The emergence of cryptocurrency is already taking over in our daily transactions. Cryptocurrency is a digital asset that exists in the crypto world with many people referring to it as “digital gold”. But what exactly is cryptocurrency? You have to ask yourself.
This is a digital asset intended to be used as a medium of exchange. Clearly, this is a close substitute for money. However، it uses a strong cryptography to secure financial transactions, verify the transfer of assets and control the creation of additional units. All cryptocurrency is either virtual currency، digital currency or alternative currency.
It is imperative to note that all cryptocurrencies use a decentralized system of control compared to the centralized systems of banks and other financial institutions. These decentralized systems operate through a distributed ledger technology that serves a public financial database. Normally، a blockchain is used.
What is a blockchain?
This is a constantly growing list of data that is linked and secured using cryptography. This list is called blocks. A blockchain is an open, distributed ledger that can be used to record transactions between two parties in a way that is verifiable and permanent.
To enable a block to be used as a distributed ledger, it is managed by a peer-to-peer network which together adheres to a protocol for validating new blocks. Once data is recorded in any ledger, it cannot be changed without changing all the other blocks. Therefore, blockchains are secure by design and also act as an example of a distributed computing system.
The history of cryptography:
David Chaum، an American cryptographer discovered an anonymous cryptographic electronic money called ecash. This happened in 1983. In 1995 David implemented it through Digicash. Digicash was an early form of cryptographic electronic payments that required user software to withdraw banknotes from a bank.
It also allowed the determination of specific encrypted keys before they were sent to a recipient. This feature allowed the digital currency to be untraceable by the government, issuing bank or any third party.
After increased efforts in the following years، Bitcoin was created in 2009. This was the first decentralized cryptocurrency and was created by Satoshi Nakamoto, a pseudonymous developer. Bitcoin used SHA-256 as its cryptographic hash function (proof-of-work scheme”. Since the launch of bitcoin, the following cryptocurrencies have also been launched.
1. Namecoin “April 2011”.
2. Litecoin “October 2011”.
3. Peercoin.
These three currencies and many others are referred to as altcoins. The term is used to refer to alternative variants of bitcoin or simply other cryptocurrencies.
It is also imperative to note that cryptocurrencies are exchanged over the Internet. This means that their use is mainly outside the banking systems and other government institutions. Cryptocurrency exchanges involve exchanging cryptocurrency for other assets or for other digital currencies. Conventional fiat money is an example of an asset that can be traded with cryptocurrency.
Atomic exchanges:
These refer to a proposed mechanism where one cryptocurrency will be able to be directly exchanged for another cryptocurrency. This means that with atomic exchanges, there would be no need for third party participation in the exchange.