The concept of digital currency gained considerable traction during the technology boom in the 1990s. Multiple organisations and programmers ventured to make a parallel line of currency that might be out of any central authority’s reach. Ironically, the businesses that attempted to make this digital currency themselves assumed the authority of verifying and facilitating transactions.
It not only defeated the aim but founded the venture also. Moreover, the digital currencies earlier were riddled with frauds and other financial challenges. Since then, this concept of digital currency was considered hopeless. This idea was falsified when Satoshi Nakamoto – a programmer or a group of programmers – introduced and explained what Bitcoin is in 2009, the first-ever cryptocurrency.
HOW DOES IT WORK?
According to Satoshi Nakamoto, the founding father of Bitcoin, it is a peer-to-peer electronic cash system. It is similar to peer-to-peer file transactions, where there is no involvement of any central authority or regulator.
Therefore, cryptocurrencies are mere transactions or entries in a shared ledger that can only be changed upon meeting certain prerequisites. Typically, in a blockchain technology like the Bitcoin network, each transaction consists of the sender and receiver’s wallet addresses or public keys and the amount of such transactions.
What attributes the security net in such a network to avoid fraud is that the sender must confirm a transaction with their private key. After confirmation, the transaction is reflected within the shared ledger or database.
However, only miners are authorised to verify transactions within a cryptocurrency network. They have to unravel cryptographic puzzles to verify any specific transaction. In exchange for his or her service, they receive a transaction fee in this particular kind of cryptocurrency and a reward.
Once miners confirm a transaction, they spread it to the network, and each node in this automatically updates its ledger accordingly. Furthermore, once a miner confirms a specific transaction, it becomes irreversible and non-modifiable.
However, there is a vital catch in mining. As a specific kind of cryptocurrency gains popularity and more and more miners join the bandwagon, the miners’ fees and rewards per transaction go down. For example, initially, miners could get 50 bitcoins (BTC) as a reward for mining; however, because of the recent halving in May 2020, miners’ rewards have gone all the way down to 6.25 BTC.
There are many benefits to using cryptocurrencies. As mentioned before, your assets are in your hands and you have full control over them. Cryptocurrencies like Bitcoin are impossible to counterfeit as all transactions reference a total history of where that bitcoin came from.
HOW TO STORE CRYPTOCURRENCY and more will be shared in Part 2.
Stay tuned!
Comments