What is Cryptocurrency, How Does it Work and Why Do We Use It?

You might have heard of Bitcoin. It is a digital currency that was created in 2009 by an anonymous person using the alias Satoshi Nakamoto. So what exactly is a Bitcoin?

It allows you to make transactions without a middleman – meaning you have full control over your transactions. Along with Bitcoin, however, there are many other cryptocurrencies available. 

The Basics of Cryptocurrency

For years, people have traded assets for goods.  Today, those assets are mostly currencies – normally printed bills or coins. The currencies circulating today are all administered by centralized authorities such as governments or central banks.

The launch of Bitcoin, however, partially changed how the world viewed money. For example;

What if currency were monitored and regulated by math rather than by governments?

There are several types of cryptocurrencies with many functions. Besides these features, these cryptocurrencies are supported by a decentralized network, called the blockchain.

Blockchain technology assures that all cryptocurrencies are kept in track, regardless if they are being held in a digital wallet or used for trading. Of course, running any type of system like this requires an infrastructure that makes sure that no one is trying to game the system. 

For example, Bitcoin was the first cryptocurrency to market, creating a system where the peer-to-peer network, so the sender and the receiver of tokens/coins, must create a digital signature to sign off on these payments.

Each user has their very own public and private encryption key, through which these transactions are possible. This creates a system where every transaction is verified for accuracy and kept anonymous. 

As mentioned, complete visibility is provided throughout these transactions. To make this work, the ledger comes into play. Let’s find out what this is and how it works below. 

The Ledger: Who Owns It, & How Does It Work?

A public ledger obtains its name from an old record-keeping system that was used to record information like agriculture commodity prices, news, and analysis. 

Cryptocurrency also makes use of a ledger where all transactions are made public so that inclusive visibility is implemented. Having a ledger forces everyone to ‘play’ fairly and takes away the risk of double-spending.

The ledger is a list of records in a database that nobody can change without fulfilling specific conditions. Nobody owns the ledger or the cryptocurrency blockchain; instead, it’s decentralized meaning self-run and self-governed without the intervention of external parties.

Verifying Transactions & Blockchain

By now you’re probably thinking about investing in cryptocurrency, like Bitcoin, Ethereum, or other popular cryptocurrencies through a major cryptocurrency exchange. To help you go through a transaction like this we will talk about what happens when you decide to spend it.

In the beginning, the transaction will still be pending, meaning it won’t be official – as it has to go through a verification process. Once it goes through this verification process, the transaction becomes a part of a list of historical transactions stored on the blockchain.

In technical terms, cryptocurrency mining, or ‘crypto mining’, is the process in which transactions for various forms of cryptocurrency are verified and added to the blockchain digital ledger.

Some alternative names are altcoin mining, crypto-coin mining, or Bitcoin mining. Cryptocurrency usage has advanced exponentially, especially in the last few years, hence the increase in cryptocurrency mining. 

The Cryptocurrency Miners use powerful computers to solve complex math problems that are basically the key to the verification process. Cryptocurrency Mining is an open-source, so anyone can confirm a transaction, and the first miner to solve the problem gets to add a block to their transaction ledger. This process is called the “proof-of-work system.”

When a block has been added to the ledger, of course, the miner is rewarded for their efforts for finalizing the transaction, which depends on the cryptocurrency. Originally, when Bitcoin launches, 50 BTCs were rewarded. At pre-set times, the award halves, for example, in 2018 it was 12.5 and according to professionals sometime in  2020, it will halve to 6.25. 

What now? 

Markets are messy. 

Though this doesn’t affect how cryptocurrency is changing the world and it is here to make a difference.

As all over the world, national currencies can be devaluating, people tend to buy Bitcoin or other cryptocurrencies. An avid market for Bitcoin enclosure has developed, and the Bitcoin using darknets of cybercrime are flourishing in Asia.

There are ‘Smart Contracts’, which are meant to automatically perform, monitor, or record activities and acts that are lawfully appropriate to the provisions of the contract or arrangement.

Top traders have been debating the future of Bitcoin. According to them, top Cryptocurrencies will play an important role in the future, with the usage steadily increasing over the past several years.

Conclusion

Bitcoin is used in 96 countries and growing, with 12,000 transactions occurring every hour. Understanding more about cryptocurrency is the first key step, and the second is to delve into it.

There are so many ways of staying safe while buying cryptocurrencies. For example, for Bitcoin, there are Bitcoin ATMs in over 60 countries. You can buy them through cryptocurrency exchanges, you can trade face-to-face like Pokemon cards or even using gift cards.

As for the less popular cryptocurrencies, the purchasing selections aren’t as diverse. However, there are still many exchanges where you can get several crypto-coins for flat currencies or Bitcoins.

As mentioned, face-to-face trading is also a common way of obtaining coins. Buying options depend on particular cryptocurrencies, their notoriety as well as your location.

Andrew McEwan

Author: Andrew McEwan

Make crypto, not war.