Published on June 20th, 2020 | by Sunit Nandi0
Cryptocurrency: A Beginner’s Guide
What is Cryptocurrency?
“Cryptocurrency” is a logical but digital currency, used for fast online financial transactions. It is decentralized in nature and uses a cryptographic technique for security.
In the early 90s, when the world is witnessing a drastic rise in computer usage, digital currencies like Digicash, Flooz, Beenz were introduced in the system. But due to their centralized structure, the system was more vulnerable to frauds, and other financial problems and they eventually failed.
Then in the year 2009, a developer or a group of developers under the pseudo name of “Satoshi Nakamoto” introduced “Bitcoin” using SHA-256 cryptographic hash function with peer to peer network technology.
Since then more than 6000 types of cryptocurrencies are invented and are available in the market. Some of them are
- Ethereum (ETH)
- Ripple (XRP)
- Litecoin (LTC)
- Tether (USDT)
- Bitcoin Cash (BCH)
- Libra (LIBRA)
- Monero (XMR)
- EOS (EOS), etc.
Cryptocurrencies like “Bitcoin” uses a decentralized network. The information regarding the transaction of coins, change of ownership, the process of new coin creation is maintained in a distributed computer ledger or database. This digital ledger is available to everyone in that network. Hence absolute consensus of all the participants is acquired before validating any balance or transaction.
The absolute consensus is a must. Otherwise, the whole system will break. Surprisingly, Satoshi Nakamoto designed the system in such a way that absolute consensus is achieved always.
This peer to peer file sharing structure prevents the so-called fraudulent practice of double-spending.
Due to its decentralized structure, it can’t be controlled by any government, bank, or financial institution. Hence transactions made using cryptocurrencies are safe and anonymous. Sometimes the level of privacy varies with the type of cryptocurrency you are using.
What is “Blockchain” in Cryptocurrency?
Whereas, blocks are a growing list of records secured by cryptography and linked with the previous block with a hash pointer. Timestamp and transactional data are also stored in them.
When a new transaction at bit-qt happens it can’t be stored in the block immediately. The transaction must be verified and confirmed by the network in all aspects and added to the database of every node. Then the block gets a unique identifying code or hash to get attached to the blockchain.
The data stored in the blockchain cannot be altered or forged unless a conspiracy done by the major portion of the network.
What is “Mining”?
The process of obtaining new cryptocurrency is “Mining”.
As an advantage of a decentralized network, anyone can be a miner.
Mining is an investment in the form of work and the machines used are the workers. The work here is solving some complicated cryptographic puzzles. A dedicated machine like ASICS or FPGAs is used to run algorithms like SHA-256 to acquire Hash keys. Miner uses those hash keys for validating their transactions. This whole process is called “Proof of Work” in cryptocurrency.
In the earlier days of cryptocurrency mining can be done through your desktop or even by a powerful laptop. But the sad part is that it is becoming harder day by day as more miners are getting involved in the process. Nowadays mining cryptocurrency is less profitable in comparison to the power and hardware it requires.
Solutions to such a situation miners now share their resources through the network and distribute the reward among them based on work done by them.
- You easily transfer funds without any third-party server.
- Transaction through cryptocurrencies is secure and anonymous.
- The transaction fees are negligible.
- Easily accessible as it only requires an internet connection, a Smartphone, and a cryptocurrency wallet.
- Best for international transactions for peer to peer mechanism
- All transactions are stored in blockchain which makes it more transparent.
- No chance of inflation.
Life is full of risk. Hence cryptocurrency is not exceptional. Gathering enough knowledge before investing in cryptocurrency will make it much safer to invest.
Recently, after the ban lifted by the Supreme Court of India, lots of Indians are taking interest in cryptocurrency and started investing again. So, it seems that it is high time to invest in cryptocurrency and make some profit.