In this guide, I will explain everything about cryptocurrency in layman's terms, I will go into detail about when it was invented, how it works and why it will be so important in the future. By the end of this guide, you will be able to answer the question "What is a cryptocurrency?" for yourself.
How do cryptocurrencies work?
mining
Miners first try to solve a mathematical puzzle and then put the next block on the blockchain and claim a reward.
what is cryptocurrency
exchange
An exchange is a company (usually a website) where you can buy, sell, or trade cryptocurrency.
what is cryptocurrency
wallet
Cryptocurrency wallets are software programs that store public and private keys, enabling users to send and receive digital currencies and monitor their balances.
What is Cryptocurrency? Popular explanation
Listed below are six things that every cryptocurrency must have in order for it to be called a cryptocurrency.
1. Digital: Cryptocurrencies only exist on computers. No coins, no banknotes. There are no cryptocurrency reserves at Fort Knox or the Bank of England!
Decentralized: Cryptocurrencies have no central computers or servers. They are distributed across a network of (usually) thousands of computers. A network without a central server is called a centralized network.
2. Peer-to-Peer: Cryptocurrency is transferred online between people. Users will not conduct transactions through banks, PayPal or Facebook. They deal directly with each other. Banks, PayPal and Facebook are all trusted third parties. Cryptocurrency has no trusted third party! NOTE: They are called trusted third parties because users must trust them with their personal information in order to use their services. For example, we trust banks with our money, and we trust Facebook with our vacation photos!
3. Pseudonym: This means you don’t have to provide any personal information to own and use cryptocurrency. There are no rules about who can own or use cryptocurrencies. It's like posting on a site like 4chan.
4. Untrustworthy: No trusted third party means the user does not have to trust the system to work for it. Users always have full control over their funds and information.
5. Encryption: Each user has a special code that prevents other users from accessing their information. This is called cryptography and is nearly impossible to break. This is also where the encryption part of the encryption definition comes from. Encryption means hiding. When encryption technology is used to hide information, it is encrypted.
6. Global: Every country has its own currency, which is called legal tender. It is difficult to send fiat currency around the world. Cryptocurrency can be easily sent around the world. Cryptocurrency is a currency without borders!
This cryptocurrency definition is a great start, but you are still a long way from understanding cryptocurrencies. Next, I want to tell you when and why cryptocurrencies were created. I will also answer the question "What are cryptocurrencies trying to achieve?"
Historical Origins of Cryptocurrency
In the early 1990s, most people were still struggling to understand the Internet. However, some very smart people have realized that it is a powerful tool.
Some of these clever people, called cypunpunks, believe that governments and corporations have too much power in our lives. They want to use the Internet to make people around the world freer. Cypherpunks hope to use encryption to allow internet users more control over their money and information. As you know, cypherpunks don't like trusted third parties at all!
At the top of digital currencies, the order of the day is digital cash. Both DigiCash and Cybercash attempt to create digital currency systems. They all have some of the six things a cryptocurrency needs, but none. arrive
By the late nineties, both had failed.
Satashi Nakamoto, the creator of Bitcoin, the world will have to wait until 2009 to create the first fully decentralized digital cash system. Its creators had seen the failure of cypherpunks and thought they could do better. Their name is Satoshi Nakamoto and their creation is called Bitcoin.
Understanding cryptocurrency means first understanding Bitcoin…
Bitcoin story
No one knows who Satoshi Nakamoto is. It could be a man, a woman or even a group of people. Satoshi Nakamoto has only spoken in crypto forums and emails.
At the end of 2008, Satoshi Nakamoto published the Bitcoin white paper. This is a description of what Bitcoin is and how it works. It became a model for the design of other cryptocurrencies in the future.
On January 12, 2009, Satoshi Nakamoto conducted the first Bitcoin transaction. They sent 10 BTC to a coder named Hal Halney. By 2011, Satoshi Nakamoto was gone. What they left behind was the world's first cryptocurrency.
Bitcoin is growing in popularity among users who see how important it has become. In April 2011, one Bitcoin was worth one U.S. dollar (USD).
As of December 2017, one Bitcoin was worth over $20,000! Today, the price of one Bitcoin is $7,576.24. Which is still a nice return, right?
interesting facts
In 2010, a programmer purchased two pizzas for 10,000 BTC in one of the first real-world Bitcoin transactions. Today, 10,000 BTC is equivalent to approximately $38.1 million, which is a huge price to pay to satisfy your hunger.
2 pizzas for 10,000 Bitcoins
So where other digital cash systems failed, Bitcoin succeeded. but why? How are cryptocurrencies different? What makes cryptocurrencies different from fiat currencies and other attempts at digital cash is blockchain technology. Let's see how it works…
Cryptocurrency mining may sound like something you do with a shovel and a hard hat, but it's actually more like bookkeeping. Miners are nodes that perform special tasks and make transactions possible. I will show you how to use the Bitcoin network through an example.
Mining cryptocurrency requires a lot of computer power, so miners are rewarded for the work they do. On the Bitcoin network, miners who confirm a new block of information are rewarded with 12.5 BTC of new Bitcoins. That's why it's called mining. Miners are not mining gold or coal cryptocurrencies, they are mining new Bitcoins!
This is how cryptocurrency networks like Bitcoin verify and confirm new transactions. It avoids double spending without having to trust centralized accounting like banks do. Cryptocurrency blockchains are not protected by trust or people. They are guaranteed by the math done by the computer! You know how blockchain and cryptocurrency mining work. Next, I’ll tell you how to join a cryptocurrency network…
