crypto area of the crypto definition originates from. Crypto means hidden. When details are hidden with cryptography, it is encrypted.
Global: Countries get their own currencies called fiat currencies. Sending fiat currencies around the globe is tough. Cryptocurrencies can be sent all over the world easily. Cryptocurrencies are currencies without borders!
This crypto definition is an excellent start but you’re still a long way from understanding cryptocurrency. Next, I wish to inform you when cryptocurrency was created and why. I’ll also answer the question ‘what is cryptocurrency trying to achieve?’
The Foundation of Cryptocurrency – During the early 1990s, many people were struggling to comprehend the net. However, there have been some very clever folks who had already realized what a powerful tool it really is. A few of these clever folks, called cypherpunks, believed that governments and corporations had too much power over our way of life. They wished to use the web to give the individuals around the world more freely. Using cryptography, cypherpunks wanted to allow users in the internet to have more control over their funds and data. As possible tell, the cypherpunks didn’t like trusted third parties in any way!
On top of the cypherpunks, the to-do list was digital cash. DigiCash and Cybercash were both attempts to make a digital money system. They both had a few of the six things needed to be cryptocurrencies but neither had them all. By the end from the the nineties, both had failed. Satashi Nakamoto creator of bitcoinThe world would need to delay until 2009 before fmlxdu first fully decentralized digital cash system was made. Its creator had seen the failure from the cypherpunks and believed that they might do better. Their name was Satoshi Nakamoto and their creation was called Bitcoin.
Bitcoin became popular amongst users who saw how important it might become. In April 2011, one Bitcoin was worth one US Dollar (USD). By December 2017, one Bitcoin was worth more than twenty thousand US Dollars! Today, the price of a single Bitcoin is 7,576.24 US Dollars. Which is still a pretty good return, right? In 2010, a programmer bought two pizzas for 10,000 BTC at one of the first real-world bitcoin transactions. Today, 10,000 BTC is equivalent to roughly $38.1 million – a large price to pay for satisfying hunger pangs.