A digital or virtual currency developed to work as a medium of exchange just like any other currency is a cryptocurrency. Cryptocurrencies are gaining recognition in the world as technology is advancing and more people are becoming aware of it. The currency uses cryptography to secure and verify transactions. It can also control the creation of new units of a particular cryptocurrency. It is often dubbed as the money of the future – 21st-century unicorn.
Cryptocurrencies are limited entries in a database. The entries cannot be changed any party unless specific conditions are fulfilled. That makes them the most secure currency in the world. Also, cryptocurrencies are not controlled by any central authority. This means that the decentralized nature of the blockchain makes cryptocurrencies immune to the governments’ control and interference.
It leverages the use of blockchain technology in gaining decentralization, transparency, and immutability. Hence, cryptocurrencies can be sent directly between two parties without any intrusion from a third party. With the use of private and public keys, the transactions are safe and allow users in avoiding steep fees by traditional financial institutions.
How Cryptocurrency came into Existence
As it is with numerous inventions, cryptocurrency emerged as a side product of another invention. Mr. Satoshi Nakamoto invented Bitcoin, the first-ever cryptocurrency in late 2008. He said that it was a Peer-to-Peer Electronic Cash System. He had found a way to a decentralized digital cash system, which many people have failed to invent as there were several attempts in creating digital money, but they all failed.
Every payment network has to solve a problem called double-spending – preventing one entity from spending the same amount twice. This is achieved by a central server. The server keeps a record of the balances. In a decentralized network, however, there is no such server. Then, there was a need for consensus about the records, and without any central authority, how it was possible?
Mr. Nakamoto's innovation was to achieve consensus without a central authority. He found the solution and now, all cryptocurrencies are a part of this solution.
Only Miners Confirm Transactions
The transactions are confirmed by miners within a cryptocurrency network. They solve a cryptographic puzzle, mark them as legitimate, and spread them across the network. In simpler words, a transaction is a file that reads, X gave 1 Bitcoin to Y and is signed by X’s private key. After signed, the transaction is broadcasted, sent from one peer to every peer.
All cryptocurrencies are about confirmation. The confirmed transaction is added to every node in the database and it becomes a part of the blockchain. Since it is the miners’ job to confirm transactions, they are rewarded with a token of the cryptocurrency.
Important Features of the Currency
- Irreversible: Once the transaction is confirmed, there is no going back. Once the money is sent, it is sent. Nothing can bring it back. It means, if a hacker stole your cryptocurrency from your devices, it is gone.
- Fast & Global: Transactions are executed almost instantly in the network and are confirmed within minutes. From one corner of the earth to another in an instant.
- No Permissions: To use cryptocurrency, you don’t need anyone’s permission. It is software where anybody can send and receive money.
- Secure: Only an owner of the private key can send cryptocurrency. Formidable cryptography and big numbers make it impossible to break the scheme.
Usage of Cryptocurrency
Just like any currency, you can buy goods. Some time ago, finding any merchant accepting cryptocurrency was difficult, however, today, most of the merchant accepts the currency.
Cryptocurrencies are a hotspot for investment opportunities. In November 2017, Bitcoin was around USD 7,000.