So, what is cryptocurrency? Is it really the future of money, or is it nothing more than a new age currency unicorn? The following information will explain the basics of this currency, and after reading this guide, you will be more knowledgeable about cryptocurrency than most people.
Cryptocurrency has become known to most people as being a major global phenomenon that has the potential to revolutionize the way consumers buy and sell goods and services. Although still consider ‘techy’ and ‘geeky’ by most, many government agencies, banks and people are aware of how important it is to the global economy.
Currently, it will be difficult to find an accounting firm, bank, government or software company that has not researched cryptocurrencies, start a blockchain project or publish papers and newsletters about the subject.
However, beyond the articles, newsletters, blog posts and press releases, an overwhelming majority of the population still have limited to no knowledge about cryptocurrency. Many do not even understand the most basic parts of the currency.
What Is Cryptocurrency?
Although not known by many people, cryptocurrencies are actually the byproduct of another invention. Bitcoin, created by Satoshi Nakamoto, was not the intended product, but it marked the beginning of cryptocurrency as we know it. When introducing Bitcoin to the world in 2008, he simply stated he had created a system that allowed peer-to-peer electronic cash transfers.
However, perhaps the most important part of Nakamoto’s invention was that he inadvertently designed a way to create a decentralized digital cash system. There have been previous attempts to create this type of currency in the 1990s, but none of these attempts materialized to the level Bitcoin has.
In order to realize digital cash, you must have a payment network that includes transactions, balances and accounts. However, the main problem that each payment network will need to solve is double spending. This is when one entity in the transaction spends the same amount of money twice.
With a decentralized network, there is no server. This means that every entity in the network will need to be able to handle this job. Each peer in the network will need to maintain records that list all transactions in order to see if these transactions are an attempt to double spend, of if they are valid.
What Are These Cryptocurrencies?
If you remove all of the hype surrounding cryptocurrencies, you will be left with a basic definition. It is simply limited entries that are entered into a database that cannot be changed without meeting certain conditions.
For example, consider the money that is in your bank account. Money is about a verified entry in the database of the bank that holds transactions, balances and accounts of every customer.
The same can be said for cryptocurrency. You need software that is known as a wallet. Wallets can be downloaded online. Bitcoins and other cryptocurrencies are open source and are not regulated by one central authority.
Once you have downloaded the wallet, you will be able to create a cryptographic pair of keys, one private key and one public key. The public key will be used to send money to people (similar to a bank account number), and the private key is password protected. This key proves you are the owner of the wallet and it can be password protected to prevent unauthorized people from accessing it.