Hello bitlanders, how are you all doing? Hope all is good with you all!
I decided to write a blog about cryptocurrency because I didn't know much about it and made a lot of research just to understand a little about this huge digital world of economy. I have to say my mind crashed a little reading so many pages, blogs, articles, and posts everywhere, but I learned a lot. If you find the reading a little rough, I do apologize for that, because it was difficult to put all the information together, but I hope you enjoy the blog and get in touch with a cryptocurrency of your choice!
Nowadays, cryptocurrencies turned into a great sensation worldwide, but they are still considered to be an investment for nor too many people and this system is not so understood by common people like me. Financial entities such as Banks, the governments, and large corporations are increasingly aware of their importance in this diverse digital world.
In the world, there are many companies that develop softwares, bank institutions, and even government entities already researching deeply this new way of investment. It will be difficult to find a large bank, software company, big company or government that has not researched about cryptocurrencies, released an article or started a blockchain project (distributed public accounting database that records the bitcoin transactions).
The virtual currencies, perhaps Bitcoin being the most notable, captured the imagination of some, caused fear in others and confused the rest of the people." - Thomas Carper, American Senator.
The great number of the population don't know much about cryptocurrencies and had no idea about what digital money was. Also, many people noted it suspiciously, bearing in mind that their transactions could not be brokered by commercial entities and many governments don't recognize it as a real currency.
Bitcoin logo, one of the several cryptocurrencies available. Photo credit: Wikimedia Commons
How did cryptocurrencies arise as by-products of digital money?
Just some people know, but cryptocurrencies came as a side product created by the unknown programmer Satoshi Nakamoto, the father of the virtual currency known as Bitcoin, the first and most important in the world. In his announcement about Bitcoin in 2008, Satoshi said he developed "an end-to-end e-money system."
The most important part of this great invention was that he found a way to build a decentralized digital coin system from a single server unlike most other attempts that were made in the 1990s, but all failed. Satoshi realized that all centralized attempts went wrong, and so he created a digital payment system without the need for a central entity. As an example, we can point out a Peer-to-Peer network for file sharing. It was what Satoshi needed to set all things right and thus create the digital currency.
What cryptocurrencies really are?
We can define cryptocurrencies as simple limited registries in a database that no one can transform without fulfilling specific conditions.
The money that you have in your bank account works the same way. They are considered registries in a data base and can only be transformed under specific conditions. People can buy these currencies and everyday money notes. They will be considered limited registries in a public physical database and they can only be transformed if you have the same condition of what you actually have in your bank account. Actually, real money is about an entry checked into some kind of database of accounts, balances and transactions.
Bitcoin in the Euro shape. Photo credit: Wikimedia Commons
How miners build coins and confirm their transactions
Let's see now the system that controls cryptocurrency databases. Bitcoin is, in fact, a network of peers and each peer has a registry of the transaction and also the balance of each account.
This transaction is actually a file that says "Jean gives X Bitcoin to LookUp" and is signed by Jean's private key. Basically, it's a public key cryptography, nothing special. After signing, a transaction is transmitted over the network, sent from point to point. This is the basic P2P technology.
All transactions are recognized almost immediately by the network and are only confirmed after a period of time. They carry out transactions, stamp as legitimate and spread them on the net. Once a transaction is confirmed by a miner, each node has to add it to its database, becoming part of the blockchain.
For this work, miners are rewarded with a cryptographic token, for example, with Bitcoins. Since mining activity is the most important part of the cryptocurrency system, we should elaborate on a little deeper into this issue.
What do miners do after all?
Basically, anyone can buy and exchange Bitcoins. To do this, simply join the network by downloading and installing the program at https://bitcoin.org/en/. Since the decentralized network does not have the authority to delegate this task, encryption needs security mechanisms to prevent a particular group from abusing it. For example: imagine someone creating thousands of peers and spreading various counterfeit transactions? This would probably cause the system to crash immediately.
So, Satoshi established the rule that miners need to invest some work from their computers to qualify for this task. The fact is, miners need to find a hash - goods with a cryptographic function - that connects the new block with its antecessor. This is what is called proof of work. In the Bitcoin world, this is based on the algorithm SHA 256.
Bitcoin mining rig device used by the miners to create bitcoins. Photo credit: Wikimedia Commons
You do not have to be an expert on SHA 256. It's only important that you know that it can be the basis of a cryptic puzzle where miners perform semi-anonymous transfer of values. After finding a solution, the miner can build a block and add it to the blockchain. And to incentive the miners, he will have the right to aggregate an operation known as base currency which gives him a specific number of Bitcoins. This is the only way to create valid Bitcoins.
Cryptocurrencies: The dawn of a new economy
Cryptocurrencies have become a success due to their revolutionary properties. Satoshi Nakamoto, spared no effort in elaborating this complex system, even when all other attempts to create a digital currency system did not attract too much of the users and investors interest. What Bitcoin brought to everyone was something that caused a deep belief and fascination, and to some individuals, it seems more of a religion than a technology.
Cryptocurrencies are like digital gems and look like physical money, being completely safe from political influence, and promising to preserve and increase its value over time. They can be used also as a quick and comfortable method of payment with a worldwide reach and are considered private and safe to be used as a method of payment for not registered markets and all economic activity considered out of the law.
While Bitcoin remains the most famous cryptocurrency, its competitors will not have the same non-speculative impact, causing investors and users to pay attention to other types of cryptocurrencies as well. Here you have a list of important cryptocurrencies as well: Bitcoin, Ethereum, Ripple, Litecoin, Dogecoin, Moreno, Dash, and Waves.
Altcoins symbols. Photo credit: Wikimedia Commons
Besides these, there are hundreds of other cryptocurrencies. Many of them are only creations to call the attention of the investors and, therefore, make money in a quick way, but many of these cryptocurrencies are only used to prove the innovations in cryptocurrency technology.
What is the future of cryptocurrencies?
The investment market has undergone major changes because of the monetary swings, but that does not change the fact that cryptocurrencies are here to stay and change the world. This is a kind of revolution that is here happening before our eyes and many investors have begun to acquire cryptocurrencies. Financial institutions and governments throughout the world have understood that this invention has the power to take control of the financial market. Cryptocurrency promises to create a great movement in the financial model directly without intermediary institutions and individuals may gradually stand by and watch or may become part of this new technological history under construction.This video explains a lot about cryptocurrency and I hope it helps you to understand a little more about this immense world of virtual coins.
Thanks for reading!