Cryptocurrency is an electronic or e-currency which is created with technology, which wholly controls its creation and protects the transactions, whilst hiding the identities of its users.
Crypto is short for cryptography, which is a computer technology used commonly for security, hiding information, hiding identities and more, so it is easy to see why they are known as cryptocurrency due to their anonymous nature.
Cryptocurrencies are digital cash which are quicker, cheaper and more reliable than traditional government-backed currency. Instead of using government organizations to create your money and banks to store it, cryptocurrencies transact directly with each other and store their own money. Money can be sent directly without a middleman, so transactions are more affordable and usually instant.
To create transparency and fight fraud, every user of a cryptocurrency can record and verify their own transactions and see the transactions of everyone else. These transactions are called ‘ledgers’ and it is available to anyone. With this, transactions are more transparent, efficient and permanent. With public records available, these cryptocurrencies do not require you to entrust a bank to keep your money safe. Also, they do not require you to tryst the person you are doing business with, because you can easily see the money being sent and received, and recorded by thousands of people. This is known as a ‘trustless’ system and it is very unique.
What is Bitcoin?
Bitcoin was the very first cryptocurrency which was created in 2009. Unfortunately, the creator of Bitcoin is unknown and he or they use the pseudonym ‘Satoshi Nakamoto’. What makes Bitcoin unique is that it does not rely on any government or bank-created currencies and, in addition, transactions occur directly between anonymous people; there are no banks or middlemen involved as we mentioned earlier.
With Bitcoin, each transaction is recorded on a public record known as the ‘blockchain’ and the data here is stored on many computers worldwide. Because there are so many copies of blockchain being made and stored, the transaction data is super safe and cannot be manipulated.
What is Blockchain?
Blockchain is the clever technology used for creating secure digital recordings which do not rely on a single entity to keep them safe. Blockchains record any information but they were first used to record Bitcoin transactions.
The blockchain is like a record book where each page is a block, and it can record anything. Blocks are created simultaneously – one after the other – and are chained to each other which then creates the blockchain. Multiple of these records are maintained by many individuals on their computers around the world. Updates are seen immediately and this makes manipulation virtually impossible, and it is not known to have ever happened.
What is Mining?
Bitcoin is created through ‘mining’, which requires huge computer power. People complete mining in return for money, and each computer which fulfils the mining process can earn a reward in digital money and brand new coins. Mining is basically the process of recording and verifying information on the blockchain.
Only one block can be created on the blockchain at a time to keep the network running smoothly. To do this, there are two different ways. The first is ‘proof of work’ and requires computers to solve difficult math problems. The second is ‘proof of stake’ and people who own a large number of coins are selected by the software to create new blocks. People are selected on a lottery-based system.