Cryptocurrencies are a thing of wonder amongst many individuals around the world. Not even banks, accountants or businesses really know how it works without properly studying it. The idea of cryptocurrency has sparked an entire new era of online buying and general money management. There are a ton of benefits to using cryptocurrency and there’s a lot to understand before you jump in and start to use them.
The first real cryptocurrency was Bitcoin and I’m sure you’ve all heard of it. It is incredibly popular and gained a lot of news coverage when it was first released. In fact, Bitcoin (or cryptocurrency in general) was invented by accident. Nobody actually thought the idea of cryptocurrency was possible until an individual called Satoshi Nakamoto released it to the world. Cryptocurrency (like Bitcoin) is now used throughout the world and is gaining momentum. But what is Bitcoin? What makes it special? Continue reading to learn more.
What is a Cryptocurrency?
A cryptocurrency is essentially a money transfer and management system that doesn’t require a centralized server. Unlike your bank where you deposit and transfer money with the bank controlling all transactions, there is no one entity that controls the flow of money. A Cryptocurrency is made up of a peer-to-peer network that manage and confirm money transactions. These peers have a list of all transaction and are required to validate them. With all the thing that could go wrong, it was believed this couldn’t be possible.
However, with the addition of miners and encryption, all was made possible.
How Do They Work?
Cryptocurrencies are all about confirmation of a transaction. This is because of the transaction is not confirmed it can be forged and changed. When the transaction is confirmed and is added a blockchain, nobody in the world can change it, no matter how important they are. When an individual performs a transaction, they use their encrypted public key to send the money and then it is taken to the P2P network, which is nothing new. However, when the transaction is in the P2P network, miners need to verify and confirm the transaction as legit so it can be added to a blockchain.
In order for them connect the transaction to the predecessor, they need to find a hash. This is a failsafe to ensure that the network cannot be dominated by one individuals or entity. Miners need to crack a code (SHA 256) in order to qualify for confirmation. Miners compete to crack these codes because they are rewarded with Bitcoins, which is the only legitimate way to create them.
There are a range of features associated with cryptocurrencies that differentiate with centralized servers. Below are a few unique features you can only get when using currency like Bitcoin.
- Fast and worldwide – because there is no centralized location where the money is going, cryptocurrency works worldwide and is not restricted by various currency rates. There is no Government or agency that controls the supply so the transactions work worldwide and are instantaneous.
- Transactions can’t be reversed – The issue with cryptocurrency is transactions cannot be reversed is a mistake was made. Once they have been validated by a miner and added to the blockchain they can’t be changed. It is physically impossible.
- More anonymity – When you use or send a cryptocurrency, the account you use is not attached to a centralized location or address, offering you more anonymity when you perform a transaction. However, you aren’t completely anonymous because your transaction produces a string of number than can release your location if studied.
- Very secure – The transactions are secured with encryptions and can only be sent with one public key that the sender owns. A bitcoin address is unbreakable.
- Free will – You don’t need permission from a bank or agency to open an account and start spending. Everything works independently of a centralized system so you are not controlled when making transactions.
Cryptocurrencies are a new and interesting way to send money around the world. No one thought the idea of such a thing was possible but with the application of encrypted networks and advanced P2P schemes, individuals can now send and receive money without the control of banks or Governments. Cryptocurrencies like Bitcoin are growing in popularity and give people the free will they deserve.