For new users, cryptocurrency can be a difficult concept to grasp. The idea of digital coins that can be exchanged exclusively over the internet sounds abstract. The vast majority of people have no idea how blockchain works or Satoshi Nakamoto’s ties to Bitcoin. If you are one of the many who do not fully understand this concept, this article should help begin to demystify the enigma that is the world of cryptocurrency.
Cryptocurrency is a form of decentralized currency. Decentralized simply means that it does not belong to any bank, country, or major corporation. Given that cryptocurrency is not tied to these kinds of entities, it does not rise or fall in value based on the stock market or in the way that FIAT currencies (currencies tied to a nation’s economy) do. Cryptocurrency does not take the form of banknotes or coins; it exists in the digital space of blockchain. Let’s take a brief look into blockchain’s history and how it works.
Blockchain is the underlying technology that powers cryptocurrencies. The first cryptocurrency, Bitcoin, was launched in 2009 by an anonymous individual known as Satoshi Nakamoto. In the white paper for Bitcoin, Nakamoto established the foundation for blockchain: a peer to peer distributed ledger system. Blockchain is a system based on cryptography of time-stamped blocks. Each block includes the cryptographic hash of the prior block. Once a transaction is made the blocks are linked together making a chain. This creates a secure network of transactions where individuals can transfer funds in a detailed ledger of records.
Following in the footsteps of Bitcoin, other cryptocurrencies were created. These new variations of the blockchain infrastructure became known as altcoins. In 2011, litecoin was released. An early altcoin, litecoin was almost identical in technical details to Bitcoin, but had a faster block processing rate. In 2015, the ethereum platform was launched using a modified version of Nakamoto’s blockchain based on smart contracts. As of 2018 there are more than four thousand altcoins in existence.
Blockchain and cryptocurrency technologies are still developing. To say blockchain is still in its developmental phase is an understatement. For a concept that was materialized almost ten years ago, cryptocurrency has grown to a scale Satoshi Nakamoto himself could not have expected. There are still applications of blockchain, most likely very simple, that could revolutionize finance. In the future, will we buy our groceries with Bitcoin or a form of cryptocurrency? Given where we are now, it might not seem likely but there is significant untapped potential in the technology that hasn’t been explored fully. Cryptocurrency might be the first step in an evolution of how transactions of the future could be carried out.
