Cryptocurrency (A guide to digital currency)
Hey, I’m glad you’re here again, means you're enjoying my Web3 series, previously I introduced you to Web3 and Blockchain and today, i’d love you to join me in looking at what Cryptocurrency is about.
Over the past few years, cryptocurrencies have grown in popularity; as of 2018, there were more than 1,600 of them (I know right, you’re wondering how come we only know a few too!) However, the number keeps rising. As a result, there is a rise in demand for blockchain jobs, especially developer roles.
So, let’s look at what Cryptocurrency is;
Cryptocurrency is a digital or virtual currency that is meant to be a medium of exchange. It is quite similar to real-world currency, except it does not have any physical embodiment (like, you can’t hold or touch it), and it uses cryptography to work.
Because cryptocurrencies operate independently and in a decentralized manner, without a bank or a central authority, new units can be added only after certain conditions are met. For example, with Bitcoin, only after a block has been added to the blockchain will the miner be rewarded with bitcoins, and this is the only way new bitcoins can be generated, fascinating right? The limit for bitcoins is 21 million; after this, no more bitcoins will be produced and we currently have about 19 million already, so what happens when it gets to 21 million? I really wish I had that answer, but as of now; I don’t have it.
Let’s look at some benefits of cryptocurrency;
When transacting or trading with cryptocurrency, the transaction cost is low to nothing at all — compared to the fee of transferring money from a digital wallet to a bank account. You can make transactions at any time of the day or night, and there are no limits on purchases and withdrawals unlike the standard bank daily transfer limits and restrictions. Anyone is free to use cryptocurrency, unlike setting up a bank account, which requires documentation and other paperwork (Let’s not even get started on the bank queues and the staff ignorances).
International cryptocurrency transactions are faster than wire (Not yahoo yahoo, Lol) transfers too. Wire transfers take about half a day for the money to be moved from one place to another, but with cryptocurrencies, these transactions take only a matter of minutes or even seconds (I know you smiled, I smiled too).
How cryptocurrency works;
Do I still have your attention?…. I’m glad you noded or answered yes.
So, in a normal bitcoin transaction, we have; who you want to send the bitcoins to and how many bitcoins you want to send. Then the information is passed through a hashing algorithm. Bitcoin, uses the SHA-256 algorithm (Trust me, it’s not as hard as statistics). The output is then passed through a signature algorithm with the user’s private key, used to uniquely identify the user. The digitally signed output is then distributed across the network for other users to verify. This is done by using the sender’s public key.
The users who check the transaction to see whether it’s valid or not are known as miners. After this is done, the transaction and several others are added to the blockchain, where the details cannot be changed. The SHA-256 algorithm looks something like in the image below.
So, I was kidding about not being as hard as statistics. You can see how complicated it is right, meaning it’s safe to say that the encryption is very difficult to hack, or at least can be easily bypassed.
With all that’s being said so far, let’s look at what the future holds for cryptocurrency.
What is to come for cryptocurrency
The world is clearly divided when it comes to cryptocurrencies. On one side are supporters such as Bill Gates, Al Gore and Richard Branson, who say that cryptocurrencies are better than regular currencies. On the other side are people such as Warren Buffet, Paul Krugman, and Robert Shiller, who are against it. Krugman and Shiller, who are both Nobel Prize winners in the field of economics, call it a Ponzi scheme and a means for criminal activities.
Now isn’t this serious, if the world’s richest people are debating this, where do we stand, because I personally feel this people have an effect on the up or down of the cryptocurrency.
According to Simplilearn, In the future, there’s going to be a conflict between regulation and anonymity. Since several cryptocurrencies have been linked with terrorist attacks, governments would want to regulate how cryptocurrencies work. On the other hand, the main emphasis of cryptocurrencies is to ensure that users remain anonymous. (So if governments can regulate cryptocurrencies, doesn’t that go against the whole decentralization thing? Looks like there’s more to unfold).
However, let’s look on the bright side; Futurists believe that by the year 2030, cryptocurrencies will occupy 25 percent of national currencies, which means a significant chunk of the world would start believing in cryptocurrency as a mode of transaction. It’s going to be increasingly accepted by merchants and customers, and it will continue to have a volatile nature, which means prices will continue to fluctuate, as they have been doing for the past few years.
Hmmm, I don’t even know how to end or conclude on cryptocurrencies, because I feel like there’s still a lot to unfold or learn about it, however here are some resources that might and can shed more light on that.
https://www.coinbase.com/learn/crypto-basics/what-is-cryptocurrency
I’ll be back sometime soon again, where i’ll shed more light on other topics in Web3. If you’ll also like to learn about buzz words in web3 and have a better understanding of them, leave me a comment below about that.
It’s been a wonderful time so far yea, I’ve enjoyed every minute of your time spent with me and I certainly don’t wanna see you go, but I hate to keep you here forever.
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