Definition of Cryptocurrency
Cryptocurrency is a type of digital currency that uses cryptography for security and anti-counterfeiting measures. Public and private keys are often used to transfer cryptocurrency between individuals.
As a counterculture movement that is often connected to cypherpunks, cryptocurrency is essentially a fiat currency. This means users must reach a consensus about cryptocurrency’s value and use it as an exchange medium. However, since it’s not tied to a specific country, its value is not controlled by a central bank. The value of bitcoin, the leading functioning example of cryptocurrency, is determined by the demand and supply in the market, just like gold and silver.
History of Cryptocurrency
Bitcoin, the first decentralized cryptocurrency, was created in 2009 by pseudonymous developer Satoshi Nakamoto. The system does not require a central authority; its state is maintained through distributed consensus. It allows transactions to be performed in which ownership of the cryptographic units is changed.
Different Cryptographers explained Crypto currency in their words, which are following:
In 1982 David Chaum formulized ecash in his paper Blind Signatures for untraceable payments.
In 1997 Adam Back invents Hashcash.
In 1998 Nick Szabo conceptualizes Bit Gold and Wei Dai publishes and essay outlining a digital currency he called B-money.
In 2004 Hal Finney creates Reusable proof of work.
In 2008 Satoshi Nakamoto shares the bitcoin P2P e-cash paper on cryptography mailing list.
Bitcoin software first released in 2009.In 2010 Laslo Hanyecz buys two pizzas for 10,000 bitcoins.
Bitcoin is the sum of its parts with a genius twist. Like the personal computer, the Internet, and phones before it, Bitcoin is a compilation of a handful of existing technologies and theories. It is this collection of virtual currencies and digital networking that enabled Satoshi to craft a decentralized and immutable digital currency.
Types of Cryptocurrency
There are three overarching types of cryptocurrency:
- Transactional crypto currencies serve as a way to store and exchange value. Examples include bitcoin and litecoin.
- Cryptocurrency platforms create an infrastructure to build new blockchain application. Ethereum is a cryptocurrency platform example built to run smart contracts. Factum lets developers to build secure record-keeping applications.
- Cryptocurrency applications are built on top of cryptocurrency platforms. Anything from initial coin offerings (ICOs) used to raise startup funds to things like the 0x Project, which creates a decentralized exchange for other crypto currencies (or anything else).
How Does Cryptocurrency Work?
Cryptocurrency is an encrypted, decentralized digital currency transferred between peers and confirmed in a public ledger via a process known as mining.
Cryptocurrency is a decentralized currency that is used to make business transactions and the process used to confirm it in a public ledger is called mining. Let’s have a look at a few steps to understand it better.
Public Ledgers: All confirmed transactions from the start of a cryptocurrency creation are stored in a public ledger. The coin owner’s identity is encrypted and the legitimacy of record keeping is ensured by the system by using other cryptographic techniques. The ledger also confirms that the corresponding digital wallets can calculate the exact spendable balance and keeps checking the new transactions to guarantee that only currently owned coins are used by the spender. This ledger is called a “transaction blockchain” by Bitcoin.
Transactions: A transaction is the transfer of funds between two digital wallets. When a transaction is made, it goes to the waiting list for confirmation to a public ledger. Encrypted electronic signatures are required while making a transaction, which is a mathematical proof of transaction being genuine. Transaction is confirmed in about ten minutes and is added to the public ledger by mining.
Mining: The process of adding transactions to a public ledger after a confirmation is called mining. Mining is an open source and it involves an increasingly complex computational problem that is to be solved by the miner. A block of transactions is added to the ledger by the miner. Transactions, blocks and public blockchain ledger work together in such a way that ensures that no individual can add or change a block at his own will. After the addition of block to the ledger, a small transaction fee is added to the miner’s wallet along with newly created coins.
Adaptive Scaling: Adaptive scaling means that crypto currencies are made with methods that ensure cryptocurrencies work equally good both at small and large scales.
Cryptographic: It is a system used to control the creation of coins and verifying transactions.
Decentralized: The commonly used currencies are generally controlled by a centralized government to keep checking fake currency creation and other frauds. Cryptocurrency, on the other hand is an open source that is controlled by code and relies on peer-to-peer networks. So the transactions and creation are not centralized by a specific government.
Digital: Different traditional currencies have physical form; USD exists as paper money like many other currencies. But cryptocurrency doesn’t have a physical form, it’s all digital. Digital coins are added in digital wallets and are transferred digitally to others. All the process is done in a computer and no physical movement is done. Coins are generated by miners and they are nothing more than an agreed imaginary value of ownership.
Business Benefits of Cryptocurrency
Cryptocurrencies are used more and more in today’s world in different business transactions. Let’s have a look at a few of its advantages:
- Lower fees: When transactions are made through cryptocurrency, the charges are very low as compared to those of credit cards. In addition, if cryptocurrency is not exchanged, there are no charges at all.
- Fraud reduction: A payment made with bitcoin cannot be reversed after the fact. This is different from credit card payments, which can be reversed using chargeback, a feature often exploited by fraudsters.
- Instant payments: Credit card payments can take days or even weeks to come through. Meanwhile, cryptocurrency offers instant transfers.
- No barriers: With many features offered by cryptocurrency that are not offered by credit cards, it makes trade a lot easier with the removal of all barriers.
- Attract new customers: As bitcoin is still a fairly new method of payment, offering it as an option for your customers could help you bring in new business.
Get ahead of your competition: By being an early adopter of cryptocurrency, you can gain a competitive advantage over your competition.