The short and 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? Within this guide, I will answer all the questions you have about cryptocurrencies. I’m planning to tell you when it was invented, how it operates and why it’s going to be so important down the road. By 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 almost no time to waste. Let’s get going! Once I hear a whole new word, I search for its definition in my dictionary. Cryptocurrency is a new word for most people so let’s write a crypto definition.
Mining – Miners make an effort to solve mathematical puzzles first to place another block on the blockchain and claim a reward.
Exchange – An exchange is a business (usually 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 summary of six things which every cryptocurrency must be in order for it to be referred to as a cryptocurrency;
Digital: Cryptocurrency only exists on computers. You can find no coins with no notes. You will find no reserves for crypto in Fort Knox or perhaps the Bank of England!
Decentralized: Cryptocurrencies don’t have a central computer or server. They may be distributed across a network of (typically) a large number of computers. Networks without a central server are called decentralized networks.
Peer-to-Peer: Cryptocurrencies are passed individually for each person online. Users don’t deal together through banks, PayPal or Facebook. They deal with one another directly. Banks, PayPal and Facebook are trusted third parties. There are no trusted third parties in cryptocurrency! Note: They may be called trusted third parties because users must believe in them using their personal information in order to use their services. For instance, we trust the bank with the money so we trust Facebook with this holiday photos!
Pseudonymous: Which means that you don’t need to give any personal data to possess and make use of cryptocurrency. You will find no rules about who are able to 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 this to work. Users will be 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 known as cryptography and it’s almost impossible to hack. It’s also where crypto part of the crypto definition arises from. Crypto means hidden. When information is hidden with cryptography, it is encrypted.
Global: Countries have their own currencies called fiat currencies. Sending fiat currencies around the globe is tough. Cryptocurrencies can be sent around the globe easily. Cryptocurrencies are currencies without borders!
This crypto definition is a good 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 know the net. However, there were some very clever folks who had already realized exactly what a powerful tool it is actually. Some of these clever folks, called cypherpunks, believed that governments and corporations had too much control of our lives. They desired to use the web to give the people of the world more freely. Using cryptography, cypherpunks wished to allow users in the internet to get more control over their cash and knowledge. That you can 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 create a digital money system. Both had a number of the six things should be cryptocurrencies but neither had all of them. At the end in the the nineties, both had failed. Satashi Nakamoto creator of bitcoinThe world would have to hold off until 2009 before fmlxdu first fully decentralized digital cash system was made. Its creator had seen the failure from the cypherpunks and believed that they can do better. Their name was Satoshi Nakamoto along with their creation was called Bitcoin.
Bitcoin became very popular amongst users who saw how important it might become. In April 2011, one Bitcoin was worth one US Dollar (USD). By December 2017, one Bitcoin was worth more than twenty thousand US Dollars! Today, the cost of just one Bitcoin is 7,576.24 US Dollars. Which is still a very good return, right? During 2010, a programmer bought two pizzas for ten thousand BTC within the first real-world bitcoin transactions. Today, 10,000 BTC is equal to roughly $38.1 million – a large price to fund satisfying hunger pangs.