The advent of cryptocurrencies has taken over our daily transactions. Cryptocurrency is a digital asset that exists in the crypto world, and many people refer to it as “digital gold”. But what exactly is cryptocurrency? You must be wondering.
This is a digital asset designed to be used as a medium of exchange. Obviously, this is a near-substitute for money. However, it uses strong cryptography to secure financial transactions, verify asset transfers, and control the creation of additional units. All cryptocurrencies are either virtual currencies, digital currencies, or alternative currencies. It must be noted that all cryptocurrencies use a decentralized control system rather than a centralized system of banks and other financial institutions. These decentralized systems work through distributed ledger technology that serves public financial databases. Usually, blockchain is used.
What is blockchain?
This is an ever-growing list of records that are linked and secured using encryption technology. This list is called a block. A blockchain is an open distributed ledger that can be used to record transactions between two parties in a verifiable and permanent way. In order for a block to function 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 one book, it cannot be changed without changing all other blocks. Therefore, blockchain is secure by design and is an example of a distributed computing system.
The history of cryptography
American cryptographer David Chaum discovered an anonymous cryptocurrency called ecash. This happened in 1983. In 1995, David implemented it with Digicash. Digicash was an early form of encrypted electronic payment that required user software to withdraw notes from banks. It also allows specifying a specific encryption key before sending to the recipient. This feature makes it impossible for governments, issuing banks, or any third party to trace the digital currency.
Bitcoin was created in 2009 with continued efforts over the following years. This is the first decentralized cryptocurrency created by the anonymous developer Satoshi Nakamoto. Bitcoin uses SHA-256 as its cryptographic hash function (proof-of-work scheme). From the launch of Bitcoin, the following cryptocurrencies were also released.
1. Namecoin (April 2011)
2. Litecoin (October 2011)
These three coins and many others are called Altcoins. The term is used to refer to alternative variants of Bitcoin or just other cryptocurrencies.
It must also be noted that cryptocurrencies are exchanged over the Internet. This means that their use is mainly outside the banking system and other government agencies. Cryptocurrency exchanges include cryptocurrency exchanges with other assets or with other digital currencies. Traditional fiat currencies are an example of assets that can be traded with cryptocurrencies.
These refer to a proposed mechanism whereby one cryptocurrency will be able to be exchanged directly from another. This means that with atomic swaps, there is no need for a third party to participate in the exchange.