05/03/2024
Image of cryptocurrency for the blog what is a cryptocurrency and how does it work

What is a cryptocurrency and how does it work ?

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Contents

What is cryptocurrency ?

What’s cryptocurrency ?. It’s a medium of exchange over the Internet. A cryptocurrency has several cryptocurrency options out there to support financial transactions. Most cryptocurrencies use the blockchain technology platform. The platform provides stability, transparency & decentralization.

Central power doesn’t control or monitor cryptocurrencies. This is intentional. Because the idea of cryptocurrencies & Bitcoin is that they provide immunity against interference & government control. Cryptocurrency funds can be transferred to start with 1 individual than to a different 1 by using public & personal keys. Processing fees associated with exchanging digital currencies are very minimal. Normally, economic establishments charge high fees on any financial transaction.

Cryptocurrencies were invented by chance. The inventor of Bitcoin is Satoshi Nakamoto. He invented a peer-to-peer electronic cash system. Bitcoin was a by-product of this system. Before this, there were many attempts to create a digital cash system. But all were unsuccessful. The main reason for the Nakamoto system’s success was that it provided a decentralized financial network rather than an established centralized system.

If you’ve got the goal to set up your digital cash system then you’ll need to create a payment network. The payment network should provide 3 major elements:

1. Accounts

2. Scales

3. Transactions

The Nakamoto system

1 of the problems all payment networks experience is the “expense multiplier.” It’s about avoiding spending the same amount twice. This was invariably achieved by using balance records from the central server until the creation of the Nakamoto system. There’s no central server. As the payment network is decentralized. Each entity or node on the network must do its job flawlessly. Everyone needs a listing of transactions to control & manage whether future transactions are legit & valid. All the decentralized payment network counterparties must agree on everything. There must be a total consensus. Otherwise, the transaction will not go through. The problem was how to achieve the target of full consensus without a central server. Nakamoto realized this.

What are cryptocurrency and the factors for its success

Image of cryptocurrency and bit coin

Immutable

A cryptocurrency confirmed transaction is irreversible. No person in the world can change or modify a cryptocurrency transaction. Not even presidents or royalty. It is an immutable record. If you send money to someone else then that’s final. There is no way back. If you make a mistake or get cheated on then you’re caught in the situation. You don’t have an opportunity to reverse the deal.

A pseudonym

Cryptocurrency accounts & transactions don’t have anything to do with real-world identities. You’ll receive Bitcoin at an address. It appears like a random string of about 30 characters. You can analyze the flow of a transaction. But you normally can’t link it to a real person by address.

Global high-speed transactions

Posting & confirming transactions doesn’t take long. Usually, all of this happens in minutes. The cryptocurrency transaction network is global. It doesn’t matter where the transaction originates & ends.

Strict security measures

The highest security levels in transactions are crucial for the cryptocurrency network. For this, all funds are locked & secured in the cryptocurrency public key system. Only those who’ve got a personal key can send cryptocurrencies. This makes the system extremely secure.

No permissions

The cryptocurrency system is a “permissionless” system. You don’t need consent from anyone or any authority to transact with cryptocurrencies. There is no doorman with a cryptocurrency system.

Monetary characteristics of the cryptocurrency

Now that you’ve understood the characteristics of cryptocurrency transactions. But you also need to know the monetary aspects. There is a controlled supply. Most cryptocurrencies have a ceiling on the number of tokens provided. There’ll be a decline in supply over time. Experts calculate that the final number of Bitcoin tokens will be produced around 2140. Experts assume that only 21 million Bitcoin is the maximum.

To control the supply of cryptocurrency tokens

Behind every program, there is code. With this symbol, 1 can calculate the money supply of a cryptocurrency today for a particular future date. No debt holder with standard or “fiduciary” money that the government shares. It’s the bank account that you’ve created. All entries in your account are debts. It is an IOU system.

Cryptocurrency is not a debt

There has been a lot of controversy surrounding the launch of cryptocurrencies. As they represent a direct attack on most countries’ financial guidelines. Governments or central banks cannot exchange cryptocurrencies. Therefore, it’s immune to manipulation-induced inflation & deflation—money supply.


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