Crypto Trading Guide – What is Cryptocurrency

Announcing the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority.  – Satoshi Nakamoto, 09 January 2009, announcing Bitcoin on SourceForge.

The invention of Bitcoin was in fact a side product of an invention that Satoshi Nakamoto never wished to invent on purpose, it was a side product. He wanted to invent a Peer-to-Peer (decentralized) communications model, but instead he invented a decentralized digital cash system. Many have tried to invent something similar, but they have all failed. The answer was in Cryptography all along. Cryptography is an ancient science of hiding information from unvented eyes of those who we do not wish to share our message or information. Cryptography was popular when hiding some war messages, tactics, and plans of raids. There are many forms of cryptography, but the purpose is the same with each one. Cryptography is an old precise technique that protects information by encrypting art into an unreadable format, only to be deciphered by a secret key.

If we would break down cryptocurrencies to some simple definition, Cryptocurrencies would be explained as limited entries in a database that no one can change without fulfilling specific conditions. If we look at the mainstream currencies on the other hand it is as well a limited entity that you can own physically or in notes either held by banks in database accounts or balances or transactions.

94 percent of the worlds currency is in fact in digital form. Digital cash can be found in the form of deposits, checks and liquid assets. Basically, almost all our money is not just printed on paper laying around the globe but is “stored” and dealt and handled by banks. They act as a third party as they store our money for us.

Cryptocurrencies are entities as well. As we didn’t have records and transactions in a centralized server we needed to establish the platform for processing these transactions. Every peer has a record of complete history of all transactions and the balance of every account. A transaction file that consists of information such as Juans transfer of X amount of Currency X to Juanita. This is signed by Juan’s private key. After the transaction is signed a transaction is in order to get transferred. And this is called P2P technology. Once a transaction is confirmed it cannot be reversed. It becomes a part of an immutable record of history transactions and that is called a blockchain.

Cryptocurrencies are built on cryptography. They are not secured by people or vaults, but by maths and puzzle solving. There is a greater chance of being hit by lightning twice than your Bitcoin address being compromised. Miners are responsible for the confirmation of transactions, it is their job in a crypto-network. They take transactions, stamp them as legitimate and spread them around the network, once a miner has confirmed a transaction. Miners have the authority to oversee the transactions. If a miner solves a mathematical puzzle a new Bitcoin is created. Mining is an essential computer process of recording and verifying information.

Transactions are not connected to identities. You can receive Bitcoins on a Bitcoin address, which is a chain of random 30 characters. You cannot say for sure who’s address is whose, but you can follow the trail of money.  If you want to send Bitcoin to someone you would need an address and a private key. The bitcoin address is a random sequence of letters and numbers and is publicly available. The private key on the other hand is a secret. If a transaction is made – the one who sends Bitcoins uses his private key to determine the amount of Bitcoin he wishes to send, and he would also need a receiver’s address. The transaction will happen if miners will verify the process, check if the numbers match. If they do not a transaction will not take place.