CryptoCurrency and ways to trade in Cryptocurrencies
Most of the beginners ask this question that what is CryptoCurrency? I think that there are a lot of people doesn’t know about this. The history of this currency is not a longer history, but it took at least 10 years.
According to Wikipedia, A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets.
Most of the person call it as 21st Century Unicorn or the future currency. Nowadays it has become a global phenomenon known to most people. Some banks, governments and other financial institutions know its importance, but they are still far from CryptoCurrency.
But beyond the noise and the press releases the overwhelming majority of people – even bankers, consultants, scientists, and developers – have a very limited knowledge about cryptocurrencies. They often fail to even understand the basic concepts.
So let‘s walk through the whole story. What are cryptocurrencies?
- Where did cryptocurrency originate?
- Why should you learn about cryptocurrency?
- And what do you need to know about cryptocurrency?
What is cryptocurrency and how cryptocurrencies emerged as a side product of digital cash
A Few people know about it, but cryptocurrencies emerged as a side product of another invention. Satoshi Nakamoto, was the unknown inventor of Bitcoin. Bitcoin is the first and still most important cryptocurrency nowadays.
In Satoshi Nakamoto’s announcement of Bitcoin in late 2008, he said that he has developed “A Peer-to-Peer Electronic Cash System.“ Satoshi’s goal was to invent something; many people failed to create before digital cash.
Announcing the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority. – Satoshi Nakamoto, 09 January 2009, announcing Bitcoin on SourceForge.
The most important part of Satoshi Nakamoto’s invention of bitcoin was very impressive. He found a way to build a decentralized digital cash system. In the decade of nineties, several people attempted to create digital money, but they all failed to create durable cash system.
… after more than a decade of failed Trusted Third Party based systems (Digicash, etc), they see it as a lost cause. I hope they can make the distinction, that this is the first time I know of that we’re trying a non-trust based system. – Satoshi Nakamoto in an E-Mail to Dustin Trammell
Result of Centralized Attempts
After seeing the result of all the centralized attempts, Satoshi made a new try. He tried to build a digital cash system without a central entity. Like a Peer-to-Peer network for file sharing.
This decision of Satoshi, became the birth of cryptocurrency. They are the missing piece Satoshi found to realize digital cash. The reason why is a bit technical and complex, but if you get it, you‘ll know more about cryptocurrencies than most people do. Here we will try to make it as easy for people to understand this digital cash system.
Understanding the Digital Cash System
To realize and understand the digital cash system you need a payment network with accounts, balances, and transaction. One major problem that every payment network face and has to solve is to prevent the so-called double spending. To prevent that double spending error one entity spends the same amount twice. Usually, this happens by a central server that keeps record about the balances and equity.
In the network of decentralized cash system, you don‘t have this server. So you need every single entity of the network to do this job their own. Every peer in the network needs to have a list with all transactions to check if future transactions are valid or an attempt to double spend.
But the question is: How can these entities keep a consensus about this records?
It is required an absolute consensus, in case, the peers of the network disagree about only single, minor balance or everything is broken. Normally, a central authority declare the correct state of balances. But here is a question that how can an entity, achieve consensus without a central authority?
In fact, people think that it will be impossible to do that. Satoshi proved it is possible to do. His major innovation was to achieve consensus without a central authority. Cryptocurrencies are a part of this solution – the part that made the solution thrilling, fascinating and helped the people seeking solution.
What are cryptocurrencies in real?
You can even take physical coins and notes: What are they else than limited entries in a public physical database that can only be changed if you match the condition than you physically own the coins and notes? Money is all about a verified entry in some kind of database of accounts, balances, and transactions.
How miners create coins and confirm transactions
Let‘s have a look at the mechanism of coins and cryptocurrency. It is ruling the databases of cryptocurrencies. A cryptocurrency like Bitcoin, Litecoin or ripple consists of a network of peers. In every peer, there is a record of the complete history of all transactions including balance of every account.
A transaction in the peer is a file that says, “Rob gives X Bitcoin to Alex“ and it is signed by Rob‘s private key. It‘s basic public key of cryptography, nothing special at all. After sign of private key, a transaction will broadcast in the network. It will sent from one peer to all peers. This is basic p2p-technology.
Satoshi created first decentralized cryptocurrency, Bitcoin. Right now, there are numerous other cryptocurrencies in market. People are trading in other coins. These are called nowadays altcoins. These are as a blend of bitcoin alternative. Bitcoin and its derivatives use decentralized contro as opposed to centralized electronic money/central banking systems. The decentralized control is related to the use of bitcoin’s blockchain transaction database in the role of a distributed ledger.
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