Possibly, two or three generations later… Dollar, Rupee, Euro, Yen, Pound and all other fiat currencies will become history. Every transaction will have happened in Cryptocurrencies. But what are virtual currencies? This technology is like the Internet, eventually, it will become an indispensable part of our lives.
Nowadays, new technology has emerged that contains the tremendous potential to change the way we do transactions with each other. Everywhere people are talking about Cryptocurrency… Bitcoins… Libra. These are trending topics that incline people to know about it more. On the one hand, some people know about what are Bitcoins crude but still, their understanding of cryptocurrency is vague and ambiguous. Most people only know a few things but a large chunk of details what are virtual currencies is missing.
That’s why after doing some research, I write this article to describe what’s Cryptocurrency and the associate topics related to it in a simple and easy-peasy manner, so you can easily grasp the crux of the matter.
What are Virtual Currencies?
A virtuaVirtualy is a digital representation of value that we can digitally trade and functions as-
- A Medium of Exchange
- A unit of account
- A store value
But, unlike fiat currency like Dollar or Rupee, It doesn’t have a backing of the government and a legal tender (we can’t use in transactions for products and services in a country except for the specified places who allow it ).
A Cryptocurrency has come under the virtual Currencies, and it is decentralized and protected by Cryptography. Simple, It is like a virtual currency who is encrypted, so no one would steal the information.
If we want to understand how Cryptocurrency works, we should understand some basic things that are related to it.
We base this technology on two things- Distributed Ledger Technologies and Blockchain.
What is DLT ( Distributed Ledger Technologies)?
Imagine a small group of college friends has maintained a list of transactions they do among themselves. So In the old system, they will choose one computer or notebook of one of the group members where they put all the details of transactions.
However, In the new technology there is a twist: Instead of holding this list in one computer or in the notebook of one of the group members or allowing some outside authority (like their class teacher) to maintain and update the list, all of them maintain a separate copy of the list in their personal computers. Every time they transact, the rest of the members verify the transaction and once it is verified by all, they update their list.
Each transaction has converted into a block. Each block stores the data specific to it. For example, A bitcoin block contains the information about the sender, the receiver and the number of bitcoins it contains. So each block is stack one after the other in a sequence which makes it impossible to manipulate the details of past transactions because the overall sequence will not match with sequence held by others.
Last, These college friends hide the details of transactions from other people, so they devise a code (a cypher) for all their communications related to the list.
DLT (Distributed Ledger Technology) refers to technologies that involve the use of independent computers to record, share and synchronize transactions in their respective electronic ledgers. All virtual currency use DLT.
One point you should remember is that this technology has a wide approach. We can use DLT in many transactions of value related to Ownership of Assets- Money, Properties and maintain an individual Health card and so on. Other applications include distributed fair voting, stock ownership, asset registration, notarization, and many other applications we’ve never thought of before.
Future lies in DLT
You can also read: Why We Need Cryptocurrency Wallet?
What is Hashing?
A hash algorithm turns an arbitrarily large amount of data into a fixed-length hash. … Like all computer data, hashes are large and written as hexadecimal. Bitcoin uses the SHA-256 hash algorithm to generate verifiably “random” numbers in a way that requires a predictable amount of CPU effort.
When we do a transaction, then a block will generate that contains the data of the transaction. To make the details more feasible, the data will convert into a large fixed number. We call this process Hashing. This mathematical number knows only the owner of the block.
What is Blockchain?
Blockchain is a specific DLT that came to prominence after Bitcoin, a Cryptocurrency that used it, became popular. Cryptocurrency uses codes to encrypt transactions and stack them up in blocks, creating Blockchains.
Now, What is Bitcoin?
Bitcoin was first introduced as software by an anonymous programmer, or a group of programmers, under the alias Satoshi Nakamoto in 2009. There has been a lot of rumors about the real identity of BTC’s creator, however, all the people mentioned in those rumors have publicly denied being Nakamoto.
Bitcoin is not a company. It is not an organization. It is a standard or a protocol just like TCP/IP, or the internet. It’s not owned by anyone. It operates by simple mathematical rules that everyone who takes part in the network agrees on.
Behind the scenes, the Bitcoin network is sharing a public ledger called the “blockchain”. This ledger contains every transaction ever processed. We combine digital records of transactions into “blocks”.
It is impossible to do fraud because to change just one letter or number in a block of transactions, it will also affect all the following block software tries being a public ledger, the mistake or fraud attempt can be easily spotted and corrected by anyone.
How to get Bitcoin and where Can I use it?
The simplest way of getting Bitcoins is to buy them. Bitcoins are available from various exchanges, but you can also buy them directly from other people via marketplaces. We can pay them for with cash, credit and debit card transfers or even with other cryptocurrencies. But first, you’ll need a Bitcoin wallet.
Mining is another option. However, It takes a lot of energy and coding and mathematical skills. You need to write codes and solve the mathematical puzzle to mine a Bitcoin. After the launch of the software, most of the Bitcoins have already processed until now.
Many continue to have accepted cryptocurrency as a payment. Still, no country in the world has made it a legal tender. But, many private companies take an interest in it. Possibly soon, It becomes like fiat currency such as Dollar or Rupee
Libra of Facebook?
Knowing the potential of cryptocurrency, the big players have also come into the field. Facebook has launched Libra to use it on social media platforms like Facebook.
Quick fact:- Bitcoin and cryptocurrency aren’t two different things. Bitcoins are Cryptocurrency like others such as Ethereum, Libra ( In progress to launch ) and so on. They are saying it a game-changer technology that will revolutionize the financial system drastically.
Soon, Instead of buying stocks We will purchase blocks of cryptocurrency for investment. There will be a Block market instead of Share Market.
Though, there are some flaws in it like any other Technology:
- These currencies often experience tremendous volatility in their value. Bitcoin was selling at $20,000 per coin in 2017 but in less than a year, it was trading at $3,800 per coin.
- Scaling up such a currency system over a large population would require crippling levels of energy resources. An environmental disaster unless we find a source of perpetual energy producer.
- The anonymity of private digital currencies makes them vulnerable to money laundering and use in terrorists financing activities.
Thanks for Reading what are virtual currencies!