Just like any currency, you can use cryptocurrencies to buy goods and services. However, cryptocurrencies are digital and use cryptography to secure transactions. In this beginners guide, we’ll cover the very basics of cryptocurrency.
In this Article:
What is Cryptocurrency?
Cryptocurrency is digital money. It’s a currency that has no physical form as it’s an asset created by software. However, unlike Paypal dollars or World of Warcraft tokens, this ‘digital currency’ uses cryptography for creating the assets and securing transactions.
Cryptography comes from the ancient Greek words kryptós “hidden”; and graphein, “to write”. In very basic terms, it’s about sending hidden messages that can only be read by the intended recipient. The use of cryptography enables us to have secure communication. The result is protected transactions, controlled unit creation, and verified transfers.
The History of Cryptocurrency
The theoretical concept of cryptocurrency existed long before the first digital cash debut. Early cryptocurrency advocates envisioned solving the practical and political limitations of fiat currencies through the application of computer science. During the ’90s, there were many attempts made to create a global digital currency, but they all failed.
After seeing the failed attempts, in 2008, a programmer (or programmers) under the pseudonym of ‘Satoshi Nakamoto’ tried to create a digital cash system without a central entity. Cryptocurrency officially made the jump from concept to reality in 2009 with the release of Bitcoin. It became the very first digital asset of value that you could send via the internet without the need for a specific third party approving the transaction.
Since then, there have been thousands of others created, with more popping up every month. Although many share the same core characteristics, new transaction processes, and innovative ways to solve problems are continually being developed.
How are Cryptocurrencies Created?
In simple terms, cryptocurrencies are sequences of encrypted bits that are built over cryptographic functions and stored over a network. Most cryptocurrencies create new units through mining. This is a process where miners solve complex mathematical problems and are rewarded for their efforts. Miners also verify transactions. When the assets move from one account to another, a miner will confirm the transaction, every node has to add it to their respective database, and it becomes part of the blockchain. A transaction is only considered secure once it’s been added to the blockchain.
A blockchain is a ledger that records all of the transactions and validates the ownership of all the units. Copies of the blockchain are stored across the network in nodes. This process makes transactions extremely secure and eliminates fraud, such as double spending or spams.
What can You Use Cryptocurrency For?
Although cryptocurrencies were initially created as an alternative to physical money, cryptocurrency can be used for so much more. Cryptocurrency can currently allow you to:
- Create smart contracts between people.
- Send non-cash remittances anywhere in the world.
- Rent computer power.
- Rent out your spare hard drive space to the cloud.
- Validate your identity or ownership over a specific asset.
More ways to use cryptocurrency are emerging all the time, as more and more businesses accept the crypto world, people are going to have the opportunity to use them for a range of transactions and serve a variety of needs.
What are some Advantages of Cryptocurrency Over Regular Money?
- There is no need for a bank (or any other third party), terms of service, or guarantees. Additionally, it’s possible for us to send and receive crypto without giving any identification information.
- It is decentralised and not controlled by a government or central authority; therefore, anyone can own and use it. This makes cryptocurrency incredibly useful for people in unstable countries.
- Extremely secure and difficult to hack – the use of distributed ledgers means that all transactions are stored on a global list in many places at once.
- The transaction fees are low and usually cheaper than the costs of moving other currencies.
- Anyone can transfer assets anywhere in the world because the internet is borderless.
The Future of Crypto
In summary, cryptocurrency is a way of paying that gets rid of mediators represented by banks and makes all transactions extremely secure. The use of cryptocurrency in both public and private industries have their roles firmly set. Cryptocurrency will most likely continue to solve problems and add value in ways that we can’t even anticipate right now.