Cryptocurrency is similar to a digital form of cash. With it, you can pay for dinner with friends, buy that new pair of socks you've been eyeing, or book flights and hotels for your vacation. Since cryptocurrency is digital, it can also be sent to friends and family anywhere in the world.
Just like PayPal or bank transfers, right?
Almost. Only much more interesting!
The fact is that all traditional online payment gateways belong to some organization. They provide a service for storing and transferring funds.
In the case of cryptocurrencies, you can use free software to send funds directly to other users, without intermediaries. You, your friends and thousands of other people don't need an organization. You are your own bank!
To use cryptocurrency, it is not necessary to register on the site using an email address and password. Just download the app to your smartphone and you can send/receive funds in a matter of minutes.
Where does the name « cryptocurrency » come from?
The term cryptocurrency is a combination of the words cryptography and currency. Cryptography protects our funds from theft through encryption.
There is no need to understand this in detail — all the work is done by the applications you use. You don't need to know everything that's going on inside.
So, this wonderful virtual currency is not owned by anyone and is protected by encryption. But why do you need it if you already use fast payment apps?
Free from restrictions
You can use cryptocurrency without any hindrance. Centralized payment services, in turn, can freeze accounts or prevent transactions.
Burglary resistant
The design of the network makes it resistant to attacks by hackers and other intruders.
Cheap and fast payment method
A person on the other side of the world can receive funds from you in a matter of seconds. The transaction fee is significantly less than the fee for an international money transfer.
What about Bitcoin that you've heard about from friends or family members? This is the first and most popular cryptocurrency.
Who created Bitcoin?
Surprisingly, no one knows exactly who founded Bitcoin. Only the pseudonym of the creator of the currency is known — Satoshi Nakamoto. A person or a group of programmers may be hiding behind a pseudonym. There are even absurd theories that it is a time-traveling alien or a secret government organization.
In 2008, Satoshi published a 9-page document detailing the technology of the Bitcoin system. A few months later, in 2009, the software was released.
Bitcoin served as the basis for the creation of other cryptocurrencies. Some were based on identical software, others took a different approach. Okay, but what is the difference between all the cryptocurrencies?
Even compiling a list of all existing cryptocurrencies would take weeks. Some are faster, some are more private, and some are more programmable.
It's often said in the cryptocurrency space: do your research. This is said with the best intentions. You should not believe information found in only one source.
What is blockchain?
Don't be intimidated by the abundance of technical terms that are used to describe «blockchain». Blockchain is a kind of database. It's not technically complicated, it's just a bunch of cells in a spreadsheet.
This database has some special features. First, blockchain data cannot be changed. This means that you can only add new information—you can't simply click a cell and delete or change the data in it.
Second, each record (called a block) in the database is cryptographically linked to the previous record. Simply put, each new entry must contain some kind of digital fingerprint (hash) of the last entry.
That's all! Since each new fingerprint is connected to the last one, the end result is a chain of blocks. Or, in the slang of the cool kids, blockchain.
The blockchain is immutable: if the block changes, the fingerprint changes. And as that fingerprint goes into the next block, the next block changes too. And since the imprint of this block... well, you get the idea. The result is a domino effect, and any change becomes obvious. You cannot change any information without anyone noticing.
Is that all?
Impressed? Not surprising. After all, this innovation is not just some cumbersome alternative to Google Sheets. Anyone can download the blockchain and run a complete copy of it on their computer. All thanks to the software we mentioned earlier.
Let's assume that you and your friends Alisa, Dima, Katya and Vova are launching the program. You say: “I want to send Dima five coins.” You send this command to everyone else, but the coins are not sent to Dima right away.
At the same time, Katya decides to send five coins to Alice. She also sends her team online. At any time, a network participant can collect all pending commands and create a block.
If anyone can make a block, what's stopping them from cheating?
The idea of creating a block with the command “Dima pays me a million coins” seems very tempting. Just like buying a Lamborghini and a fur coat from Katya, making transactions with funds that you do not own.
But it doesn't work that way. Thanks to cryptography, game theory, and something called a consensus algorithm, the system prevents you from spending funds you don't actually have.
References:
- https://academy.binance.com/
- https://ru.wikipedia.org/
- https://habr.com/
- https://coinmarket.com/
