What is Cryptocurrency?
Cryptocurrency can be described as a virtual or digital currency that is designed to operate as a medium of exchange.
This currency utilizes cryptography to both secure as well as verify its transactions.
The following are some basic concepts to show cryptocurrency works:
Mining can be described as the process taken to confirm transactions before incorporating them to public ledgers.
Miners are required to solve computational problems that are very complex in order to add transactions to the ledger. It is completely open-source to allow everyone to confirm transactions.
Miners who manage to solve the puzzle first are allowed to add to the ledger a block of transactions. The public blockchain ledger, blocks and transactions work in unison to make sure that the block is not easily interfered with.
Each correlating transaction becomes permanent after a block is added to the public ledger. Usually, a small transaction fee is put in the wallet of the miner.
A transaction represents the transfer of funds between a digital wallet and the other.
It has to await confirmation after submission to the public ledger. An electronic signature that is encrypted has to be used by wallets for each transaction made.
The main reason for this is to provide mathematical proof that indeed the transaction originates from the person owning the wallet. The process of confirmation takes some time. For instance, it is 10 minutes for bitcoin.
This is the storage location of every transaction that has been confirmed from the time the cryptocurrency was created. However, coin owners have their identities encrypted.
The system utilizes several cryptographic techniques to guarantee legitimacy of the record keeping. The public ledger makes sure that all digital wallets that are corresponding are able to calculate spendable balance accurately.
Furthermore, new transactions can easily be assessed to make sure every transaction uses coins that currently belong to the spender.
The following are some of the factors that set cryptocurrency apart from conventional financial systems:
This simply means that cryptocurrencies are designed to operate well in small scale and large scale.
For example, bitcoin is programmed in such a way that it allows for mining of a single transaction block after every ten minutes. After 2 weeks, its algorithm adjusts itself to either become harder or easier as it depends on the duration it took to mine 2016 blocks.
Cryptocurrency utilizes encryption to regulate creation of coins and for verification of transactions.
Cryptocurrency is purely digital, they are stored inside digital wallets and can be transferred to the digital wallets of others digitally.
The creation of cryptocurrency and its transactions are all open source thus controlled using a code and depends on peer-to-peer network.
This is a popular system with cryptocurrencies. It utilizes a computational puzzle that is easy-to-verify and hard-to-compute in a bid to reduce the exploitation of mining of cryptocurrencies.
Cryptocurrencies are open source, this means that a developer can make APIs for free and everyone is allowed to either join or use the network.
The following is a list of the most common cryptocurrencies currently in use:
Bitcoin – This is the very first cryptocurrency.
Ethereum Classic – It is Ethereum’s original version.
Monero – This cryptocurrency is capable of private transactions and has a very active community.
Dash – This is a two-tier network. Miners constitute the first tier and are responsible for securing the network and recording transactions.
The second tier has masternodes to relay transactions as well as enable PrivateSend and InstantSend kind of transaction.
Ripple – This cryptocurrency does not utilize blockchain but uses an iterative consensus process thus faster compared to Bitcoin.
Others include Ethereum, Bitcoin Cash, NEM, Litecoin, IOTA, NEO AND Qtum.
Cryptocurrency has numerous benefits, the notable ones are it is decentralized, promotes privacy and allows for traceability of transactions.
Cryptocurrencies are on an upward trend and knowledge is power, this is why people ought to take advantage of this opportunity by learning more about this currency.