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What is a Cryptocurrency?
A cryptocurrency is a form of digital or virtual currency that uses cryptography to secure and verify its transactions. It is no secret that interest in cryptocurrency is rapidly heating up, as individuals and companies look for ways to use this technology that is underpinned by cryptography. Bitcoin the first cryptocurrency is already getting so much buzz from the tech community and businesses.
In short, cryptocurrency is a medium of exchange similar to paper money, that can be created and stored electronically using digital bits and encryption to secure the creation of monetary units and verify the transactions.
Cryptocurrency has no physical form and exists only in the blockchain network. It has no intrinsic value, which means it cannot be redeemed for another commodity like diamonds. The network that supports cryptocurrency is completely decentralized, thus the supply of cryptocurrency cannot be determined by a central bank. Also, cryptocurrency transactions are generated almost instantly and confirmed in just minutes.
Cryptocurrency is created using cryptography the process of converting comprehensible information into a secure and uncrackable code, to track transactions or purchases.
Bitcoin was the first cryptocurrency to be created and is still the most popular today. It was published by Satoshi Nakamoto in early 2009 as a ‘peer-to-peer electronic cash system’.
How many types of cryptocurrency exists?
Cryptocurrencies are split into two categories like altcoins, also known as coins, and the second category known as tokens.
Altcoins are viewed as alternatives of Bitcoin and most of them are built from the original open source protocol of Bitcoin, with changes to the original code, therefore creating a totally new coin with different specifications.
On the other side, tokens are known as a representation of particular utility or asset and are created using an already established blockchain like, but not limited to, Ethereum.
How cryptocurrency works?
A cryptocurrency consists of a network of peers or participants. Each participant has a record of the entire history of transactions or actual balance of every account.
When someone requests a cryptocurrency transaction, a network consisting of millions of computers (known as nodes) broadcast the requested transaction so that the transaction and the user’s status can be validated. Once the transaction is verified, it is added to other transactions to create a new block of data or ledger. This new block is then added to the existing blockchain, in a way that is permanent and incorruptible. The transaction is then marked complete.
For cryptocurrency transaction to go smoothly, confirmation must be done. An unconfirmed transaction is vulnerable to forging but once confirmed the transaction is no longer forgeable and cannot be corrupted.
In a cryptocurrency network, depending on the type of cryptocurrency, miners, individual nodes and validators confirm transactions, review and distribute them in the network.
Lately, governments' started to regulate the use of cryptocurrencies so, before starting your venture into this magnificent world, please check what are the regulations in your country.