The emergence of cryptocurrency is already taking over our day-to-day transactions. Cryptocurrency is a digital asset that exists in the crypto world that many call it ‘digital gold’. But what exactly is cryptocurrency? You may be surprised.
It is a digital asset intended to be used as a medium of exchange. Obviously, this is a close substitute for money. However, it uses a robust cryptography to secure financial transactions, to verify the transfer of assets and to control the creation of additional units. All cryptocurrency be virtual currency, digital currency or alternative currency. It should be noted that all cryptocurrencies use a decentralized system of control as opposed to the centralized systems of banks and other financial institutions. These decentralized systems work through a distributed ledger technology that serves a public financial database. Typically, a blockchain is used.
What is a blockchain?
This is an ever -growing list of records linked and secured using cryptography. This list is called blocks. The block chain is an open, distributed ledger that can be used to record transactions between two parties in a verifiable and permanent manner. To use a block as a distributed ledger, it is managed by a peer-to-peer network that collectively follows a protocol for validating new blocks. If the data is recorded in any book, it cannot be changed without a change in all the other blocks. Thus, blockchains are secure by design and also act as an example of a distributed computing system.
The History of cryptography
David Chaum, an American cryptographer discovered an anonymous cryptographic electronic money called ecash. It happened in 1983. In 1995, David implemented it through Digicash. Digicash was an early form of cryptographic electronic payment that required user software to withdraw notes from a bank. It also allows the assignment of specific encrypted keys before being sent to a recipient. This property allows the digital currency to be untraceable by the government, the issuing bank or any third party.
After further efforts in the following years, Bitcoin was created in 2009. It was the first decentralized cryptocurrency and was created by Satoshi Nakamoto, a pseudonymous developer. Bitcoin uses SHA-256 as its cryptographic hash function (proof-of-work scheme). Since the release of bitcoin, the following cryptocurrencies have also been released.
1. Namecoin (April 2011)
2. Litecoin (October 2011)
These three coins and many others are called altcoins. The term is used to refer to alternative variants of bitcoin or other cryptocurrencies.
It should also be noted that cryptocurrencies are exchanged over the internet. This means that their use is mainly outside of banking systems and other government institutions. Cryptocurrency exchanges involve the exchange of cryptocurrency with other assets or other digital currencies. Traditional fiat money is an example of an asset that can be traded in cryptocurrency.
This refers to a proposed mechanism by which a cryptocurrency can be directly exchanged from another cryptocurrency. This means that in atomic swap, it is no longer necessary to involve a third party in the exchange.