What is Cryptocurrency?
Cryptocurrency also known as crypto is a digital currency that is designed to work as a medium of exchange. Every coin ownership is recorded and is stored in a ledger. The ledger exists in a computerized database that uses strong cryptography and in a blockchain. To securing the transaction cryptography is used. Which controls the creation of additional coins and verifies the transfer of coin ownership. Cryptocurrency does not exist in the physical form, unlike paper money. This money is not controlled or issued by a central authority. Crypto uses decentralized control as opposed to centralized digital currency. The money is stored in an e-wallet with a unique key. Bitcoin first released as open-source software in 2009, is the first decentralized cryptocurrency. This led to the creation of other cryptocurrencies since the release of bitcoins.
History of Cryptocurrency
In 1982, American cryptographer David Chaum received an anonymous cryptographic electronic money name as ecash. This was later implemented through Digicash, which was an early form of cryptographic electronic payments. It required software in order to withdraw cash from the bank and designate encrypted keys which are specified before it can be sent to a recipient.
In 2009, the first decentralized cryptocurrency was created which was named Bitcoin. It is presumed that it was developed by a developer named Satoshi Nakamoto. Later on, many cryptocurrencies were created which were decentralized.
On 5th April 2021, the total market capital of cryptocurrency surpassed USD$2 trillion for the first time.
Architecture of Cryptocurrency
Decentralized cryptocurrency is produced by the entire cryptocurrency system collectively. In centralized banking and economic systems such as the Federal Reserve System (FRS). Governments control the supply of currency by printing units of fiat money or demanding additions to digital ledgers. As the case of decentralized cryptocurrency. The underlying technical system upon which decentralized cryptocurrencies are based was created by the group or individual known as Satoshi Nakamoto.
Most cryptocurrencies are designed to gradually decrease the production of that currency. It places a cap on the total amount of that currency that will ever be in circulation. Compared with ordinary currencies held by financial institutions or the money in hand. Cryptocurrencies are more difficult to seizure by law enforcement.
A node is a computer that connects to a cryptocurrency network. The node supports the relevant cryptocurrency’s network through relaying transactions, validating or hosting a copy of the blockchain. While relaying transactions each node has a copy of the blockchain of the cryptocurrency it supports. When a transaction is made the node creating the transaction broadcasts details of the transaction using encryption to other nodes throughout the node network so that the transaction is known. Node owners are either volunteers, those hosted by the organization or body responsible for developing the cryptocurrency blockchain network technology, or those that are enticed to host a node to receive rewards from hosting the node network.
Cryptocurrencies use various timestamping schemes to prove the validity of transactions added to the blockchain ledger without the need for a trusted third party.
The first timestamping scheme invented was the proof-of-work scheme. The most widely used proof-of-work schemes are based on SHA-256 and Scrypt (SHA-256 and Scrypt are algorithms and bitcoin is based on SHA-2256).
The proof-of-stake is a method of securing a cryptocurrency network and achieving distributed consensus through requesting users to show ownership of a certain amount of currency. It is different from proof-of-work systems that run difficult hashing algorithms to validate electronic transactions. The scheme is largely dependent on the coin, and there’s currently no standard form of it. Some cryptocurrencies use a combined proof-of-work and proof-of-stake scheme.
What does mining mean!
Mining is a validation of transactions. For this effort, successful miners obtain new cryptocurrency as a reward. This reward decreases the fees of transactions by creating a complementary incentive to contribute to the processing power of the network. This race for cheaper-yet-efficient machines has existed since the day the first cryptocurrency, bitcoin was introduced in 2009. Generating hashes for this validation has become far more complex over the years, as more people are venturing into the world of virtual currency. Thus the value of the currency obtained for finding a hash often does not justify the amount of money spent on setting up the machines, the cooling facilities to overcome the heat they produce, and the electricity required to run them. Favorite regions for mining are those with cheap electricity and/or a cold climate.
Some miners pool resources, sharing their processing power over a network to split the reward equally. According to the amount of work they contributed to the probability of finding a block. A share is awarded to members of the mining pool who present valid partial proof-of-work.
Wallet or cryptocurrency wallet
There exist multiple methods of storing keys or seed in a wallet from using paper wallets which are traditional public, private, or seed keys written on paper to using hardware wallets which are dedicated hardware to securely store your wallet information, using a digital wallet which is a computer with software hosting your wallet information, hosting your wallet using an exchange where cryptocurrency is traded. or by storing your wallet information on a digital medium such as plaintext.
A cryptocurrency wallet stores the public and private “keys” or seed which can be used to receive or spend the cryptocurrency. With the private key, it is possible to write in the public ledger, effectively spending the associated cryptocurrency. With the public key, it is possible for others to send currency to the wallet.
Bitcoin is pseudonymous rather than anonymous in that cryptocurrency within a wallet is not tied to people, but rather to one or more specific keys. Thereby, bitcoin owners are not identifiable. But all the transactions are available in the blockchain. Still, cryptocurrency exchanges are often required by law to collect the personal information of their users.
Most cryptocurrency tokens are fungible and interchangeable. However, unique non-fungible tokens also exist. Such tokens can serve as assets in games. Binance Group affiliated platform firms face possible art and non-fungible token issues in the probe by US Money Laundering.