CRYPTOCURRENCY

What is Cryptocurrency?

A “cryptocurrency” or “crypto” is a digital currency or virtual currency that is secured by cryptography techniques. A "Crypto" refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.

Cryptocurrency is decentralized networks based digital money, based on blockchain technology — a distributed ledger enforced by a disparate network of computers. When implemented with decentralized control, each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database.

Cryptocurrency is a system that allows for secure online payments which are denominated in terms of "virtual tokens" which are represented by ledger entries of a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership internal to the system.

What is Bitcoin?

Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.

 

Bitcoin is the first implementation of a concept called "cryptocurrency", which was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority. 

CRYPTOCURRENCY

Types of Cryptocurrency

Bitcoin is the first blockchain-based cryptocurrency, which still remains the most popular and most valuable. Today, there are many alternate cryptocurrencies with various functions and specifications. Some of the competing cryptocurrencies spawned by Bitcoin’s success, known as "altcoins" include -

1.    Litecoin

2.    Peercoin

3.    Namecoin

4.    Ethereum

5.    Cardano.

 

In August 2021, the aggregate value of all the cryptocurrencies in existence is over $1.8 trillion, Bitcoin currently represents approximately 46.5% of the total value.

How Does a Cryptocurrency Work?

A cryptocurrency is a medium of exchange that is digital, encrypted, and decentralized systems, these tasks are broadly distributed among a cryptocurrency’s users via the internet. That cryptographic proof comes in the form of transactions that are verified and recorded in a form of a program called a blockchain. A cryptocurrency is a digital currency that can be used to buy goods and services but uses an online ledger with strong cryptography to secure online transactions.  

How is Money Made from Cryptocurrency?

Cryptocurrency does not exist in physical form (like paper money) and is typically not issued by a central authority. The most common way of earning money from cryptocurrencies is buying coins such as Bitcoin, Litecoin, Ethereum, Ripple, and more and wait until their value rises. Once their market prices rise, they sell at a profit.

Advantages and Disadvantages of Cryptocurrency

Advantages

Cryptocurrency has the following advantages

1.    Funds transfer directly between two parties without the need of the third party like credit card and debit cards or banks company.

2.    Cryptocurrency a cheaper alternative compared to other online transactions.

3.    Funds transfers are completed with minimal processing fees.

4.    Payments are safe and secured and offer an unprecedented level of anonymity.

5.    Cryptocurrency systems come with a user “wallet” or account address which is accessible only by a public key and pirate key. The private key is only known to the owner of the wallet.

Disadvantages 

Cryptocurrencies have the following disadvantages.

1.    The almost hidden nature of cryptocurrency transactions makes them easy to be the focus of illegal activities such as money laundering, tax evasion, and possibly even terror-financing.

2.    Payments are not irreversible.

3.    Cryptocurrencies are not accepted everywhere and have limited value elsewhere.

CRYPTOCURRENCY

Architecture of Cryptocurrency

1. Blockchain:

Each cryptocurrency's coins validity is provided by a blockchain. A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block timestamp and transaction data.

2. Timestamping:

The cryptocurrency use various timestamping schemes to "prove" the validity of transactions added to the blockchain ledger without the need for a trusted third party.

3. Nodes:

In the world of Cryptocurrency, a node is a computer that connects to a cryptocurrency network. The node supports the relevant cryptocurrency's network through either relaying transactions, validation, or hosting a copy of the blockchain.

 

4. Mining:

In cryptocurrency networks, mining is a validation of transactions. For this effort, successful miners obtain new cryptocurrency as a reward. 

 

5. Wallets:

A cryptocurrency wallet stores the public and private "keys" (address) or seed which can be used to receive or spend the cryptocurrency. With the private key, it is possible to write in the public ledger, effectively spending the associated cryptocurrency. With the public key, it is possible for others to send currency to the wallet.

 

6. Anonymity:

Bitcoin is anonymous in that the cryptocurrency within a wallet is not tied to people, but rather to one or more specific keys. Thereby, cryptocurrency owners are not identifiable, but all transactions are publicly available in the blockchain. Cryptocurrency exchanges are often required by law to collect the personal information of their users.

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Sources: https://www.wikipedia.org, https://bitcoin.org, Google