Blogs

What is Cryptocurrency? – Everything you need to know

What is cryptocurrency and how it works? Is cryptocurrency a good investment? What is blockchain? What is cryptocurrency mining?

These are some of the most commonly asked questions when it comes to cryptocurrency. Cryptocurrency is something that everyone wants to talk about but no one really knows how they work.

In this post we are talking everything about cryptocurrency i.e,

  • What is cryptocurrency?
  • How does cryptocurrency work?
  • What is cryptocurrency and its uses?
  • Examples of cryptocurrency and its types

Read: How UrbanClap makes money?

History of Currency:

Since the human evolution currency has always been a part of our lives. In the Paleolithic era, people used the barter system. Bartering is a direct trade of goods and services. For example, a farmer may exchange a bushel of wheat for a pair of shoes from a shoemaker.

Barter system

But it failed when people’s requirements did not coincide. There was no common measure of value. Finally, when currency came into existence, it filled this void. Modern currency included paper currency and coins, credit cards, and digital wallets.

The traditional international transaction usually takes about 12 hours of time with a charge of a certain percentage, but a cryptocurrency transaction is completed within seconds without any transaction charges.

A brief history of Cryptocurrency:

In 1983, the American cryptographer David Chaum conceived an anonymous cryptographic electronic money called ecash. Later in 1995, he implemented it through Digicash, an early form of cryptographic electronic payments which required user software in order to withdraw notes from a bank and designate specific encrypted keys before it can be sent to a recipient

In 1996, the National Security Agency published a paper entitled How to Make a Mint: the Cryptography of Anonymous Electronic Cash, describing a Cryptocurrency system, first publishing it in an MIT mailing list and later in 1997, in The American Law Review

In 1998, Wei Dai published a description of “b-money”, characterized as an anonymous, distributed electronic cash system. Shortly thereafter, Nick Szabo described bit gold. Like bitcoin and other cryptocurrencies that would follow it, bit gold was an electronic currency system that required users to complete a proof of work function with solutions cryptographically put together and published.

The first decentralized cryptocurrency, bitcoin, was created in 2009 by presumably pseudonymous developer Satoshi Nakamoto. It used SHA-256, a cryptographic hash function, as its proof-of-work scheme.In April 2011, Namecoin was created as an attempt at forming a decentralized DNS, which would make internet censorship very difficult. Soon after, in October 2011, Litecoin was released. It was the first successful cryptocurrency to use scrypt as its hash function instead of SHA-256. Another notable cryptocurrency, Peercoin was the first to use a proof-of-work/proof-of-stake hybrid.

Read: How Zomato makes money?

What is Cryptocurrency and How does it work?

Definition:

Cryptocurrency or virtual currency is primarily an internet-based medium of exchange. It uses cryptographical functions to conduct financial transactions between two parties through private and public keys.

What is cryptocurrency

Its primary function is to serve as an electronic cash system that no one owns. Cryptocurrency is decentralized. There isn’t a central bank or subset of users that can change the rules without reaching consensus.

Working:

A cryptocurrency has a ledger, where all transactions are public hence it has the total visibility. Having a ledger forces everyone to “play fair” and takes away the risk of double-spending.

The ledger is a list of entries in a database that nobody can change without fulfilling specific conditions. Nobody owns the ledger or the cryptocurrency blockchain; instead, it follows a decentralized system meaning self-run and self-governed without the interference of outside parties.

Cyptocurrency working

Let’s say that you want to invest in cryptocurrency, such as Bitcoin, through a major cryptocurrency exchange. After purchasing it, you decide to spend it. What happens now? At first, the transaction is unconfirmed, which means the transaction is not yet official, and it doesn’t become official until it goes through a verification process. Once confirmed, the transaction becomes part of a record of historical transactions housed on the blockchain.

Cryptocurrency Miners verify the transactions and then add them to the public ledger. They use powerful computers to solve complex math problems that are the key to the verification process. Cryptocurrency Mining is open-source, so anyone can confirm a transaction, and the first miner to solve the problem gets to add a block to their transaction ledger. This process is known as “a proof-of-work system.”

After adding a block to the ledger, the miner gets a reward for their efforts, which varies based on the cryptocurrency. For example, Bitcoin originally awarded 50 BTCs, but that award halves at preset times and today have decreased to 12.5 BTCs.

How do I buy a Cryptocurrency?

Mining:

Mining is an activity where an individual ( “miner”) uses his high-powered computers to crack computationally difficult puzzles. The process of cracking such puzzles which are integral to the blockchain technology, help in maintaining them. As a reward for this, the miner gets new bitcoins which is nothing but the creation of a bitcoin or mining.

Cryptocurrency mining

Read: What is the Dark Web and Deep web? Reasons to Stay away from Dark web- Different Layers of Web

Purchasing them from a bitcoin exchange against real currency:

Everyone cannot be a bitcoin miner. Hence, you can consider buying bitcoins from bitcoin exchanges and store them in an online bitcoin wallet in digital form. Unicorn, Bitxoxo, Zebpay, Coinbase, etc., are some of the bitcoin exchanges present in India. Such bitcoins would be purchased in consideration for real currency. It would be interesting to note that currently, the value of 1 bitcoin is approximately about INR 8,89,875 as of August 2020.

Receiving bitcoins in consideration of selling goods and services:

Though this may not be a common phenomenon in India currently, there are few savvy businessmen who accept bitcoins instead of real currency on sale of goods or services they deal in.

Common Cryptocurrency examples:

Ethereum:

Developed in 2015, ether is the currency token used in the ethereum blockchain, the second most popular and valuable cryptocurrency. Ether has a market capitalization of around $56 billion as of May 2018. However, ether has had a turbulent journey. After a major hack in 2016, it split into two currencies, while its value at one stage reached as high as $1,300 but it has previously crashed briefly to as low as 10 cents. It has proved hugely popular as a launchpad for other cryptocurrencies in 2017, which use the ethereum blockchain’s code.

Ripple:

Ripple

It is another distributed ledger system that was founded in 2012. Ripple can be used to track more kinds of transactions, not just of the cryptocurrency. The company behind it has worked with banks and financial institutions, including Santander. It has a market capitalization of around $24 billion.

Cryptojacking:

Cryptojacking is a type of attack where hackers use the user’s CPU power to mine cryptocurrency. Though they don’t send any malware to the system or mobile, they use a basic and simple javascript. When you browse through the malicious websites like Pirate Bay, the hacker uses the power of your system’s CPU to mine the cryptocurrency.

Cryptojacking

Hence, whenever the pirate bay user visits the website there is a huge spike in the CPU usage. Piratebay does not run ads (for clean layout) on their websites but in the background, it uses users’ system power to mine cryptocurrency to make money and sustain.

But there is a strong argument that it’s okay to use the user’s CPU power for mining in return for the clean layout of the website without ads while others oppose it.

To save yourself and your CPU from the cryptojacking while browsing, you can either turn off javascript or install extensions like nocoin in your system.

Bonus:

Is cryptocurrency a good investment?

Cryptocurrencies may go up in value, but many investors see them as mere speculations, not real investments. The reason? Just like real currencies, cryptocurrencies generate no cash flow, so for you to profit someone has to pay more for the currency than you did.

This price volatility of cryptocurrency creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the value next year?

Is cryptocurrency legal in India?

Now crypto trading is legal in India, according to recent rule out by Supreme court. There’s no question that they’re legal in the United States, though China has essentially banned their use, and ultimately whether they’re legal depends on each individual country. Also, be sure to consider how to protect yourself from fraudsters who see cryptocurrencies as an opportunity to bilk investors. As always, buyer beware.

Final words

As with any market, nothing is for sure. Anyone’s guess is just about as good as anyone else’s when it comes to predicting cryptocurrency prices. Throughout their history, they generally increased in value at a very fast pace, followed by a slow, steady downfall until it stabilizes. As the world is becoming more reliant on the internet it’s no surprise that cryptocurrency, a secure, global, and digital currency has claimed the interest of investors. Cryptocurrency is open to everyone and provides an exciting opportunity to delve into an entirely new asset class. Investing in cryptocurrencies may seem scary, but know that it takes time and effort to understand how Bitcoin works. Also, keep in mind that the regulatory perspectives on cryptocurrencies globally are varied and do your own research based on where you live.

Thanks for reading. Stay safe.

Comment your views below.

Read:

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Check Also
Close
Back to top button

Adblock Detected

Please consider supporting us by disabling your ad blocker