The What and Why of Cryptocurrency
This article aims at giving you a brief about cryptocurrency and the concept behind it along with explaining what is Cryptocurrency in layman’s language.
In recent times, the market and the economies are stirred by the wave of cryptocurrency. Some are in awe of it and presume that this will change the face of world economies and position of power whereas some think this is just a bubble which will burst with some easy pricks in due course of time. Cryptocurrencies have not been the most understood term of all. Hence it has not grown as it should have been. The major reasons for this ignorance are –
- Terms related to cryptocurrency like Blockchain, Bitcoin, Mining are not well understood or known.
- There are very few sources which are capable of legitimately guiding you to genuine websites where you can buy cryptocurrency.
Here is your level one dictionary that you need to know to have a better understanding of digital currency.
- Cryptocurrency – It is an amalgamation of two words, crypto and currency. Crypto stands for cryptography which is a modern technology used to generating codes to keep the data secret and safe. Currency, as everyone knows means a system of money.
The production and protection of this electronic money is done by computer technology. The whole system is digitized and hence the transfer will occur over the Internet. Since everything is happening over Internet, it needs security and therefore cryptography helps in achieving the goal of this medium. It is a decentralized system which erodes the need of a government or a bank. It aims to become reliable and cheaper medium than the existing ones. The transactions are quite fast without the involvement of middleman.
- Bitcoin – In 2009, the first digital currency was created named “Bitcoin”. It is said some person by the pen name of “Satoshi Nakamoto” created it. Recently, Australian entrepreneur Craig Wright revealed that he is the person behind the shadow of Nakamoto to BBC. Bitcoin has no dependency on government or bank. The transaction happens over “Blockchain” which is also a technology that will be explained next. The data on Blockchain is publically maintained, have numerous copies which are stored on multiple computers. This makes it difficult to meddle with records hence increasing the safety. The next question comes to user’s minds that how will their purchased bitcoins be theft safe. The answer is everyone has a wallet which can only be accessed by a key, a cryptographically generated alphanumeric code.
- Blockchain – This technology is responsible for the creation of secure digital recordings. Though it has the capability to record any information mainly it was created to record bitcoin transactions. These recordings are permanent and hence act as a proof for transactions between two medium. Blockchain got its name by the way it is implemented. Basically, it is a collection of records where each record is called “block” hence when group blocks are connected to each other it is called “Blockchain”. These are maintained over the whole network and are updated in real time which makes manipulation extremely difficult.
- Smart Contracts – Smart contract utilizes Blockchain technology to create contracts. This makes the business system efficient and affordable. To understand this let me draw a picture for you. John wants to purchase 1 bitcoin from Kate and Kate wants $4500 for that from John. Now both of them planned to do this on 7 July 2017, so both of them will deposit their respective cash and bitcoin to smart contract. Smart contract will see to this agreement and check if the parties have fulfilled their obligations. Since here both John and Kate have done, so Smart contract will release the payment and bitcoin. If fulfillment is done then cash and bitcoin will be returned to respective owners. This contract is publically available on networks, hence if anyone violates the agreement the proof will be easily obtained.
- Mining – Mining is the process of registering transactions on the Blockchain. Because this requires computer work, any computer that completes this process is rewarded with digital money. Different cryptocurrencies use different mining processes, and with over 1,000 cryptocurrencies and many more being created each month, new ways of mining are constantly being explored and discovered. Bitcoin uses a complicated math puzzle, and the first person to solve it receives a reward in brand new bitcoin. Mining is how new bitcoins are made.