The short as well as simple answer to the title question is that cryptocurrency is decentralized digital money. But what exactly does that mean and just how does it work? In this guide, I will answer the questions you have about cryptocurrencies. I’m planning to inform you when it was invented, the way it works and why it’s going to be so 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 realm of cryptocurrency moves fast so there’s no time to waste. Let’s begin! After I hear a brand new word, I search for its definition within my dictionary. Cryptocurrency is a new word for many people so let’s write a crypto definition.
Mining – Miners attempt to solve mathematical puzzles first to put the next block on the blockchain and claim a reward.
Exchange – An exchange is actually a business (often a website) where one can buy, sell or trade cryptocurrencies.
Wallets – Cryptocurrency wallets are software programs that store public and private keys and enable users to deliver and receive digital currency and monitor their balance.
Crypto Definition – Below is a list of six things which every cryptocurrency should be to ensure that that it is referred to as 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 the Bank of England!
Decentralized: Cryptocurrencies don’t have a central computer or server. These are distributed across a network of (typically) a large number of computers. Networks without having a central server are known as decentralized networks.
Peer-to-Peer: Cryptocurrencies are passed from person to person online. Users don’t deal with each other through banks, PayPal or Facebook. They deal with one another directly. Banks, PayPal and Facebook are common trusted third parties. You can find no trusted third parties in cryptocurrency! Note: These are called trusted third parties because users must believe in them with their personal information to use their services. For example, we trust the lender with our money so we trust Facebook with our holiday photos!
Pseudonymous: Which means that you don’t have to give any private information to obtain and make use of cryptocurrency. You will find no rules about who can own or use cryptocurrencies. It’s like posting on a website like 4chan.
Trustless: No trusted third parties means that users don’t need to trust the system for it to operate. Users have been in complete charge of their funds and information at all times.
Encrypted: Each user has special codes that stop their information from being accessed by other users. This is called cryptography and it’s extremely difficult to hack. It’s also where crypto part of the crypto definition comes 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 can be sent around the globe easily. Cryptocurrencies are currencies without borders!
This crypto definition is a great start but you’re still quite a distance from understanding cryptocurrency. Next, I wish to inform you when cryptocurrency was created and why. I’ll also answer the question ‘what is cryptocurrency attempting to achieve?’
The Origin of Cryptocurrency – During the early 1990s, many people were struggling to understand the web. However, there was some very clever people that had already realized exactly what a powerful tool it really is. Some of these clever folks, called cypherpunks, believed that governments and corporations had excessive control of our everyday life. They wished to use the web to offer the folks of the world more freely. Using cryptography, cypherpunks desired to allow users in the internet to have more control over their cash and knowledge. As possible tell, the cypherpunks didn’t like trusted third parties at all!
On top of the cypherpunks, the to-do list was digital cash. DigiCash and Cybercash were both attempts to make a digital money system. Both had a number of the six things needed to be cryptocurrencies but neither had them all. At the end of the the nineties, both had failed. Satashi Nakamoto creator of bitcoinThe world would need to wait until 2009 before fmlxdu first fully decentralized digital cash system was made. Its creator had seen the failure of the cypherpunks and considered that they could do better. Their name was Satoshi Nakamoto along with their creation was called Bitcoin.
Bitcoin became more popular amongst users who saw how important it may 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 just one Bitcoin is 7,576.24 US Dollars. Which is still a pretty good return, right? During 2010, a programmer bought two pizzas for 10,000 BTC at one of the first real-world bitcoin transactions. Today, 10,000 BTC is equal to roughly $38.1 million – a big price to fund satisfying hunger pangs.