Cryptocurrency best explanation
Bitcoin is the name of the best-known cryptocurrency, the one for which blockchain technology was invented. A cryptocurrency is a medium of exchange, such as. A cryptocurrency is a digital, encrypted, and decentralized medium of exchange. Unlike the U.S. Dollar or the Euro, there is no central. Cryptocurrency (also known as crypto) is a digital currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions. ETHEREAL CORDS
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The world would have to wait until before the first fully decentralized digital cash system was created. Its creator had seen the failure of the cypherpunks and thought that they could do better. Their name was Satoshi Nakamoto and their creation was called Bitcoin.
It could be a man, a woman or even a group of people. Satoshi Nakamoto only ever spoke on crypto forums and through emails. In late , Nakamoto published the Bitcoin whitepaper. This was a description of what Bitcoin is and how it works. It became the model for how other cryptocurrencies were designed in the future. On January 12, , Satoshi Nakamoto made the first Bitcoin transaction.
By , Satoshi Nakamoto was gone. Bitcoin became more popular amongst users who saw how important it could become. Today, the price of a single Bitcoin is 7, Which is still a pretty good return, right? So, Bitcoin has succeeded where other digital cash systems failed. But why? What is cryptocurrency doing differently?
The thing that makes cryptocurrency different from fiat currencies and other attempts at digital cash is blockchain technology. All cryptocurrencies use distributed ledger technology DLT to remove third parties from their systems. DLTs are shared databases where transaction information is recorded. The DLT that most cryptocurrencies use is called blockchain technology.
The first blockchain was designed by Satoshi Nakamoto for Bitcoin. A blockchain is a database of every transaction that has ever happened using a particular cryptocurrency. Groups of information called blocks are added to the database one by one and form a very long list. So, a blockchain is a linear chain of blocks!
It stays on the blockchain forever and everyone can see it. The whole database is stored on a network of thousands of computers called nodes. New information can only be added to the blockchain if more than half of the nodes agree that it is valid and correct. This is called consensus. The idea of consensus is one of the big differences between cryptocurrency and normal banking.
At a normal bank, transaction data is stored inside the bank. Bank staff makes sure that no invalid transactions are made. This is called verification. Unfortunately, George only has 10 USD in his account. They stop the transaction from happening. The bank stopped George from double spending which is a kind of fraud.
Banks spend millions of dollars to stop double spending from happening. What is cryptocurrency doing about double spending and how do cryptocurrencies verify transactions? How Does Blockchain Work? Cryptocurrency transactions are verified in a process called mining. So, what is cryptocurrency mining and how does it work? Miners are nodes that perform a special task that makes transactions possible. George owes Michael 10 BTC. Miners take the information and encrypt it. This is called hashing.
To this information, they add other transaction information and hash that too. More and more information is added and hashed until there is enough to form a block. The lucky miner that guesses the right code gets to add the new block to the blockchain. Now, all the other nodes on the network verify the transaction information in the new block. They check the whole blockchain to make sure that the new information matches. If it does, then the new block is valid, and the winning miner can add the new block to the blockchain.
This is called confirmation. Michael receives 10 BTC from George. Mining cryptocurrency uses a lot of computer power, so miners are rewarded for the work they do. On the Bitcoin network, miners who confirm new blocks of information are rewarded with Instead of mining for gold or coal crypto, miners are digging for new Bitcoin! So, What is Cryptocurrency Mining For? It stops double spending without the need to trust centralized accounting as banks do.
They are secured by math done by computers! For more information, check out my Blockchain Explained guide. Now you know how blockchains and crypto mining work. Cryptocurrency only exists on the blockchain. Users access their cryptocurrency using codes called public and private keys. If you want someone to send you an email, you tell them your email address. Well, if you want someone to send you cryptocurrency, you tell them your public key. Now, if you want to read your emails or send an email, you need to enter your email password.
Users can send each other money online, without needing to trust each other or any third parties with their money or information. Cryptocurrencies do this by recording every transaction like the one above between Peter and Paul on a shared database called a blockchain. This blockchain is shared across thousands of powerful computer systems called nodes.
Each new transaction is verified by a node. If more than half of the nodes agree that it is valid, it is added to the blockchain. Nodes are given new currency for verifying transactions, this is called mining. Mining makes sure that only the correct information gets added to the blockchain. Your account has a public key and a private key. Think of it as being like your email account. Your public key is like your username and your private key is like your password.
You need both to access your account. Cryptocurrency for Newbies Now, if a newbie and we all know one! The newbie might also want to know how cryptocurrencies got started. Not a problem! The Story of Cryptocurrency In the s, lots of different people tried to build cryptocurrencies.
None of them got the technology quite right or the support they needed to succeed. The story of cryptocurrency really gets started with Bitcoin. No-one has ever met Satoshi in person. They could be a man, a woman or a whole group of people!
Satoshi sent it to a coder called Hal Finney. Satoshi only ever spoke on internet message boards and in emails. By April , Satoshi was gone. It took a couple of years for people to become interested in Bitcoin. People saw that Bitcoin had all six of those things we listed earlier, and they started buying it and using it. So, what is a cryptocurrency like Bitcoin used for?
Silk Road Silk Road was an online black market. It was like an illegal Amazon or eBay. It used Bitcoin as its main trading currency. Customers could buy all sorts of things, using Bitcoin, without anyone knowing who they were. Many of these things were illegal, things like drugs, stolen goods, and weapons. Silk Road even had adverts for assassins! Silk Road was shut down in , after two years of trading.
The Silk Road story made it into newspapers across the world. This was both good and bad for Bitcoin. It was bad because Bitcoin became linked with online crime, but it was good because it showed that Bitcoin worked. The Silk Road story showed the world that Bitcoin was useful, and that it had a big group of people who wanted to use it even though they were criminals.
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