What is cryptocurrency? It is a digital currency which acts as a medium of exchange. The objectives of using cryptography are to secure transactions and to verify purchases and transfer of assets. The origin of cryptography can be traced back to World War Two. At that time the pressing need to secure the channels of communication led to its invention. In this digital age, the entire concept went through evolutionary changes through the incorporation of mathematical and computer science theories. Cryptocurrency is no longer a rare phenomenon in the 21st century.
Digital Decentralized Cash System
In the modern era, you will fail to find any significant financial institutions, accounting enterprises or governmental organizations that have not researched these virtual currencies. However, there are still quite a few people out there who are not aware of its significance. The world of alternative currencies works without a single administrator. The entire system operates on peer to peer network without the intervention of any intermediary. The transactions are recorded in a public ledger called the blockchain. The first decentralized virtual currency, Bitcoin, was created in 2009. There has been speculation about the identity of the inventor. Satoshi Nakamoto is the name utilized by the person or people who designed this currency.
Network of Peers
The process of adding records of transactions to Bitcoin’s ledger is referred as mining. The miners play an essential role in keeping the Bitcoin network safe and secure through approval of transactions. The entire network becomes aware as soon as any transaction occurs. However, confirmation of transactions takes place only after a specific amount of time. Chances of forging are there when confirmation of deals are still pending. Once the confirmation takes place, the deals get recorded in a blockchain.
Role of Miners
The task of confirmation can only be done by miners. There are twin objectives of mining. They are involved in marking the transactions as legit and spreading them in the network. Every node then gets added to the database which then becomes a component of the blockchain. Another aim of miners is to introduce virtual currencies into the system. The miners are rewarded with cryptocurrencies for the performance of these tasks. Hashcash proof of work is used by the Bitcoin system. The miners have to solve a set of cryptographic hash functions. The SHA 256 is one such hashing algorithm. In order to make the block acceptable to the network, the SHA 256 hash has to be lower than or equal to the bullseye. The rate of block creation shoots up to a significant extent with the entry of additional miners.
Emergence of Other Promising Currencies
The successful operation of bitcoins paved the way for the launching of alternative cryptocurrencies. A vast majority of these altcoins are designed on the basic framework presented by Bitcoins. Most of these altcoins provide cheaper ways to conduct transactions on the internet. Every day newer and more innovative versions are being introduced with additional emphasis on security, privacy, transaction speed, and proof of stake. Some of them have become popular while others have failed to make an impact in the virtual currency world. Some of the altcoins worth mentioning are Litecoin, Dogecoin, Feathercoin, Zetacoin, and Novacoin. Though they do have many overlapping characteristics, these altcoins differ widely from one another. Litecoin is the most prominent competitor for Bitcoin.
Exploration of Merits
These virtual currencies are easily available to the public. The decentralized system makes it readily accessible to investors in any part of the world. Any individual who is capable of handling online transactions can become a participant in these projects. You can make fast payments using such currency. This is because you do not need detailed information about your debit or credit cards. Transferring money by any other online means is more expensive compared to using these virtual currencies where the costs involved are almost negligible. It is also not required to share any details about you. You can maintain the privacy of your transactions because details are not required to be disclosed to any bank or the government. Since no intervention of the third party is needed your wallet is entirely under your control.
Some Demerits
Cryptocurrencies are a relatively new concept. So many people end up losing money on their investments because of their lack of knowledge. These people do not have adequate experience to deal with the sophisticated technology, and so they become an easy prey for hackers.If you are going to explore this world be prepared to take the price volatility into account.
Active Development
The world of currencies has gone through a revolutionary change. You can find traders all across the globe gearing up for embracing these new technologies. You should seek the help of a technical expert before you think of making any major investments. Policymakers of major financial institutions cannot ignore the growth of those virtual currencies. There is no way you can disregard the presence of these cryptocurrencies.
