Well, this topic has been under the spotlight for quite some time now. Although, most of the people are still unaware of this revolutionary concept at hand. There are still many who have understood the concept of cryptocurrency and what poetential it holds for all of us in the mere future.
Today, we will try and explain everything there is to know about cryptocurrency in details. So, that you have a good grasp over what cryptocurrency is and what power it holds.
For any tech enthusiast or programming nerd, the whole concept of crytocurrency and its working is a whole treasure chest. And, personally being both I am just addicted to everything this cryptocurrency system has to offer.
So, now let us look at cryptocurrency from two perspective. I guess in this way you will get a better understanding of the whole cryptocurrency business.
We will assume that our first type of reader may just be a person who is interested in the daily new topics at hand and is of a curious nature ready to dig in anything that is new and hot.
And, for the other type let us assume you are one of those tech enthusiast and computer nerds who are quite fond of the new age tech and its workings.
Thus, I have divided the explanation into two parts :
- The Normal Version
- The Tech Version
Although, both will be a detailed explanation of ‘ What is cryptocurrency and its working principle. Still if you are looking for the more conceptual and factual representation of it you can jump staright away into the second part i.e. The Tech Version, or you can simply first go through The Normal Version to get an easy grasp of the concept before heading towards the more factual representation.
NOTE : If you have a previous knowledge about cryptocurrency or are a programming nerd you can just skip to The Tech Version.
A brief history on Crytpocurrency and its Creator
Well I personally am not a very big fan of History or origin of stuffs. Personally I just like to straight away dig into the main thing. But, here I guess we could leave us an exception.
The concept of Cryptocurrency is more fun and better understandable if you know about the ‘ Tale of Cryptocurrency ‘.
Well it starts like this, ” Satoshi Nakamoto ” who is said to be the creator claims that he is a Japanese man. Now there is a very big secret behind his name and origin. Thus, I have used the word ‘ claims ‘. No one knows for sure actually who created the first ever system of cryptocurrency i.e. the BITCOINS. We till date do not know about was it a single person or was it a group of person who goes by the name ‘ Satoshi Nakamoto ‘.
It is still a complete mystery and thus, is so much more fun and exciting at the same time to know about this thing called Bitcoin and Cryptocurrency.
Bitcoin and cryptocurrency go hand in hand. Why I say this is because when the concept of cryptocurrency was born so was Bitcoin to prove it. It was like as if Bitcoin gave birth to Cryptocurrency or Cryptocurrency was the one to give birth to its first child.
Today, we have many such cryptocurrencies but Bitcoin sure holds a place on the top to prove and bring cryptocurrency to where it stands today.
That was just a brief history of how it all came into being with the mysterious Ninja like character ‘ Satosh Nakamoto ‘ still unknown to many. And his legacy that still goes on till this time.
The Normal Version OR Pre-Fact Version
Well as I have mentioned earlier. This part will only hold an easy explanation to allow you build up your mind to grasp the more conceptual things later on.
So, when we speak of cryptocurrency. We basically need to speak of Bitcoin, which was first of its kind. The whole concept was new.
Now, many of you are quite familiar with the banking system and how our everyday transactions take place. Here basically the bank or some kind of authoritative system keeps a record of all your transactions. Be it from sending some amount of money to your friend too purchasing something from an ecommerce website. It all goes through a body of authority before you can have a successful transaction.
Thus, there will always be this authority body or bank who will keep record of all your transactions in its database which it maintains regularly to update your balance and other details. And without any legit verification of your identity, this authority will not allow any type of transactions to take place.
Now when we talk about Cryptocurrency and Cryptocurrency Exchange it is all the same. But, without a middle man and the extra payment or tax you need to pay them for maintanenance of the database which hold a record of everything. This is exactly why cryptocurrency was created in the first place.
It was created to solve the double spending problem in digital currency transaction. Since there is no central deatabase system or authority. The need of extra expense is completely gone or avoided.
And all this with the help of Blockchain, which I will be explaining briefly later on in the second version or if you need detailed concept you can simply go to ” What is Blockchain ? ”
Now how is this possible that there is no need to keep a centralized database for maintenance of records and still one could carry out transactions. Well the answer to this was thought by the very Bitcoin creator, the Crypto Ninja ‘ Satoshi Nakamoto ‘. He introduced a peer to peer system, where the central database was distributed among the various peers in a node. And this transaction in order to become legit had to be verified and passed by these peers or nodes, called the MINER in order for it to be a valid transaction. Once that is done and the transaction has been passed and recoded by these peers. It is just like a stone craving which cannot be reversed.
Thus, in this way due to the registeration and maintenance of record by all the peers in a node. There is no need to spend anything extra for the transaction you make and carry out. And the Miners or Peers in order to do this task get an incentive of receiving new bitcoins which is how new bitcoins are created.
The Tech Version
Now, this part is a complete detailed version for those nerds like me who want to know everything till the very core. So I hope you get what you came for lookin in the following section.
Now, to put it simply Cryptocurrecny is based on cryptography. It is a kind of cryptographic digital or virtual cash that cannot be hacked or altered in anyway. It has been designed in such a way using ‘ hash cryptographic functions ‘ that it is almost impossible to make or twitch in any changes.
When Bitcoin was first created. It had only one sole purpose i.e. to solve the double-spending problem in the case of digital currency. Now, since the extra spending was due to the maintenance of a centralized database. The concept of removing the cantralized database system itself played the key role in the creation of such cryptocurrency.
Now, with the centralized database record system removed from the picture. There was a need of maintianing these records somewhere. And in this way came the use of the peer to peer method.
So what happened in this peer to peer method was that there were a number of nodes present over a network between the two users or bodies carrying out their transaction or payment. The main task of these nodes or peers or famously known as Miners in the cryptocurrency world would tend to check and verify these transactions taking between the two bodies. After a thorough verification whether the transaction is legit or not, the peer sends it to the other peers for further verification and thus in there are multiple number of checks and is recorded in the database present at all the peers for future reference or look up.
After that is done, the miners tend to receive an incentive for their hard work on recording and maintaining these records. They receive it in the form of BitCoins itself and that is how the creation of new Bitcoins take place and come to the market.
Now, after all this a question might arise. What if a single person creates multiple number of nodes ? Can he or she not alter with all the records for his or her own profit ?
The answer is very simple. It is possible to create Bitcoins only if the miners are able to solve a cryptographic puzzle. For a miner to add his or her machine to the network is not that simple. A miner needs to solve these kind of cryptographic puzzles whose difficulty levels increases with time. Now, since the difficulty increases so thus the power of computer power. Thus, only a very small or specific amount of tokens can be created in a given time. And this part of the system cannot be broken by any Miner or peer.
In simple terms, the you or anybody would need to invest some amount of work and time to be able to qualify your machine or computer for being a part of the network and to be able to call yourself a miner.
In order to do so you need to find a hash function which in the case of Bitcoin is based on the SHA 256 Hash algorithm. And after solving this SHA 256 Hash algorithm puzzle you can also build a block to add it to the Blockchain which is nothing but a growing record of such entries to build of blocks of data connected together. Hence, the name Blockchain.
Thanks for reading…!!!!!!
Also read my previous article on “Centralized Cryptocurrency Exchange and all you need to know.”