Crypto Education

What are Cryptocurrencies? - Digging Down Into The Concept Of Cryptocurrencies

cryptowhatisAre you eager to gain in-depth insight into cryptocurrencies that has now become the talk of the town? Well, many believe that digital currency is the money of the future.  Satoshi Nakamoto is the person who coined this term. The interesting thing about cryptocurrencies is that it is the byproduct of another invention.

The Perception Of Cryptocurrencies

Before we go into the details of how cryptocurrencies emerged on the forefront let us explore the concept of cryptocurrency.The cryptocurrency can be termed as virtual currency which works as the medium of exchange.

It makes use of cryptography for securing and verifying the transactions. The cryptography is also used for controlling the unit creation. The truth is many attempts were made back in the 90’s to create the cryptocurrency, but these attempts failed. However, Satoshi Nakamoto successfully created the digital currency way back in 2009. As per Satoshi, the bitcoins are a peer to peer electronic cash system.  The digital currency is completely decentralized. This means that no central authoritycontrols this cash system.

Secondly, there are no servers involved. It will not be wrong to say that the digital currency has a strong resemblance to peer to peer network for sharing files. When we talk about a traditional payment network, then there is a central server involved that keeps track of the transactions and the balances.

However, the case is different in case of digital currency, andthere is a blockchain available. The blockchain is a public ledger that is available for everyone on the network. This is why everyone can get a chance to see the account balance.


The Working Mechanism Of Cryptocurrencies

Now, let us move to the working of cryptocurrencies. What happens is that the transactions are sent from the digital currency wallets to the peers. Transaction sharing is done by first matching the public codes. These public codes are linked to the user’s private passwords.

All the transactions that take place between the peers get recorded on the public ledger that is the blockchain. The users need to have access to the full-node wallet if they want to view the transactions of the ledger. The important thing to understand here is that the transactions are public, but the identity of the sender is encrypted. Every transaction lead to the cryptocurrency wallet. The person who has the key to the wallet is the one who owns the digital currency in the wallet.

When a person sends digital currency wallet to another digital wallet, then the transactions get queued up so that they can be added to the public ledger. Most of the transactions get added to the ledger on an immediate basis. This is one of the reasons that ledger is referred to as a blockchain. Here it is important to mention the function of the blockchain also. When the transactions are sent to the full-node wallet, then the miners attempt to solve the digital currency puzzle. Once they solve the puzzle, they can add transaction block to the ledger.

Miners are people who run the software for confirming the transactions to the ledger. When the miner solves the puzzle, then he gets the reward as well. The reward is some of the newly minded coins. There are times when the miners decide to pool the computing power, and they make up their mind to share the new coins. The algorithm used in this situation depends upon the consensus of the miners. 

If most of the miners trying to solve the puzzle come up with the same transaction data, then it confirms the fact that the transaction is correct.


Digital Currency The Global Acceptance Scenario

The popularity of cryptocurrencies has increased so much in the recent years that most of the countries are readily accepting the concept of digital currency. Australia has recently legalized the bitcoin. In China, the individuals are free to trade the Bitcoins as they wish.

The Czech Republic has enforced certain rules for the use of digital currency. They require the digital currency exchanges to identify the customers. Israel intends to recognize the digital currency as a property, and the capital gain taxes will be applicable to the digital currency.

Some people are still skeptical to use cryptocurrencies for direct investments, but the blockchain technology has paved the way for many technologies. The blockchain may change thenature of the global business competition and the costs.

Moreover, cryptocurrencies may also reduce the influence of the main economies because it may be able to devalue their respective currency. If you are planning to invest in digital currency, then the best approach is to explore it and then go ahead with the investment. This will be a safe strategy.

Risk Warning: Trading may not be suitable for everyone, so please ensure that you fully understand the risks involved. Especially trading leveraged products such as Forex and CFDs carry a high degree of risk to your capital and can result in the loss of your entire capital. Only invest with money you can afford to lose.