There is a lot of buzz around cryptocurrencies these days. But what are they exactly? Let’s find out.
According to Merriam Webster, Cryptocurrency is any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralised system to record transactions and manage the issuance of new units, and relies on cryptography to prevent counterfeiting and fraudulent transactions.
Confused much? Let’s understand what Cryptocurrency is by taking a look at its history and the way it functions.
A brief history about cryptocurrency
Cryptocurrency first gained attention after the Bitcoin became a hit. The Bitcoin was invented by Satoshi Nakamoto in 2008. Nobody knows whether Satoshi is a person or an organisation.
Satoshi designed a very convenient system which allows people to have the freedom to transfer funds digitally — without the intervention of any government — and with the possibility of doing so anonymously.
This was a revolutionary idea in itself and many were/are skeptic about a currency sustaining with such standings. But when computer experts who knew how the dollar functioned and read Satoshi’s whitepaper had no reason to believe why Bitcoin would not emerge as a successful cryptocurrency.
Also read: Where to buy Bitcoin? 3 ways to buy Bitcoin
How does Bitcoin work?
How to mine Bitcoin?
Satoshi designed an efficient Bitcoin mining software, wherein people were given a computational problem to solve, and upon solving it, they were awarded some amount of bitcoins.
These problems were straightforward to solve initially due to which the processing power required to address them was less.
The software is designed to increase the complexity of these problems after a certain number of bitcoins been mined, that means as the number of bitcoins mined is increased, the complexity of the next problems to be solved also increases. Because of this, Bitcoin mining requires very high-end processors that are very expensive.
Although Satoshi’s mining software is not in use anymore, many developers have developed their mining software using Satoshi’s software code as a reference.
Check out this article that lists 11 of the best bitcoin mining software for Windows, Mac and Linux OS.
Also read: Google is partly lifting the ban on cryptocurrency ads next month
How to sell the mined Bitcoins
The miners sell the bitcoin to investors who see the potential of its growth and faith that it will generate significant profits in the long run. Read this article that illustrates the factors by which the value of cryptocurrency is defined.
One of the shortcomings of dealing with cryptocurrencies is that since it is digital, it can be copied. Satoshi took care of this hiccup in one of the best possible ways.
A bitcoin transaction has some fixed unique value on its sheet for a specific timestamp. All the miners partaking in the mining process are required to verify the transaction and that this value has not been duplicated in a ledger sheet that includes a list of all the bitcoin transactions taken place so far.
On tallying, if all the miners have verified that transaction to be legit, then the bitcoin is passed on to the destination address, and miners are awarded some amount of bitcoins.
Last December, value of 1 Bitcoin hit the $19000 mark indicating that there is an increasing number of people who have faith in the Bitcoin and that it is here to stay.
Copycat cryptocurrencies are a hit too
Like Bitcoin, there are many other cryptocurrencies in the market that follow Satoshi’s peer to peer electronic cash system and have been a hit too.
Right now, Litecoin and Ethereum are two of the most popular and used cryptocurrencies other than the Bitcoin.
People don’t just see cryptocurrency as a means to spend and buy commodities but also as an investment with tremendous and profitable returns.
Check out these places where you could buy bitcoin.