All You Need to Know About Cryptocurrency

Cryptocurrency is something that everyone wants to talk about, but not everyone knows how it work. Today I will make you explore the world of CRYPTO.


Photo by Executium on Unsplash

 

History of Money


In the caveman era, Tribals used the Barter system as a mode of transaction. They exchange goods and services with each other. If an individual has seven oranges, he can exchange his oranges with other having apples. It has some flaws like- people's requirements need to coincide. You want to exchange your oranges, but he is not ready to trade. The deal is not close. Another flaw is that apple and orange don't share the same value. You cannot decide that an apple should be traded with how many oranges? The third flaw is- not all goods can be divided. That means it is not easy to carry and transport everywhere you travel. It is easy to put money in the pocket rather than keeping goods to exchange.

 

After the failure of the Barter system in 110 BC, an official currency got legalized. In 1250 AD, gold-plated coins got introduced for trade and exchange. Finally, in 1600 AD-1900 AD, the paper currency became widely popular, and it is still in use. The modern legal tender includes paper currency, coins, credit cards, and debit cards. Digital wallets like Paypal, Amazon Pay and GPay have made the transaction fast and effective. Every transaction is controlled by central authorities called the government and banks. 

 

In a centralized bank system, there are many ways where a bank transaction could have gone wrong. There could be a technical issue at the bank, the system is down or even machines not working appropriately. There are many ways through which a user's bank account can get hacked.

 

Cryptocurrency like Bitcoin is a digital currency that works on a decentralized system. That means there is no central authority to regulate its transaction. Bitcoin can be transferred through Bitcoin App. The receiver receives the notification to accept the transaction. The identity of the sender gets verified along with the Bitcoin balance. When the receiver approves the transaction, it is received in few minutes. No one has the authority to stop the transaction process. It also cannot fail due to technical errors.


 

What exactly is Cryptocurrency?


It is a digital or virtual currency meant to be a medium of exchange. It is similar to real-world currency but does not have a physical appearance. It uses cryptography for the transaction. Some features of Bitcoin includes

- only 21 million Bitcoins can be produced

- transactions are decentralized and verified through cryptography

- new Bitcoins can only be added after certain conditions are fulfilled


In Bitcoin, if the miner adds a block in the blockchain, he will be rewarded with Bitcoin. It is the only way new Bitcoins can be added to the system.


 

What makes Cryptocurrency exceptional?


Fund transfers between bank to bank are charged with taxes. In Bitcoin transactions, it costs nothing. It provides 24x7 access to your money. There is no limit on purchases and withdrawals linked to it. No documentation is required to create an account. International transactions complete within minutes and seconds. 


 
What's 'Crypto' in Cryptocurrency?


The word 'Crypto' comes from Cryptography. It is a method of encryption and decryption used to communicate in the presence of a third person who wants to steal your data or listens to your private conversation.

For secure transactions, Bitcoin uses Hashing algorithm Sha-256, a the public key (digital identity of the User), a private key (digital identity of the User, which is hidden to everyone). 



How Bitcoin transaction is made?


What is Ethereum?


Ethereum network works on blockchain technology to create smart contracts and decentralized apps. Ether is the currency used in this network. The transactions can be automatic or manual. Ether is not just a currency, but it is also used to run apps on its network. It is like fuel to run commands on the system. Vitalik Buterin founded the Ethereum network after understanding the limitations of Bitcoins. After Bitcoin, Ethereum has the largest market cap in the world. It is the second gen-cryptocurrency.


Photo by Executium on Unsplash
 

The transaction completes in only 20 seconds. Production of Ether is limited to 100 million units. It uses an ethash algorithm to obtain the address of the block.


 

What is Blockchain?


Bank transactions can fail due to some technical issues, accounts getting hacked, transaction limits, and high transaction charges. Blockchain technology got introduced to overcome such failures. When a transaction gets completed, its details are stored permanently in a block. This block also keeps the record of the amount of Bitcoin as reserve present in an account. Transaction data of sender and receiver gets added in separate blocks. These blocks are linked with each other forming a ledger. It creates the basis of blockchain technology. A hacker cannot change the data of the digital register because the data within the block is encrypted with a complex algorithm.


In simple terms, Blockchain is a simple technology where data is stored and linked with each other. No one can alter the data within the block because it is secured by cryptography.



CRYPTOVOCAB- You should know these terms


What are smart contracts?


Digital contracts are known as smart contracts. It is a small computer program stored inside a blockchain.


For instance: A NGO- Dreamalive sets a goal to raise funds to provide food to unprivileged people. NGO contacts the third party-MoneyBee. MoneyBee raised online funds for the NGO to achieve its goal. Supporters of the NGO donate money through MoneyBee and expects that funds reach the NGO. Here, supporters and the NGO both have to trust MoneyBee. But, with smart contracts, we do not require the third party as MoneyBee.

 

Let's create a smart contract for this. When a smart contract is created for them, it will receive money from the supporter until a set goal gets achieved. It will run itself and, when the goal is reached, it will transfer the funds to the NGO directly. If the NGO fails to meet the target, the funds will return to the supporters. With this contract, no one is in control of the money. Once a smart contract is created, it can never be changed again. Once it gets distributed, it should be validated by everyone. No single person can validate a transaction in the network because others will mark it invalid. Tampering data is impossible.

 

This technique can also be used by banks for providing loans, insurance companies to process claims, and postal companies to receive payment after delivery.

 

Ethereum is a specially designed platform to run smart contracts. It uses a programming language known as Solidity.



Global acceptance of Cryptocurrency to date


El Salvador became the first country in the world to use Bitcoin as legal tender. The nation passed the bill in June 2021, and from September, it will come into effect. Goods and services will be provided through the exchange of Bitcoin. El Salvador president Nayib Bukele considers Bitcoin as a bulletproof currency.


Bitcoin and Dogecoin ATMs are coming to H-E-B (grocery store) in Texas.


Tesla founder- Elon Musk and Twitter co-founder and CEO-Jack Dorsey have agreed to talk on the future of Bitcoin in its upcoming event.


The city of Miami is hosting Bitcoin white papers on its official portal.


If you want to know more about cryptocurrency and Altcoins(coins other than Bitcoin), share this blog with your near and dear ones. Will cover Altcoins in a future blog. Binge reading:) 


 

 

 

  

 

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