What are Cryptocurrencies?

 Aug 13, 2020  |    ? Comments
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With Bitcoin being the poster child of an investment that saw dream-like returns for its investors, cryptocurrencies of all kinds have been in development at a pace like never before.

The Origins of the Name

The word "Cryptocurrency" is made up of "crypto", which is a Latin derivation of the Greek word "Kryptos", meaning secret, hidden, or not obvious; and "currency", meaning a medium of exchange, i.e. money.

Now, as for why the word cryptocurrency was used as the name for the digital currency of the new age, the answer lies in e-mails between the anonymous creator(s) of Bitcoin and other collaborators - Satoshi Nakamoto. They liked the term, which was used by one of the early adopters of Bitcoin, which also made sense as cryptocurrencies are backed by cryptography, which is the study of techniques for maintaining secure communication.

The story behind Bitcoin, which was the first - and arguably most popular - cryptocurrency, is an interesting one. Satoshi Nakamoto didn't intend to create it in the first place! The original goal was to create a successful form of digital currency, something which had been attempted before but never perfected. Nakamoto aimed at developing a peer-to-peer electronic cash system, which also prevented double-spending.

Satoshi saw the failure of centralized efforts to create a trust-based third-party system of digital payments and worked to revamp this system by creating a non-trust based, peer-to-peer transaction system, which could be compared to file-sharing platforms of the time.

Decentralization for the future

In a traditional currency exchange system, the regulation of every transaction is done by a central authority. This authority works to keep a record of the transactions being carried out, and also keeps an eye on whether or not there is 'double spending', i.e., whether any of the entities are paying the same amount twice. Satoshi Nakamoto found a way to carry out all the transactions on a decentralized network. Here, every single peer of the network needs to have a transaction log, to validate and check whether each transaction is valid or not.

The difficult part of this was to maintain absolute consensus on the transactions so that the whole system doesn't fall apart. This is where Nakamoto brought a radical change. He found a way to achieve consensus without a central authority.

Quick facts about cryptocurrencies

  • The transactions carried out are irreversible. Once money has changed (cryptocurrency) wallets, there is no way to back out of the transaction.
  • The identities of any users are very hard to track. It is not impossible, but there are no usernames or real-world details. Just an "address" made up of a set of numbers to send the money to and from.
  • It can be sent and received from anywhere, by anyone. As it is independent of your location, it is very global. The transactions are also extremely fast, taking not more than a few minutes to be registered and confirmed.
  • A private key is required to send and receive cryptocurrency. The 30-digit coded address is also nearly impossible to hack. This makes cryptocurrency one of the most secure means of transaction in the current day and age.
  • There is no need to ask for permission to use cryptocurrency. Being a decentralized system, it is up to the customers whether they want to use it by downloading a simple software or not. This makes it the most accessible form of currency, which can also be exchanged at will.

In Closing

Cryptocurrencies may seem daunting to understand and use at first. However, like with any new thing, once past that initial hump, it becomes clear how they may benefit the economies of the world today and in the future. In understanding this new currency, users also find a new way to protect themselves from financial trouble in emergencies, as cryptocurrencies are not dependent on the currency value of any country. Thus, investing early and playing smart with cryptocurrencies is a legitimate way for all users to carry out transactions and maintain financial stability in good times and bad.