What is cryptocurrency?

Encryption currency is a kind of digital currency that only exists in a computer network called "blockchain" on the Internet. They are virtual currencies, scattered outside of traditional banks, but they can still be traded like other currencies.

Bitcoin is the most original and well-known cryptocurrency, but there are currently more than 1,000 cryptocurrencies based on the same technology.

HOW DOES CRYPTOCURRENCY WORK?

Cryptocurrency is a digital currency without a central authority, which means that no individual or institution (such as a central bank) controls it. This idea is similar to the peer-to-peer network of file sharing, that is, everyone on the network shares files, and they are not just stored on one computer.

Without a central authority, there is no need to trust any entity to control accounts, balances, and transactions. In other words, it improves transparency and reduces the risk of fraud or "double spending" errors in the system.

The newly created cryptocurrency (such as Bitcoin) is entered into a database called a blockchain. When a computer processes a complex set of algorithms in a so-called mining process, money is produced. These algorithms use encryption technology to protect transactions and regulate the creation of additional units of the encrypted currency.

In the network, each peer has a complete history of all transactions, thereby recording the balance of each account. Cryptocurrency exists as a way of showing financial transactions. See the life cycle of the transaction below.

What is blockchain technology?

 

All cryptocurrency transactions are stored in a digitally decentralized public ledger called the blockchain. Each new transaction represents a new "block" in all transaction chains. Blockchain uses distributed ledger technology (DLT) to process digital currency transactions. Cryptocurrency users can track all transactions conducted through the blockchain, but the username of the transaction is anonymous. A copy of the blockchain is downloaded on every node of the network, which makes the need for a central record redundant.

What is cryptocurrency mining?

Cryptocurrency (or crypto currency or Altcoin) mining is the process of verifying cryptocurrency transactions. Digital miners do not use pickaxes but use powerful computer algorithms to deal with complex cryptographic puzzles. For every transaction that is verified and added to the blockchain, miners will receive some new coins as a reward. Anyone can become a miner with the right hardware, but the mining of Bitcoin, Ethereum, and other popular cryptocurrencies is now dominated by large-scale operations in areas with lower electricity costs.

What is a password system?

The cryptographic system uses mathematical cryptography to keep the information confidential. The user can read the encrypted information only if he knows the key to convert the encrypted information into the normal language. In the computer age, the cryptographic system is too complicated for the human brain to decipher, so computer algorithms both encrypt and decrypt. One of the most famous examples of the use of cryptographic systems is the Enigma machine used by Nazi Germany in World War II, which was later deciphered by British cryptographers in Bletchley Park.

Cryptocurrencies are designed to provide an alternative to online payments and transactions, but they have not yet been widely adopted. In the past few years, all speculations have been based on the belief that one-day cryptocurrencies will (or will not) be widely adopted. Essentially, investors bet that cryptocurrency will be used as currency.

As a reminder, money serves three purposes:

1. Medium of exchange (can be used to buy and sell items)

2. A unit of accounting (can be divided into units that can represent the true value of different things)

3. Store value (maintain its value over time)

There is a lot of debate about whether cryptocurrencies can provide these features.

At least for now, the main problem with using cryptocurrencies as currencies is price fluctuations. Due to the volatility of cryptocurrency, not many merchants accept cryptocurrency as a payment method. The price of goods or services will have to change every day to keep pace, and the price change is too large to rely on cryptocurrency to maintain value. If prices are stable, all these things may start to change.

THE SCARCITY DEBATE

As far as Bitcoin is concerned, mainstream economists generally believe that as long as 21 million Bitcoins are issued, an economy cannot function. Under the current monetary system, banks can create unlimited new money supply through bank loans. Under the current monetary system (such as the US dollar), the value of legal tender will be eroded by inflation over time.

It is speculated that Bitcoin is modeled on precious metals such as gold (ie, mining), based on the fact that scarcity helps maintain value. There is only so much gold mined from the ground, and one day there will be very little left, otherwise, it will be too expensive to mine. Proponents of Bitcoin believe that Bitcoin can be divided into smaller units, and once the total supply of Bitcoin is mined, the value of Bitcoin will increase.

Bitcoin (BTC)

Bitcoin is the most famous and most expensive original cryptocurrency. Satoshi Nakamoto created Bitcoin in 2009, and his true identity has never been fully confirmed. Bitcoin is so prominent that all other cryptocurrencies are called tokens, which are alternatives to Bitcoin. The huge price tag of each bitcoin has made investors turn to tokens. The trick for investors is to find alternative currencies that may coexist with Bitcoin in the future or eventually replace it. Most tokens claim to be able to find solutions to Bitcoin's flaws-especially its limited scalability. So far, the market value of Bitcoin is still much higher than the closest alternative.

Ethereum (ETH)

Ethereum is a distributed public blockchain network, founded in 2015. The main difference between Ethereum and Bitcoin is the function of the network. Ethereum is used to run programming code for decentralized applications, not to track the ownership of cryptocurrencies. The Ethereum network has its currency, called Ethereum. Ether is a transactional thing, but it is often incorrectly referred to as Ethereum. The premise of the center is that anyone who wants to use blockchain technology can re-use Ethereum without building a brand new application. Many new tokens are launched through the ethernet network, and larger ones like EOS, Zilliqa, and RChain will eventually issue independent blockchains.

Ripple (XRP)

Ripple is a transfer method, but it works differently from the Bitcoin network. It does not use blockchain technology, nor is it limited to the transfer of its coins. Ripple can transmit any type of currency, including encryption, legal tender, gold, and even air miles. Banks are very interested in Ripple because of its transaction speed (10,000 times faster than Bitcoin). Ripple has its currency that can be traded, but 100,000 currencies are issued like company stocks rather than being mined.

EOS (EOS)

EOS is the native cryptocurrency of the EOS.IO blockchain protocol launched in 2017. Its purpose is to serve as a smart contract platform and a decentralized operating system to run decentralized applications and provide decentralized storage. EOS.IO aims to solve the scalability issues of old blockchains such as Bitcoin and eliminate all fees for users in the traditional financial sector. EOS currency is used for applications created/used by account holders to gain bandwidth and storage on the blockchain.

Bitcoin Cash (BCH)

Bitcoin Cash is the most famous "hard fork" of classic Bitcoin (the original Bitcoin). The hard fork is creating a new currency based on the existing Bitcoin technology. The main reason for creating a fork is to add scalability. The biggest change is to increase the block size to allow more transactions per second (ie faster).