May 23, 2022

What is a cryptocurrency?

What is a cryptocurrency?

Introduction

A cryptocurrency is a new currency or digital currency that employs cryptography (advanced mathematics) and sophisticated computer techniques. This is done to avoid relying on central entities that issue and control money.

A cryptocurrency is an entirely digital P2P (peer-to-peer) money or currency. Because they are digital, they can be sent anywhere in the world in seconds. And, best of all, we can do it without the involvement of a third party, such as a bank. You can use them to buy and sell goods and services like any other currency just as we do with traditional currencies like the Euro or the Dollar today. So, if they are so similar to the money we know, why have they been created? The short answer is that digital currencies are unquestionably a better form of money. They are, in fact, the best form of digital money that can exist. This statement is supported by the security, transparency, and privacy that allow us to experiment. Features that we can enjoy as a result of blockchain technology. And it is that a blockchain is nothing more than a database supported by a decentralized network in its entirety.

In addition, the blockchain employs advanced asymmetric cryptography. That is, it employs well-known public and private keys. All of this is in order to create a payment system that allows you to send money anywhere in the world in an uncensorable, secure, and immutable manner. This has resulted in a surge in the advancement of this technology. This is reflected in the thousands of websites that now accept them as a form of payment.

Fiats to crypto

What Is Fiat Money? 

Fiat money appears in its most basic form as coins or paper bills, which are widely used around the world. Fiat currencies are the world’s most widely used currencies, such as the US dollar, Euro, Japanese yen, and pound sterling.

How Are Fiat Currencies And Cryptocurrencies Similar? 

Fiat currencies and cryptocurrencies have some similarities in that they both have no intrinsic value, i.e., they are not based on a commodity such as gold or silver. Much of their worth stems from their widespread acceptance by people all over the world. They’re also divisible: 1 Bitcoin (BTC) can be divided into 0.00000001 BTC, just like a Euro can be divided into 100 cents.

How Are Fiat Currencies And Cryptocurrencies Different?

When it comes to cryptocurrencies, which outperform fiat currencies in many ways, there are some key distinctions to be made. Cryptocurrencies are not issued by governments, unlike fiat currencies. Many cryptocurrencies, on the other hand, are decentralized, which means that no single authority can decide to issue more cryptocurrencies, thereby diluting their value (or otherwise changing the rules). Decentralized cryptocurrencies are extremely resilient and do not require the involvement of third parties to validate transactions (like a bank, for example). Because blockchain technology is used to validate transactions, all transactions are permanently recorded and irreversible, making cryptocurrencies an especially secure way to exchange value.

Cryptocurrency vs fiat: which is better?

As previously stated, cryptocurrencies are a type of digital currency that is related to fiat money in some ways (traditional currencies). However, cryptocurrencies and fiat money have huge differences. Among these differences, we can mention their organization and control in addition to the way in which users evaluate value.

v Cryptocurrencies, on the other hand, are decentralized, meaning any government or institution does not control them. Furthermore, its worth is directly proportional to user trust. Fiat money, on the other hand, is the polar opposite. Its operation is reliant on banks, authorized central authorities, and governments. Because of all of this centralization, these actors are able to manage these currencies at their leisure.

v Another distinguishing feature of cryptocurrencies is their reliance on cryptography. It is hoped that the operations will not be easily modifiable as a result of this. In addition, they are usually the origin of open source projects (auditable for anyone). The most important aspect, however, is that its accounting book (the blockchain or chain of blocks) is comprised of a massive database network. Sustained by thousands of computers around the world and that work in a decentralized and consensus way.

v Another great advantage is that they are open source. Anyone can access the code. With this, they can develop a new cryptocurrency based on an existing one in the market. It also enables you to validate the code and identify various errors and failures. This has a significant impact on their safety, as well as ensuring that their development is sustained over time.

Blockchain: the heart of cryptocurrencies

The blockchain is nothing more than a way of keeping track of operations and totals. It keeps track of all the cryptocurrency units in circulation as well as all the transactions that have taken place.

Blockchain
Blockchain

Every cryptocurrency has its own blockchain, which acts as a ledger or accounting book for the cryptocurrency (among other missions). As a result, each of these currencies has its own register, or accounting book, in which units and transactions are recorded.

There is a worldwide network of interconnected computers that validates and stores the information of this network. Thanks to this, there are millions of backup copies synchronizing at all times to safeguard information instantly. Thus, the information on the creation and distribution of money through transactions is recorded in an immutable way. And by immutable, it is understood that its manipulation is not possible.

The origin of cryptocurrencies

Its base can be traced back to the 1980s when the Cypherpunk movement advocated for the use of cryptography as a social and political tool.

In 1990 David Chaum developed a form of digital money called Digicash. This was centralized electronic money that allowed anonymous and secure transactions. But seven years later, Adam Back came up with Hashcash based on proof of work to reduce spam and DDoS attacks. This software was the one who laid the foundations for the security and mining protocols of the cryptocurrencies of the future. Later, Wei Dai would design b-money. This was a virtual currency that used a very advanced crypto mining scheme. Although this project was never completed, b-money is considered by many to be the world’s first cryptocurrency.

But it was in 2008 that Satoshi Nakamoto, whose real identity is unknown, published the Bitcoin whitepaper. This was the birth of the first fully decentralized currency, Bitcoin. To achieve this, Nakamoto relied on proof-of-work blockchain technology devised by Adam Back, using Hashcash. Thus, Satoshi proposed using the SHA-256 algorithm as a cryptographic hash function and a Proof-of-Work (PoW) system. Furthermore, Bitcoin was limited to an issue of just 21 million coins.

Since then, technology has caught the attention of the entire world. Currently, there are thousands of different cryptocurrencies, each one of them created in order to improve technology. However, there are few cases that have achieved this goal and reached a high audience and users. We are talking about cases such as Ethereum, Bitcoin Cash, Dash, EOS, Monero, Grin or ZCash. Each of these cryptocurrencies has very particular characteristics with which they seek to improve their presence throughout the world. A healthy competition that seeks to provide the best that this technology can offer in all corners of the world.

What makes them an invention like no other?

Many experts have debated the advantages and disadvantages of this type of digital money since its inception. One of these specialists is Jan Lansky. Lansky carried out a work entitled “Possible State Approaches to Cryptocurrencies “, Presented in 2018, in which he describes these digital currencies as follows:

  • In this system, there is no need for a central authority. As a result, a distributed consensus maintains its current state.
  • The system maintains all units and their owner.
  • Whether or not new units can be created is determined by the system. In this case, the system must define the circumstances of its creation as well as how to identify the new unit’s owner.
  • Only a user’s cryptographic ownership of a unit can be guaranteed.
  • The system allows unit transactions, in which the owner of said units is changed. A transaction can only be effected if the current owner of these units can be proven.
  • When two transactions on the same unit are made, the system only executes one of them.

This series of characteristics contains the nature of cryptocurrencies and what makes them what they are. In other words, any digital currency system that meets these requirements can be considered a cryptocurrency in its entirety.

Pros of cryptocurrency
  • They are decentralized currencies; that is, they do not depend on or are under the control of any government or public institution.
  • Being an independent currency, it does not have any economic advantage, such as the euro and the dollar vs. the peso and the bolivar.
  • They do not require intermediaries in the transactions.
  • Transactions are instant, confidential and secure (every movement is recorded and anonymous).
  • They cannot be falsified or hacked thanks to their operation under the blockchain.
Cons of cryptocurrency
  • Its price is much more volatile than a conventional currency.
  • There is nobody that controls or regulates it.
  • It is not yet accepted in all countries.
  • It is considered by some economists as a financial bubble, and that ends up leaving those who invested in it in ruin.
  • Fraudsters have taken advantage of the bitcoin boom, deceiving thousands of people around the world due to the lack of knowledge of this digital currency.
  • There is no guarantee of the investment.

The 10 most popular cryptocurrencies

  1. Bitcoin
  2. Ethereum
  3. Cardano
  4. Solana
  5. Avalanche
  6. Polkadot
  7. Dogecoin
  8. SHIBA INU
  9. Polygon
  10. Litecoin

The future of cryptocurrencies

cryptocurrencies
cryptocurrencies

Cryptocurrency has a promising future. Since their inception in 2008, they have evolved from a minor curiosity to a major global economic force. One that is fueled by innovation and the emergence of new projects and technologies as a result of initial coin offerings (ICOs) (ICOs). Not only that, but they’ve demonstrated that a different type of economic control is possible. One in which the economy is completely free and decentralized, rather than responding to the interests and manipulations of powerful groups. Uncontrollable inflation and other scourges have no place in this type of economy.

But in addition, they have also opened the doors to an economy that reaches everyone in the world. It is no longer necessary for a person to have a bank account to send or receive money. A simple cryptocurrency wallet is enough and more than enough for such a task and managing any digital asset of this nature. This opens the doors to a truly global financial revolution, which we are only just beginning to witness. Assume you are considering purchasing a car or a home in the future. It would be sufficient to open a DAPP, apply for a loan using your coins as collateral, and have your loan approved almost immediately. There is no need for paperwork, a bank visit, or long wait times. This is just one example of cryptocurrencies’ enormous power, the blockchain’s potential, and what we can expect in the future.

However, the revolution does not end there; in fact, it is possible to envision a world that is even more revolutionary. One in which everything connected to the Internet is able to interact with everything else securely. One in which, regardless of where you live, you can access products and services from all over the world and pay for them without difficulty. Cryptocurrencies have this kind of power. A force that assures us that their future is secure and that we are only just getting started. Despite this, the cryptocurrency market mobilizes millions of dollars every day around the world and continues to grow. This gives us an idea of the cryptocurrency market’s current relevance.

Conclusion

To conclude, it is stated that cryptocurrencies are an alternative, safe and efficient way to exchange goods or services that positively affect the world economy due to their decentralization, excellent liquidity, and flexibility. However, you have to know this market before entering it in order to take advantage of the benefits that this electronic currency has.

It is foreseeable that cryptocurrency will continue to expand in the coming years, thanks to its many advantages. Companies and individuals must remain attentive to the financial innovation that is emerging thanks to blockchain technology.

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