Cryptocurrency is a digital currency that only exists in a network of computers called a "blockchain" on the Internet. They are decentralized virtual currencies that exist outside of traditional banking but can still be traded like any other currency.
Bitcoin is the original and well-known cryptocurrency, but there are now more than 1,000 other cryptocurrencies based on the same technology.
How do they work
Cryptocurrencies are considered a type of digital cash without central authority, which means that no single person or institution (such as a central bank) controls it. This idea is similar to a peer-to-peer network for file sharing, in the sense that everyone on the network shares files, and they are not stored on just one computer.
The lack of central authority removes the need for any single entity to be trusted to control accounts, balances, and transactions. In other words, it improves transparency and reduces the risk of accounting or fraudulent errors such as "double spending" within the system.
Newly created cryptocurrencies such as Bitcoin are entered into a database known as the blockchain. Coins are created when computers collect a complex set of algorithms in a process called mining. These algorithms use cryptography to secure transactions and regulate the generation of additional units of code.
Within the network, each peer has a record of the complete history of all transactions and thus the balance of each account. Digital currencies exist as a way to demonstrate a financial transaction. See the transaction life cycle below.
What is blockchain technology?
All cryptocurrency transactions are stored in a decentralized digital account registry called Blockchain. Each new transaction represents a new "block" in the "chain" of all transactions. The blockchain uses distributed ledger technology (DLT) to account for digital currency transactions. Cryptocurrency users can track all transactions that take place through the blockchain, however, the name of the username performing the transactions is anonymous. A copy of the blockchain is loaded onto each network node, making the need for a central registry redundant.
What is cryptocurrency mining
Cryptocurrency mining is the process of verifying cryptocurrency transactions. Digital mining does not use a shovel, but instead, powerful computational algorithms to break down complex cryptographic puzzles. Miners are rewarded with some new currency for every transaction verified and added to the blockchain. Anyone can mine with the right hardware and are mining Bitcoin, Ethereum and other popular cryptocurrencies from large-scale operations, located in areas with low electricity costs.
What is encryption?
Cryptography uses mathematical codes to keep information confidential. The user can only read the encrypted message if he knows the key that will translate it into the regular language. In the age of computers, encryption is so complex that a human brain cannot decipher until computer algorithms encode and decode it. One of the most famous examples of the use of cryptography is the Enigma machine used by Nazi Germany in WWII, which was eventually deciphered by British cryptologists at Bletchley Park.
How to use cryptocurrencies
Cryptocurrencies are designed to provide an alternative way to make payments and transactions online but have not yet been widely adopted. It is a belief that one day, cryptocurrencies will (or will not be) widely adopted, which has caused all the speculation in the past few years. In essence, investors are betting on using cryptocurrencies as cash
As a reminder, money is supposed to serve three purposes:
A medium of exchange (which can be used to buy and sell things)
Unit of calculation (divisible into units that can represent the true value of various things)
Store of value (maintains its value over time)
There is a lot of debate over whether cryptocurrencies can achieve these purposes.
For now at least, the main problem with using cryptocurrencies as cash is price volatility. Because it is so volatile, many traders do not accept cryptocurrencies as a method of payment, so the price of a good or service will have to change day by day to keep pace with and change the price so much that it depends on it to maintain its value. All of these things could start to change if the price stabilizes
The discussion about the "symposium"
In the case of Bitcoin, economists widely believed that the economy could not function with only 21 million units to be issued. Under the current monetary system, banks can create a new unlimited money supply through bank loans. The value of the "fiat" currencies under the current monetary system (such as the US dollar) is eroding over time due to inflation.
The Bitcoin model was supposed to model precious metals like gold (i.e. mining) with the understanding that scarcity helps preserve value. There is only so much gold that can be mined from the earth, and there will not be a single day left or it will be very costly to make it worthy of mining. Bitcoin supporters argue that the coins are divisible into smaller units, which will gain in value once the total supply of bitcoins is mined.
The most popular cryptocurrencies
Bitcoin is the most famous and most expensive of the original cryptocurrencies. Satoshi Nakamoto, whose true identity has never been proven, created Bitcoin in 2009. Bitcoin is so popular that every other cryptocurrency is called altcoin, that is, an alternative to Bitcoin. The high price of Bitcoin has prompted investors to turn to alternative currencies. The hurdle for investors is finding altcoins that in the future may coexist with, or ultimately, substitute for Bitcoin. Most coins claim to find solutions to some of Bitcoin's drawbacks - especially its limited scalability. So far, Bitcoin's market value is still far above the nearest alternative.
Ethereum is a distributed public collective network that was created in 2015. The main difference between Ethereum and Bitcoin is the functionality of the network. Instead of being used to track ownership of cryptocurrencies, Ethereum is used to run code for decentralized applications. The Ethereum network has its own token, which is called Ether. Ether is what is traded but is often mistakenly referred to as Ethereum. The basic premise is that anyone wishing to use blockchain technology can comment on Ethereum without creating an entirely new application. Many new altcoins launched through the Ethereum network, with large companies such as EOS, Zilliqa and RChain eventually launching independent blockchains.
Ripple is a method of transferring money but works differently for the Bitcoin network. It does not use blockchain technology and is not limited to transferring its own coins. Ripple enables the transfer of any type of currency including cryptocurrencies, fiat currencies, gold, and even air miles. Banks had a strong interest in Ripple due to the speed of transactions (10,000x faster than Bitcoin). The Ripple Protocol has its own tokens, which can be traded but 100,000 tokens like company shares have been issued, instead of being extracted.
EOS is the original modified currency of the EOS.IO protocol that was launched in 2017. Its purpose is to act as an intelligent contracting platform and a decentralized operating system for hosting decentralized applications and providing decentralized storage. EOS.IO aims to solve the scalability problems of legacy immunities like Bitcoin as well as eliminate all fees for users in traditional areas of finance. The EOS token that is being traded is used to gain bandwidth and storage on the blockchain for applications created / used by the account holder.
Bitcoin Cash (BCH)
Bitcoin Cash is considered a better "hard fork" than Bitcoin Classic (the original Bitcoin). Hard Fork creates an entirely new coin based on existing Bitcoin technology. The main reason for creating a fork was to add scalability. The biggest change was the increase in the size of the blocks to allow more transactions per second to be processed (that is, it is faster).