The short and easy 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 the questions you have about cryptocurrencies. I’m going to inform you when it was invented, the way it works and why it’s going to be very important down the road. At the end of this guide, you’ll be able to answer the question, “what is a cryptocurrency?” for yourself.
The world of cryptocurrency moves fast so there’s virtually no time to waste. Let’s begin! When I hear a brand new word, I check out its definition in my dictionary. Cryptocurrency is really a new word for most of us so let’s write a crypto definition.
Mining – Miners make an effort to solve mathematical puzzles first to place the following block on the blockchain and claim a reward.
Exchange – An exchange is actually a business (often a website) where you can buy, sell or trade cryptocurrencies.
Wallets – Cryptocurrency wallets are software packages that store public and private keys and enable users to send and receive digital currency and monitor their balance.
Crypto Definition – Below is a summary of six things which every cryptocurrency should be to ensure that so that it is called a cryptocurrency;
Digital: Cryptocurrency only exists on computers. You will find no coins with no notes. You will find no reserves for crypto in Fort Knox or 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 with no central server are called decentralized networks.
Peer-to-Peer: Cryptocurrencies are passed individually for each person online. Users don’t deal with one another through banks, PayPal or Facebook. They deal with one another directly. Banks, PayPal and Facebook are all trusted third parties. There are no trusted third parties in cryptocurrency! Note: They may be called trusted third parties because users must trust them using their personal information to use their services. For example, we trust the bank with this money and that we trust Facebook with our holiday photos!
Pseudonymous: Which means that you don’t need to give any personal data to own and make use of cryptocurrency. You can find no rules about who are able to own or use cryptocurrencies. It’s like posting online like 4chan.
Trustless: No trusted third parties signifies that users don’t must trust the system for this to function. Users are in complete charge of their funds and knowledge at all times.
Encrypted: Each user has special codes that stop their information from being accessed by other users. This is known as cryptography and it’s extremely difficult to hack. It’s also where crypto portion of the crypto definition arises from. Crypto means hidden. When information is hidden with cryptography, it is actually encrypted.
Global: Countries have their own own currencies called fiat currencies. Sending fiat currencies all over the world is difficult. 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 quite a distance from understanding cryptocurrency. Next, I wish to tell you when cryptocurrency was made and why. I’ll also answer the question ‘what is cryptocurrency trying to achieve?’
The Origin of Cryptocurrency – In the early 1990s, most people were struggling to understand the web. However, there were some very clever people that had already realized exactly what a powerful tool it is. Many of these clever folks, called cypherpunks, thought that governments and corporations had excessive control of our way of life. They wished to search on the internet to offer the individuals around the globe more freely. Using cryptography, cypherpunks wanted to allow users of the internet to get more control over their cash and data. That you can tell, the cypherpunks didn’t like trusted third parties at all!
Near the top of the cypherpunks, the to-do list was digital cash. DigiCash and Cybercash were both attempts to produce a digital money system. Both had some of the six things should be cryptocurrencies but neither had every one of them. In the end in the the nineties, both had failed. Satashi Nakamoto creator of bitcoinThe world would have to delay until 2009 before fmlxdu first fully decentralized digital cash system was made. Its creator had seen the failure from the cypherpunks and thought that they might do better. Their name was Satoshi Nakamoto as well as their creation was called Bitcoin.
Bitcoin became popular amongst users who saw how important it could become. In April 2011, one Bitcoin was worth one US Dollar (USD). By December 2017, one Bitcoin was worth a lot more than twenty thousand US Dollars! Today, the price of just one Bitcoin is 7,576.24 US Dollars. That is still an excellent return, right? During 2010, a programmer bought two pizzas for ten thousand BTC in one of the first real-world bitcoin transactions. Today, 10,000 BTC is the same as roughly $38.1 million – a huge price to pay for satisfying hunger pangs.