On 10 Jan 2023
A cryptocurrency is similar to a digital currency. You can use it to pay friends their portion of the bar tab, purchase that new pair of socks you’ve had your eye on, or reserve flights and accommodations for your upcoming vacation. Because cryptocurrencies are digital, they can be sent to loved ones worldwide. You see, organizations own conventional online payment channels. When you wish to spend your money, you must ask them to transfer it on your behalf because they are holding it for you.
There is no organisation in cryptocurrency. By using free software, you, your friends, and thousands of other people can act as your own banks. Your computer connects to other computers, enabling direct communication without the use of intermediaries. You don’t need to provide an email address and password to register for a website in order to use cryptocurrencies. On your smartphone, you may download a huge selection of apps to start sending and receiving right away.
What does the term cryptocurrency mean? Cryptocurrency is a combination of cryptography and currency. Cryptography protects our funds by using advanced math. Thus, this magical internet money does not belong to anyone, and the system is secured through cryptography. Then why should you worry about apps that already allow people to pay?
It has three features:
Permissionless – Cryptocurrency can be used by anyone. On the other hand, centralized payment services can block transactions or freeze accounts.
Censorship-resistant– Hackers or other attackers are virtually unable to shut down the network due to its design.
A cheap and fast payment method– You can send money to someone around the world within seconds – for a fraction of the cost of international wire transfers.
Cryptocurrency and first of its kind, Bitcoin.
Bitcoin– It’s the first cryptocurrency and still the most popular to date. The Bitcoin cryptocurrency served as the foundation for a wide range of other cryptocurrencies. There were some that used the same software and some that used a completely different approach. Okay, but what’s the difference between them all?
A few are faster, a few are more secure, a few are more programmable, and some are more private. One should do their own research before investing in any particular project. It solves the trust problem by taking control of the monetary system from one pair of hands – the central authorities – and placing it in the hands of many dispersed users, none of whom have ultimate control. Essentially, this is what the term decentralized means.
There was a creator of Bitcoin, but their greatest gift was their anonymity, recognizing that Bitcoin could only be successful if it was trusted sound money controlled by many, not a few. Each of these users runs some software that maintains the Bitcoin network, creating an ongoing consensus about every user’s bitcoin balance. Since Bitcoin transactions are final and can’t be reversed arbitrarily unless all users agree, the network becomes more secure as it grows.
A network’s accuracy is maintained by these users (also called nodes). Cryptography protects transactions from fraud and theft, while allowing any user to mathematically verify all transactions. It is impossible to freeze, seize, or spend someone else’s bitcoin, or to spend the same bitcoin twice. Double-spending will result in only one transaction going through – the rest will fail.
Bitcoin is a global money system that does not recognize borders, unlike national currencies. You can exchange it almost instantly, at any time. No “Bitcoin banking hours” exist, and no KYC is required.
The principles of Bitcoin are as follows:
Scarce– The number of bitcoin in circulation will never surpass 21 million, and new ones are mined (created) at a predictable rate. It means there won’t ever be a sudden flood of new bitcoins flooding the market and causing inflation
Durable– It would take an unimaginable catastrophe to knock out all of the users at once with such a large network.
Portable– Since it is just data, you can use your phone, a USB device, or even a QR code.
Divisible– Bitcoin has a special denomination to eight decimal places.
Fungible– A decentralised system has the advantage that everyone is equal; each Bitcoin is unique.
There are vast majority of digital currencies based on Blockchain. Blockchains are just databases, can be created on a spreadsheet. These databases have some peculiarities. First, blockchains are append-only. There is no way to delete or change information that you’ve already added – you can only add information to the cell. In addition, each entry (called a block) in the database is cryptographically linked to the previous one. You end up with a chain of blocks since each fingerprint points back to the previous one. This is referred as Blockchain.
Blockchains are immutable: if you change a block, the fingerprint changes. Consequently, the next block is also changed since that fingerprint is included in the next block. As a result, any change becomes evident in a domino effect.
Internet money & investing – two for one
In the beginning, bitcoin, the currency of the Bitcoin system, was worthless. The first indication that bitcoin could be used as money came in 2010, when someone paid 10,000 BTC for a couple of pizzas. As of now, that would amount to US$ 600,000,000, probably the most expensive dinner in history. As people learn about sound money, their trust in the Bitcoin system has grown dramatically. Does anyone use it as money? Yes, there are over 1 million Bitcoin addresses are active, especially for those suffering from hyperinflation, which continuously reduces their purchasing power, and for those seeking a strong store of value.
Hopefully, this has simplified the meaning of cryptocurrency for you and how it attempts to perform sound money functions. We have reached a new phase in our quest for sound money with Bitcoin, the first cryptocurrency.
Volatility is the final frontier for bitcoin. In spite of its growing popularity and price, Bitcoin is still prone to big swings in its value due to its infancy. In time, cryptocurrency should become more stable as more people own (and use) it, and prove to be a reliable form of money.