If you are yet to hear of cryptocurrency by now, we could say you are far behind trends but you are probably not alone. But if you have heard of it, then there are probably more details that you need to learn about it. Now, that you know that, let’s proceed.
Over the years since the invention of currencies, as technology increased, there have been several attempts to create mobile money, it is true that there are e-transactions now where one can send money via the internet to another entity but there is still one major limitation that has made cryptocurrency a different and a better option for most people.
One major advantage this has is the fact that it bypasses the third-party financial institutions such as the banks. It doesn’t require the endorsement of a bank or the close monitoring of Government. There is no central bank involvement to sanction anyone for having too much money. The decentralized structure of the cryptocurrency has made it a more reliable way of saving and even investing money.
Cryptocurrency works through the peer-to-peer method. This simply means that you don’t have to use your social security or credit score as collateral, it allows you to be pseudonymous because you don’t need to enter your personal bio-data, you just need a digital address (that will be explained further). In other words, cryptocurrencies are like virtual accounting systems that keep a record of all transactions. The transactions are bundled into blocks, which are cryptographically signed (hence the word “crypto” currency) and the client doing the signing gets some number of units of virtual currency (and potentially transaction fees) as a reward for doing the work of calculating the cryptographic signature.
You can make some heavy duty transfer of money to your family without any internal or international financial body restrictions.
One other exciting thing is the fact that people can only send what they have, transactions are secured using cryptography, you can’t spend the same unit twice, and this eliminates the risk of fraud. If you are transferring units to someone else, be sure of the transfer because there is no reversal, there is no central body to oversee this kind of case. So, going further to the big question, what is a cryptocurrency?
What is Cryptocurrency?
Cryptography is made up of two words, Cryptography and Currency, so before we give meaning to the word in itself, let us know what those two terms are
First, let’s define what normal currencies are; according to Wikipedia; currency is money in any form when in use or circulation as a medium of exchange especially circulating banknotes and coins. It is a system of money in common use, especially for a people in a nation.
A currency is token generally accepted in a country for transactions and as a means of exchange for goods and services. This can be in paper form or coins but now, with the invent of cryptocurrency, it can also be said to be not just in hard tokens that can be seen and touched but in a soft token which makes it virtual. So beyond what we know as money, actual money, there is the virtual money which cannot be touched or seen but the value cannot be denied.
So currencies allow people to convert their efforts into something that maintains its value, it is used to measure the value of a good or service and can be used at a later time.
Cryptography, on the other hand, is the study of secure communications techniques using codes that can only be understood by the sender and the recipient. It is converting a plain text to unintelligible codes that can only be decoded by the party it was meant for. It is a secure path restricting an unauthorized body from accessing the information that has been encrypted in the message. The recipient has a secret key that is used to convert the messages back to plain text to make it readable. This is used to secure credit card information, e-mail messages and some corporate data. The encrypted information gives authentication to the message, it cannot be copied or altered by a third party, and it can also be confirmed by the recipient.
Now that we have an understanding of what the two terms are; let us move further by defining the word “CRYPTOCURRENCY”
Cryptocurrency is a medium of exchange value(just like ordinary money, cash or coins) that is digitalized and relies on encryption, which guarantees the security of transactions. It is a new way of payment for goods and services that get rid of the intermediaries or a central financial institution represented by banks eliminating all commission fees and the unnecessary bank charges and what have you.
The core of cryptocurrency is the security of the transaction which is provided through a blockchain technology that serves as a public financial database. This is purely mathematical in nature.
It is a digital asset that uses strong cryptographical codes to secure financial transactions. Cryptography is used to monitor and control the creation of extra units and verification of the transfer of assets.
According to Jan Lansky, a cryptocurrency researcher who considers cryptocurrency a futuristic currency that would be widely used; he said Cryptocurrency is a system that meets six conditions
- The system does not require a central authority; its state is maintained through distributed consensus.
- The system keeps an overview of cryptocurrency units and their ownership.
- The system defines whether new cryptocurrency units can be created. If new cryptocurrency units can be created, the system defines the circumstances of their origin and how to determine the ownership of these new units.
- Ownership of cryptocurrency units can be proved exclusively cryptographically.
- The system allows transactions to be performed in which ownership of the cryptographic units is changed. A transaction statement can only be issued by an entity proving the current ownership of these units.
- If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs, at most, one of them.
Clearly, cryptocurrency is the next thing as far as the future of currency is concerned an understanding this is important for you and I.