The short and simple answer to the title question is that cryptocurrency is decentralized digital money. But what exactly does that mean and how does it work? In this guide, I will answer all the questions you have about cryptocurrencies. I’m planning to tell you when it was invented, the way it works and why it’s going to be very important later on. At the end of this guide, you’ll be able to answer the question, “what is a cryptocurrency?” for yourself.
The realm of cryptocurrency moves fast so there’s no time to waste. Let’s begin! Once I hear a new word, I search for its definition in my dictionary. Cryptocurrency is actually a new word for many people so let’s write a crypto definition.
Mining – Miners make an effort to solve mathematical puzzles first to place the next block on the blockchain and claim a reward.
Exchange – An exchange is actually a business (usually a website) where you could buy, sell or trade cryptocurrencies.
Wallets – Cryptocurrency wallets are software programs that store public and private keys and enable users to send out and receive digital currency and monitor their balance.
Crypto Definition – Below is a listing of six things that every cryptocurrency must be in order for so that it is called a cryptocurrency;
Digital: Cryptocurrency only exists on computers. You will find no coins with no notes. You can find no reserves for crypto in Fort Knox or perhaps the Bank of England!
Decentralized: Cryptocurrencies don’t have a central computer or server. They may be distributed across a network of (typically) thousands of computers. Networks without having a central server are classified as decentralized networks.
Peer-to-Peer: Cryptocurrencies are passed for every person online. Users don’t deal with one another through banks, PayPal or Facebook. They deal with each other directly. Banks, PayPal and Facebook are common trusted third parties. You can find no trusted third parties in cryptocurrency! Note: They may be called trusted third parties because users need to trust them with their personal data in order to use their services. For example, we trust the bank with the money and we trust Facebook with the holiday photos!
Pseudonymous: Which means that you don’t need to give any personal data to possess and make use of cryptocurrency. There are no rules about who can own or use cryptocurrencies. It’s like posting online like 4chan.
Trustless: No trusted third parties implies that users don’t must trust the program for this to work. Users are in complete control of their funds and data all the time.
Encrypted: Each user has special codes that stop their information from being accessed by other users. This is known as cryptography and it’s almost impossible to hack. It’s also where crypto part of the crypto definition originates from. Crypto means hidden. When information is hidden with cryptography, it is encrypted.
Global: Countries get their own currencies called fiat currencies. Sending fiat currencies around the world is difficult. Cryptocurrencies could be sent around the globe easily. Cryptocurrencies are currencies without borders!
This crypto definition is a great start but you’re still a long way from understanding cryptocurrency. Next, I want to tell you when cryptocurrency was made and why. I’ll also answer the question ‘what is cryptocurrency attempting to achieve?’
The Origin of Cryptocurrency – In early 1990s, most people were still struggling to know the internet. However, there have been some very clever people that had already realized what a powerful tool it is actually. A few of these clever folks, called cypherpunks, thought that governments and corporations had too much power over our everyday life. They wanted to search on the internet to give the people around the world more freely. Using cryptography, cypherpunks desired to allow users from the internet to possess more control over their money and data. As possible tell, the cypherpunks didn’t like trusted third parties at all!
At the top of the cypherpunks, the to-do list was digital cash. DigiCash and Cybercash were both attempts to create a digital money system. Both had some of the six things needed to be cryptocurrencies but neither had them all. At the end in the the nineties, both had failed. Satashi Nakamoto creator of bitcoinThe world will have to delay until 2009 before fmlxdu first fully decentralized digital cash system was developed. Its creator had seen the failure of the cypherpunks and believed that they could 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 a lot more than twenty thousand US Dollars! Today, the buying price of a single Bitcoin is 7,576.24 US Dollars. Which can be still a pretty good return, right? During 2010, a programmer bought two pizzas for ten thousand BTC at one of the first real-world bitcoin transactions. Today, ten thousand BTC is equal to roughly $38.1 million – a large price to cover satisfying hunger pangs.