A cryptocurrency, crypto currency or crypto is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership. It typically does not exist in physical form (like paper money) and is typically not issued by a central authority. When implemented with decentralized control, each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database
Bitcoin, first released as open-source software in 2009, is the first decentralized cryptocurrency. Since the release of bitcoin, other cryptocurrencies have been created.
Below is a list of six things that every cryptocurrency must be in order for it to be called a cryptocurrency;
- Digital: Cryptocurrency only exists on computers. There are no coins and no notes. There are no reserves for crypto in Fort Knox or the Bank of England!
- Decentralized: Cryptocurrencies don’t have a central computer or server. They are distributed across a network of (typically) thousands of computers. Networks without a central server are called decentralized networks.
- Peer-to-Peer: Cryptocurrencies are passed from person to person online. Users don’t deal with each other through banks, PayPal or Facebook. They deal with each other directly. There are no trusted third parties in cryptocurrency!
- Pseudonymous: This means that you don’t have to give any personal information to own and use cryptocurrency. There are no rules about who can own or use cryptocurrencies. It’s like posting on a website like 4chan.
- Trustless: No trusted third parties means that users don’t have to trust the system for it to work. Users are in complete control of their money and information at all times.
- Encrypted: Each user has special codes that stop their information from being accessed by other users. This is called cryptography and it’s nearly impossible to hack.
- Global: Countries have their own currencies called fiat currencies. Sending fiat currencies around the world is difficult. Cryptocurrencies can be sent all over the world easily. Cryptocurrencies are currencies without borders!
The Origin of Cryptocurrency
In the early 1990s, most people were still struggling to understand the internet. However, there were some very clever folks who had already realized what a powerful tool it is.Some of these clever folks, called cypherpunks, thought that governments and corporations had too much power over our lives. They wanted to use the internet to give the people of the world more freely. Using cryptography, cypherpunks wanted to allow users of the internet to have more control over their money and information.
At the top of the cypherpunks, the to-do list was digital cash. DigiCash and Cybercash were both attempts to create a digital money system. By the end of the the nineties, both had failed.
The world would have to wait until 2009 before the first fully decentralized digital cash system was created. Their name was Satoshi Nakamoto and their creation was called Bitcoin.
The Story of Bitcoin
In late 2008, Nakamoto published the Bitcoin whitepaper. This was a description of what Bitcoin is and how it works. It became the model for how other cryptocurrencies were designed in the future.
On January 12, 2009, Satoshi Nakamoto made the first Bitcoin transaction. They sent 10 BTC to a coder named Hal Finney.
Bitcoin became more popular amongst users who saw how important it could become. In April 2011, one Bitcoin was worth one US Dollar (USD).
By December 2017, one Bitcoin was worth more than twenty thousand US Dollars! Today, the price of a single Bitcoin is 7,576.24 US Dollars. Which is still a pretty good return, right?
In 2010, a programmer bought two pizzas for 10,000 BTC in one of the first real-world bitcoin transactions.
The thing that makes cryptocurrency different from fiat currencies and other attempts at digital cash is blockchain technology. Let’s find out how it works…
What is Blockchain?
All cryptocurrencies use distributed ledger technology (DLT) to remove third parties from their systems. DLTs are shared databases where transaction information is recorded. The DLT that most cryptocurrencies use is called blockchain technology. The first blockchain was designed by Satoshi Nakamoto for Bitcoin.
A blockchain is a database of every transaction that has ever happened using a particular cryptocurrency. Groups of information called blocks are added to the database one by one and form a very long list. So, a blockchain is a linear chain of blocks! Once information is added to the blockchain, it can’t be deleted or changed. It stays on the blockchain forever and everyone can see it.
The whole database is stored on a network of thousands of computers called nodes. New information can only be added to the blockchain if more than half of the nodes agree that it is valid and correct. This is called consensus.
How Does Blockchain Work?
Cryptocurrency transactions are verified in a process called mining.
It’s actually more like accounting. Miners are nodes that perform a special task that makes transactions possible.
- George owes Michael 10 BTC. George announces that he is sending Michael 10 BTC to the Bitcoin network.
- Miners take the information and encrypt it. This is called hashing. To this information, they add other transaction information and hash that too. More and more information is added and hashed until there is enough to form a block.
- The miners now race against each other to guess the encrypted code or block hash that will be given to the new block before it’s added to the blockchain. The lucky miner that guesses the right code gets to add the new block to the blockchain.
- Now, all the other nodes on the network verify the transaction information in the new block. They check the whole blockchain to make sure that the new information matches. If it does, then the new block is valid, and the winning miner can add the new block to the blockchain. This is called confirmation.
- Michael receives 10 BTC from George.
On the Bitcoin network, miners who confirm new blocks of information are rewarded with 12.5 BTC of new Bitcoin. This is why it’s called mining.
So, What is Cryptocurrency Mining For?
It’s the way cryptocurrency networks like Bitcoin verify and confirm new transactions.
You can’t hold cryptocurrency in your hand and you can’t open a cryptocurrency account. Cryptocurrency only exists on the blockchain. Users access their cryptocurrency using codes called public and private keys.
It’s a bit like sending emails. Well, if you want someone to send you cryptocurrency, you tell them your public key.
Now, if you want to read your emails or send an email, you need to enter your email password. This is how private keys work. Private keys are like passwords for cryptocurrency. Public keys can be seen by anyone, but private keys should only be seen by you. It’s that keeping your private keys safe is extremely important!
Private and public keys are kept in wallets. Crypto wallets can be online, offline, software, hardware or even paper. Some can be downloaded for free or are hosted by websites. Others are more expensive. There is no way to prove your own cryptocurrency unless you have the keys to it.
The Rise of Cryptocurrencies!
Bitcoin changed the way people think about money. Hundreds of other cryptocurrencies have been created since and they all want to change the world!
Check out a few of the cryptocurrencies that have come along since Bitcoin;
Litecoin is a lot like Bitcoin but its transactions are processed four times faster. Litecoin mining is easier than Bitcoin mining, so users with less powerful computers can become miners.
- Ethereum uses more advanced blockchain technology than Bitcoin. It’s sometimes called Blockchain 2.0. Ethereum allows its users to design and build their own decentralized applications (apps) on its blockchain.
Ethereum has quickly skyrocketed in value since its introduction in 2015, and it is now the 2nd most valuable cryptocurrency by market cap. It’s increased in value by 2,226% in just last year - a huge boon for early investors.
- IOTA is a pretty special cryptocurrency, it doesn’t have a blockchain! IOTA uses a DLT called the Tangle. Miners don’t confirm new transactions, users do. IOTA actually means the Internet of Things Application.
Buying and selling cryptocurrencies has become a very big business. The total value of all the cryptocurrencies in the world is more than 350 billion US Dollars.
You can trade online with crypto exchanges like Binance, Bitstamp, and Coinbase. You can also arrange to trade cryptocurrencies in-person with peer-to-peer site like LocalBitcoins.com
India and Crypto Currency :-
The Indian central bank (RBI)had in 2018 banned crypto transactions after a string of frauds in the months following Prime Minister Narendra Modi’s decision of de monetization where 80% of the nation’s currency. Cryptocurrency exchanges filed a lawsuit against this decision of the government in Supreme Court of India in September 2019 and won respite in March 2020. The win in court prompted an almost 450% surge in trading in just two months – April and May 2020. There are news that India plans to introduce a new law banning trade in cryptocurrencies. The bill is expected to be discussed shortly by the Union cabinet before it is sent to parliament.
The Union government is in a mood to encourage blockchain, the technology underlying cryptocurrencies, but is not interested in making cryptocurrency trading legal.
Government Efforts for Crypto Currency Trading Streamlining:- SEBI sent some of its members recently to the UK, Switzerland and Japan to study the legalities of cryptocurrency exchanges and trading. India’s federal government think tank, Niti Aayog, is exploring possible uses of blockchains structures that publicly store transactional records or blocks in several networked databases to manage land records, pharmaceutical drugs supply chain or records of educational certificates. And while it is also planning a virtual currency of India.