If you have even the slightest interest in tech, finance or investment, then you’ve probably heard of cryptocurrency. In this article, we are going to take a look at virtual currencies, how they work, what good they are after you purchase them, what mining is, what a block and chain are and what they mean when they’re turned into one word. Let’s get stuck in!
What is cryptocurrency
A cryptocurrency is a virtual or digital currency. It has been designed as a method of exchange. Cryptocurrency, as the name suggests uses cryptography to keep transactions secure, as well as verify transactions. The encryption also helps to control how many of a particular currency is in circulation.
Basically: It’s very cool virtual coinage.
“The governments of the world have spent hundreds and hundreds of trillions of dollars bailing out a decaying, dickensian, outmoded system called banking, when the solution to the future of finance is peer-to-peer. It’s going to be alternative currencies like Bitcoin and it’s not actually going to be a banking system as we had before 2008.” – Patrick Young
How does it work
Cryptocurrency is a decentralized currency. This means that the currency is controlled by a peer-to-peer system, not by a bank, government or a central location. A process that is known as ‘mining’ is how the users confirm transactions and add them to a public ledger (which we will talk about more shortly). A few snippets of information:a
A transfer of these coins between two digital wallets is called a transaction.
All confirmed transactions, from the moment a cryptocurrency is released to the public, is stored in a public ledger.
Digital Wallets calculate spendable balances.
The identities of the coin owners are encrypted.
All new transactions can be verified, ensuring that an owner may only spend what they have.
This public ledger is called a transaction blockchain.
Something that makes cryptocurrency very cool is that it runs on complicated math, elliptic curves, finite field, equations and it might look a little something like this to start with:
Elliptic curve equation: y2 = x3 + 7
Prime modulo = 2256 – 232 – 29 – 28 – 27 – 26 – 24 – 1 = FFFFFFFF FFFFFFFF FFFFFFFF FFFFFFFF FFFFFFFF FFFFFFFF FFFFFFFE FFFFFC2F
Well, it ends up a little more complicated. A snippet for you:
uG = 2( 2(G + 2( (2, 22) + (21, 42) ) ) )
uG = 2( 2(G + 2(13, 44) ) )
uG = 2( 2( (2, 22) + (66, 26) ) )
uG = 2( 2(38, 26) )
uG = 2(27, 40)
uG = (62, 4)
You can spend hours getting to grips with the numbers if you’re ready to take it to the next level.
How much does it cost
There are a few things that make an impact on the price of a single piece of currency. What makes it extraordinary is, it only has value because people place value in it. The list below is a few of the factors:
- The media buzz around a specific coin
- Supply and Demand*
- How secure the blockchain is
- Who is investing in what currency
*Supply and demand, this is a typical economic factor that will impact the price of any service or product. In this case, a company will release a finite amount of coin; recently IHT Coin was released and sold out in just ten minutes.
what can you do with it after you have it
For a while, many online stores opened up the option to pay with bitcoin and other cryptocurrencies, however, after the first media rush, many companies closed that option down. Cryptocurrency is very volatile regarding worth, so it became less attractive. However, you can purchase flights and hotels through a few online stores like Expedia, CheapAir and Surf Air. Big companies like Microsoft accept bitcoin in its app stores. It gets even cooler, certain musicians let you download their music, and as payment they accept cryptocurrencies. Some legal and accounting firms are also happy to exchange services for cryptocurrencies.
There are many options available when it comes to spending your coins, so if you do happen to have a few just hanging around rest assured you can put them to good use.
What is blockchain ?
Blockchain technology might sound a bit complicated and granted if you choose you can get very in depth with cryptocurrency and hit some extreme mathematical formulas, however for this article we are staying as simple as possible.
A blockchain is a database that is managed and validated by a peer-2-peer system rather than a central authority – as we mentioned above.
A ‘block’ is a number of transaction records.
The ‘chain’ is the component that links all the ‘blocks’ together.
As each record is created, they are verified by the network of computers, linked up with a previous ‘chain’ entry.
So now we have a chain of blocks or a blockchain as it is commonly called.
The blockchain, or public ledger, is super safe because it is managed on an extensive network of computers, so no single person has control. Meaning that no single person can change things.
What does a blockchain do
While this is going to vary year on year as more people find innovative new ways to use cryptocurrency, and indeed blockchains themselves the basics are below.
There is an identity feature in the blockchain technology; it keeps the owner anonymous and identifiable on the public ledger.
Public Key + Private Key = Digital Signature
The blockchain also allows information to be safely distributed but not copied, or edited.
This is making it very interesting to the tech community.
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Don & Alex Tapscott, authors Blockchain Revolution (2016)
While there is a lot to learn if you are considering investing some cash in cryptocurrency, it’s essential that you get the basics down first. There are many scams out there that are all too eager to take your money and give you nothing in return. Take some time and learn as much as you can, there are many currencies out there with different values and abilities to spend. Have fun!