Cryptocurrency, the new age currency

17 Dec, 2017

Cryptocurrency is a virtual payment system. Cryptocurrencies fall under the category of Digital currency. It can also be mentioned as virtual currencies or alternative form of currencies. The cryptocurrencies are digital in nature, and they use the theoretical computer science techniques called cryptography for security purpose. The cryptography not only provides tight security but also controls the creation of another additional type of currencies. This type of currency is not issued by the government and not authorized in structure. Therefore, the government cannot interfere with the dealings of cryptocurrencies.

History of cryptocurrencies:

In 1998, b-money, an electronic cash system distributed anonymously in nature was published by Wei Dai. Decentralized cryptocurrency, Bitcoin was first developed by Satoshi Nakamoto in the year 2009. The bitcoins use proof-of-work scheme. Proof-of-work (POW) system is a protocol or function first presented forth by Moni Naor and Cynthia Dwork. Moni Naor is a computer scientist based in Israel, and Cynthia Dwork is a computer scientist at America's most prestigious Harvard University. In April 2011, Namecoin another type of cryptocurrency was announced, and in October 2011, Litecoin was announced. SHA 256 and Script are some of the hash functions used commonly.

Nakamoto designed software that will enable the computer scientists who have access to supercomputers and powerful computing machines to mine the Bitcoins.

Bitcoin Definition

Bitcoin is a digital currency that enables the people to buy and sell without the interference of banks.

Features of cryptocurrencies

The following features of cryptocurrencies are those who make it a must go to option

  • The cryptocurrencies are not associated with banks or government authorities

  • It helps the people who do not have a bank account to buy and transfer goods and services.

  • The cryptocurrencies have no chances of being counterfeited and to be forged.

  • It has very secure networking methods like Proof of Work, Proof of Capacity, and Proof of Stake being incorporated for high and tight secured transactions.

  • It felicitates more supply of coins to be mined.

Commonly used terminologies in cryptocurrencies:

The following terms should be understood very well to know the cryptocurrency process

Bitcoin Mining

Proof-of-work as the name suggests that the work is validated and proved that the chain of work is authentic. Bitcoins and other forms of cryptocurrencies use this scheme to show that the chain is right. It follows the hard-to-compute and easy-to-verify method. This is a part of Bitcoin mining that assures that the transactions are secure.

The bitcoin mining is a decentralized computational process.

  • It serves the following purposes

  • Verification and Validation of transactions

  • Blockwise Bundling up of transactions

  • Fusing the header of the recent block into the new block.

  • Follow the POW

  • After POW, a new block is added to the already created block and is sent to the networks.

Bitcoin Wallet

Bitcoin wallet refers to the wallet that is similar to currencies in the wallet. If the currencies are present, then one can use it. But it is not similar to credit cards were some extra costs are charged by the service providers. The private keys of the blockchain allow one to spend the bitcoins. There are two types of Bitcoin Wallets Namely Software Wallet and web wallet.

Private Key

Private Key as the name suggests should be maintained privately. They are stored in the computer if a software wallet is used and are stored in remote servers if web wallet is used. There are many types of cryptocurrencies, but bitcoins are the most commonly used ones. Bitcoins are abbreviated as BTC or XBT.

Address

The address of the bitcoins and other cryptocurrencies is similar to an email address. The information for the place of sending and receiving of bitcoins are mentioned in the addresses of cryptocurrencies. The difference from the email id address and other addresses from the cryptocurrency addresses are that the value of address is temporary. The address is different for each transaction, and it keeps changing to maintain security and anonymity.

Bit

The bit is known as the subunit of bitcoin.

1,000,000=1BTC

Block

Blocks are recorded that is used to confirm the transactions. Once a block of the blockchain is completed, it moves to the next block. Each block of a chain represents each amount of transactions.

Block Chain

The blocks are arranged in a blockchain in chronological order. The mining helps to append the blockchain with new blocks to felicitate transactions. The chain concept prevents double spending. Double spending is a concept where the same bitcoins or cryptocurrencies are made sure that they aren't repeated. The name of the recipients and addresses should differ.

Hash Function

The integral part of blockchain technologies is a hash function. A hash function gets some input data and produces some output data. Otherwise, a hash function gets or accepts an input of any length and produces an output of length which is fixed. Blockchains use hash functions everywhere. Data gets hashed in each block. If the block gets changed or if someone tries to change the bitcoins they own the hashed value would differ and it could be detected that some changes have been made. The previous block's hashed value calculates hashed value of the current block, and this creates the link between blocks.

Fascinating Facts about cryptocurrency:

  • The creator of the bitcoin is unknown. Several attempts have been made to find the inventor but all in vain. Satoshi Nakamoto is the pseudonym name given.

  • The value of 1 BTC has changed from 0 USD to 1000USD in a matter of few years.

  • Canada is the first country in the world to allow the usage of bitcoins.

  • The currency exchange centers at some parts of the world have now added bitcoins to their list.

  • Lamborghini is the first auto company to accept bitcoins

  • The world's first bitcoin ATM is in Vancouver, Canada

Currencies and cryptocurrencies

The growth from currencies to cryptocurrencies is explained below

Normal Currency (fiat)

India has rupee, the United States of America has Dollar, the United Kingdom has Pound, and all countries have a unique currency pattern. The currencies are used to buy and sell goods and services. Before the advent of currencies, barter system of exchange was used. The things purchased by selling took the place of currencies. The normal currencies are stored in banks, and the banks maintain a ledger to maintain the deposits and withdrawal of cash and control the transactions. It has an authorized framework to avail the money from banks.

Cryptocurrency

The physical money got accustomed to people. Later digital money like Credit Cards, Debit Cards, Net Payments, Online payment apps like PayTM, PayPal came into the picture. Now that people became familiar with digital payments and transactions, the cryptocurrencies are easy to adapt.

The computer scientists with strong knowledge about the various mathematical processes involved are the designers behind the data mining concept which is the base of the POW system used in the cryptocurrencies transaction.

The cryptocurrencies transactions are carried out by the computer scientists who take up the role of data miners and only they have access to the supercomputers which can process the bitcoin transactions.

The cryptocurrencies are just tokens to which the value is assigned. The values can be changed according to the current market conditions, and the values also vary with the currency value of the respective nation.

Bitcoins, a type of cryptocurrency are a new kind of money with much innovation. The bitcoins do not need banks/authority.

Working of Bitcoins:

Bitcoins are created by those who know computer mining. Bitcoins are transferred from one wallet to another. The transactions are felicitated by miners. The following processes which are bulleted happen in a bitcoin transaction one after another.

  • Stored in wallet

The Bitcoins which are forgery-resistant are stored in bitcoin wallets. It can be software bitcoin wallet or web bitcoin wallet.

  • Address assigned to wallet

The bitcoins in the wallet are assigned addresses for different transactions and recipients. Once a particular bitcoin is used for a particular assignment, the same cannot be used for another one as the addresses are different. This is to provide tight security to the transactions.

  • Amount for the transaction

Like the ledgers in the bank carry the amounts of deposition and withdrawal, the blockchain contains many blocks that carry the value of bitcoins to be transacted.

  • Proof of the transaction

The Private keys serve the role of receipts in traditional banks. The receipts are given as a proof of transaction in banks. In cryptocurrencies transactions, the private keys do that function. The private key is kept private and is not known to anyone else other than the sender and receiver. The private keys give the assurance that the money has come from the person who wanted to buy the goods/services as the key is present in the wallet, uses the digital signature.

How to buy Bitcoins

There are different wallets for different devices and platforms like PC, Laptops, Tablets and mobile phones (Android, I-phone, and windows)

The websites can be used to buy the bitcoins, or an even easier method is to download the application in mobile of those websites.

There are different websites for buying cryptocurrency like Mycellum, Electrum, and CEX.

One should look for the exchange values of different currencies in the world, to get the best deals. One can hire a broker but be careful of the fraudulent ones.

After buying, the bitcoins (BTC) are stored in the wallet.

Make purchases using the bitcoins or any cryptocurrencies which have been bought by exchange of normal currencies at shops or stores which accept cryptocurrency transaction.

Thus, the buying and the transaction using cryptocurrencies are easier than imagined when the steps and procedures are followed correctly, and he/she can enjoy the benefit of cryptocurrencies.

Written by CryptoCoinEmpire Twitter: @CryptoCEmpire