In the start of the 21st century, the most prominent trend that wrapped the globe quickly is the cryptocurrency. It flared worldwide in a short time, and now almost everyone whether lives in developed, developing or even in non-developing areas of the world knows the term cryptocurrency. Fewer people knew the details of this concept. In this article, I tried to make the idea simple, so everyone can easily understand.
Cryptocurrency is a digital currency that is decentralized and created and secured by the use of cryptography. It is also known as virtual currency as it exists only in digital form. The cryptography and the blockchain technology make it more secure, and its decentralized nature keeps it away from the influence of any third party for controlling it. It is a peer-to-peer connection of buyer and seller of the currency which is secured by using the cryptography.
History of cryptocurrencies
The early attempts to create a digital currency were made in the 90s but remain unfruitful. The failure of attempts was judged against many parameters such as fraud, friction between companies and workers, financial problems, etc. All the designed systems were relying on a trusted third party for the validation and verification of the transactions made through these systems. If the company behind the system fails, it means the whole system collapse.
The failure has down the passion for many years, but there was a spark hidden in the ashes that again lit up in the early years of the 21st century. In 2009 Satoshi Nakamoto (still unknown whether a program or group of programmers, male or female) introduced the first digital currency named as Bitcoin. Satoshi called it a peer to peer cash system. The system was completely decentralized. No servers or a third party for verification and validation was involved. It was a significant breakthrough in the ice, and afterward, we observe a large number of cryptocurrencies that sprouts out in the market and still unlimited are in the pipeline.
Blockchain and cryptocurrency
Cryptocurrency is entirely decentralized, and there is no third party interfere for verification. The question is then what makes the transaction verified and stops the double spent of the same amount. DLT (Distributed Ledger Technology) is used to eliminate the role of the third party in the digital cash system. All the information about the transactions are stored in a database that is shared among all the users connected to that network, and this database is called DLT. A DLT used for a cryptocurrency is named as the blockchain. In cryptocurrency systems, the verification process is divided on all the users connected to that particular network. Each user has a copy of the ledger that contains the transaction information. Once a ledger becomes the part of the blockchain, it becomes immutable unless some certain conditions come true. The miners in a cryptocurrency network have the right to confirm a transaction by solving the cryptographic puzzles. The complexity of these puzzles increases as the number of solvers increase. This feature keeps the whole system highly secure.
What is the mining of coins
Mining is the process through which new crypto coins are generated in the system. To validate a transaction in the system, miner work on complex cryptographic puzzles to solve them. On the success of these solutions, the miner is awarded a new coin and also the transaction is confirmed. Mining of new coins is a difficult task that requires a powerful CPU or GPU. On every successful solution, a new block contains information that is added to the blockchain.
Every user of cryptocurrency is not a miner as well. Most people buy the crypto units by spending their fiat money. But it does not mean that their digital money is of less value. By purchasing the crypto units, the user can have cryptocurrency without encountering the difficult cryptographic procedures and puzzles. Their cryptocurrency is as valid as of the miners. They can use this digital money as they want. Among a large number of cryptocurrencies, the nexalt offers its crypto units for sale in exchange for fiat money. The users can enjoy multiple packages as per their choice.
Cryptocurrency makes the transaction easy and quicker than ever. It does not need a third party controlling authority for your funds and validation of transaction such as a bank or any other monetary authority. Instead of it, the public and private keys are implemented to make the transactions secure. In a cryptosystem, the address of the user’s account or the wallet is a public key and a private key is issued for every transaction to keep it secure.
With cryptocurrency, you can buy things from online forums. College fee can be submitted using cryptocurrencies. For the investors, it is good news that they can invest their cryptocurrency in stock exchanges as well. In business transactions, it is also accepted now, and it brings a lot of ease in more significant business transactions around the globe within seconds on a little cost.
As we have discussed that it exists only digitally and there is no central authority where one can claim if encountered a fraud. Although cryptographic techniques make the system highly secure, it is not 100% secure. There may be a successful hacking attack that can deprive your of all your wealth, and it is challenging to recover it. In the previous years, we see frequent hacking attacks on the cryptocurrency systems and few were successful, which resulted in a loss of million dollars.
Bitcoin technology can be used for many other fields despite cryptocurrencies. In case the wrong information is stored, it is hard to correct it as it is linked with previous and next blocks in the blockchain. If an amendment is necessary for a block, it means all the subsequent blocks also require alterations that is very difficult and costly.
With the popularity and increased use of cryptocurrency in a variety of fields including business, intimates the law enforcement and judicial authorities to examine and understand the concept of cryptocurrency to fit it into the legal framework. As it has an entirely decentralized nature and can be used anonymously, it has raised lots of questions for authorities. It is also considered a sharp temptation for the traders involved in the trade of illegal goods because of the absence of central regularity authority. Keeping all these and many other threats in consideration in many parts of the world, cryptocurrency is declared illegal, some are taking it as not legal and in some developed countries it is also permitted. For the users of cryptocurrencies, it is essential to know the acceptance level of cryptocurrency in their jurisdiction to avoid any inconvenience.