The advent of cryptocurrency is already taking over our daily transactions. Cryptocurrency is a digital asset that exists in the crypto world and many call it “digital gold”. But what exactly is a cryptocurrency? You must be wondering.
This is a digital asset intended for use as a medium of exchange. Clearly, this is a close substitute for money. However, it uses strong cryptography to secure financial transactions, to verify the transfer of assets, and to control the creation of additional units. All cryptocurrencies are either virtual currency, digital currency or alternative currency. It is imperative to note that all cryptocurrencies use a decentralized control system as opposed to centralized systems of banks and other financial institutions. These decentralized systems work through distributed book technology that serves the public finance database. Usually a blockchain is used.
What is a blockchain?
This is an ever-growing list of records that are linked and protected by cryptography. This list is called blocks. A chain of blocks is an open, distributed book that can be used to record transactions between two parties in a way that is verifiable and durable. To allow the block to be used as a distributed book, it is managed by a peer-to-peer network that adheres together to a protocol to validate new blocks. Once the data is recorded in any book, it cannot be changed without changing all the other blocks. Therefore, blockchains are design-safe and also act as an example of a distributed computing system.
History of cryptography
David Chaum, an American cryptographer, discovered an anonymous cryptographic electronic money called ecash. It happened in 1983. In 1995, David implemented it through Digicash. Digicash was an early form of cryptographic electronic payment that required user software to withdraw banknotes from a bank. It also allowed specific encrypted keys to be flagged before sending to the recipient. This feature has made it impossible for the government, the issuing bank or any third party to track down the digital currency.
After intensified efforts in the following years, Bitcoin was created in 2009. This was the first decentralized cryptocurrency and was created by Satoshi Nakamoto, a pseudonymous programmer. Bitcoin used SHA-256 as its cryptographic hash function (evidence proof scheme). Since the issuance of bitcoin, the following cryptocurrencies have been released.
1. Namecoin (April 2011)
2. Litecoin (October 2011)
These three coins and many others are called altcoins. The term is used to denote alternative variants of bitcoin or simply other cryptocurrencies.
It is also necessary to note that cryptocurrencies are exchanged via the Internet. This means that their use is primarily outside the banking systems and other state institutions. Cryptocurrency exchanges involve the exchange of cryptocurrencies with other assets or other digital currencies. Conventional fiat money is an example of an asset that can be traded in cryptocurrencies.
They refer to the proposed mechanism in which one cryptocurrency will be able to be exchanged directly from another cryptocurrency. This means that with atomic substitutions there would be no need for third party participation in the exchange.