The advent of cryptocurrency is already taking over our daily transactions. Cryptocurrency is a digital asset that exists in the crypto world and many call it “digital gold”. But what exactly is cryptocurrency? You must be wondering.
This is a digital asset intended to be used as a medium of exchange. Clearly, this is a close substitute for money. However, it uses strong cryptography to secure financial transactions, to verify asset transfers, and to control the creation of additional units. All cryptocurrencies are either virtual currency, digital currency or alternative currency. It is imperative to note that all cryptocurrencies use a decentralized control system unlike the centralized systems of banks and other financial institutions. These decentralized systems work through distributed ledger technology that serves a public finance database. Blockchain is commonly used.
What is blockchain?
This is a continuously growing list of records that are linked and secured using cryptography. This list is called blocks. A blockchain is an open, distributed ledger that can be used to record transactions between two parties in a way that is verifiable and permanent. To allow a block to be used as a distributed ledger, it is governed by a peer-to-peer network that collectively adheres to a protocol for validating new blocks. Once data is recorded in any ledger, it cannot be changed without changing all the other blocks. Therefore, blockchains are secure by design and also act as an example of a distributed computing system.
History of cryptography
David Chaum, an American cryptographer discovered an anonymous cryptographic electronic money called ecash. That 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 bank notes. It also made it possible to tag specific encryption keys before sending to the recipient. This property made it impossible for the government, the issuing bank or any third party to trace the digital currency.
After increased efforts in the following years, Bitcoin was created in 2009. This was the first decentralized cryptocurrency and was created by Satoshi Nakamoto, a pseudonymous developer. Bitcoin used 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 named altcoins. The term is used to refer to alternative variants of bitcoin or simply other cryptocurrencies.
It is also necessary to note that cryptocurrencies are exchanged over the Internet. This means that their use is primarily outside of banking systems and other government institutions. Cryptocurrency exchanges involve the exchange of cryptocurrency with other assets or other digital currencies. Conventional fiat money is an example of an asset that can be traded in cryptocurrencies.
They refer to a proposed mechanism where one cryptocurrency will be able to be exchanged directly from another cryptocurrency. This means that with atomic swaps there would be no need for a third party to participate in the exchange.