The advent of cryptocurrency is already interfering in our daily transactions. Cryptocurrency is a digital asset that exists in the crypto world, and many call it “digital gold”. But what exactly is a cryptocurrency? You must be wondering.
It is a digital asset designed to be used as a medium of exchange. It is clear that this is a close substitute for money. However, it uses strong cryptography to secure financial transactions, verify the transfer of assets and control the creation of additional units. The entire cryptocurrency is either a virtual currency, a digital currency or an alternative currency. It should be noted that all cryptocurrencies use a decentralized control system, unlike the centralized systems of banks and other financial institutions. These decentralized systems operate through distributed book technology that serves a public financial database. A blockchain is usually used.
What is a blockchain?
This is an ever-growing list of records that are linked and protected using cryptography. This list is called blocks. A blockchain is an open, distributed register that can be used to record transactions between two parties in a way that is verifiable and permanent. To enable a block to be used as a distributed register, it is managed by a peer-to-peer network that collectively adheres to a new block validation protocol. Once the data is saved in any book, it cannot be changed without changing all the other blocks. Therefore, blockchains are design-protected and also act as an example of a distributed computing system.
The history of cryptography
David Chaum, an American cryptographer, discovered anonymous cryptographic electronic money called ecash. This happened in 1983. In 1995, David implemented it through Digicash. Digicash was an early form of cryptographic electronic payment that required user software to retrieve bank notes. It also allows the identification of specific encrypted keys before they are sent to a recipient. This feature allows the digital currency to be untraceable by the government, the issuing bank or a third party.
After intensified efforts in the following years, Bitcoin was created in 2009. It was the first decentralized cryptocurrency and was created by Satoshi Nakamoto, a pseudonym developer. Bitcoin uses SHA-256 as its cryptographic hash function (proof of operation scheme). Since the release of bitcoin, the following cryptocurrencies have been released.
1. Namecoin (April 2011)
2. Litecoin (October 2011)
3. Peercoin
These three coins and many others are called altcoins. The term is used to denote alternatives to bitcoin or simply other cryptocurrencies.
It is also mandatory to note that cryptocurrencies are exchanged over the Internet. This means that their use is mainly outside the 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 cryptocurrency.
Atomic swaps
They refer to a proposed mechanism in which one cryptocurrency can be exchanged directly with another cryptocurrency. This means that nuclear swaps will not require the participation of a third party in the exchange.