You might have heard of the terms bitcoin, cryptocurrency and crypto investments from some of your friends and mostly, online. If you’re reading this article, then you may be one of the many people who may either want to earn money online, out of curiosity or want to invest some of your spare money without dealing with big effort.
This article will definitely help you get prepped up in the world of cryptocurrency. Just a quick disclaimer that there are multiple sources of what might be actually happening behind all the money and cryptocurrencies that’s going on.
Some things that you need to know first, cryptocurrencies are simply tagged as digital cash. However, some people may mistakenly take this information that they are just good as the cash that we usually have on hand or on regular banks. Each type of cryptocurrency has it’s corresponding value but it varies and changes over time depending on the supply and the demand for it — if you’re thinking of stocks trading, it may have the same logic but there are still some slight difference.
Cryptography is one of the methods used to verify and secure the transactions that happen between cryptocurrencies. Primarily, Blockchain (www.blockchain.com), one of the widely known wallets which let you keep, send, receive and trade your cryptocurrencies. Cryptography has the sole purpose of securing communication by using encryption and decryption. The process of encryption is by changing readable and understandable information to a cipher with some private key. A perfect example of encryption for you to better understand is converting simple text into binary numbers – it may not go that same way but it has the same logic. Decryption would be the counterpart of encryption which is converting the cipher to a readable message using a corresponding private key. In other ways, this is the Morse code of the crypto-world.
As previously mentioned, blockchain provides an expanding list of records which are called blocks that are joined together or chained and are secured using the process of cryptography. Blockchain is the main component of Bitcoin and other cryptocurrencies. Each block points to a previous block using a cryptographic hash function that basically takes an input value (message) and gives a value that has a randomized set of numbers and letters and has nothing common with the input value which makes the cryptographic hash hard to reverse. Even the slightest change in the input value would generate a completely different output value.
The rise of Bitcoin started in 2008 after the market crash. Anonymous individual or group of individuals with an alias name Satoshi Nakamoto that released a document introducing Bitcoin as a peer-to-peer electronic cash system. The document states the most common flaws of our world’s current financial system and proposed the birth of cryptocurrencies – Bitcoin is the first one.
“Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust-based model. What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party”.-Satoshi Nakamoto
By using the computer’s processing power, Bitcoin is being made by solving complex mathematical equations. Mining is a process of creating Bitcoin which many people have joined the mining network making the difficulty of mining level increase. At present, Bitcoin is being mined by connecting hundreds or even thousands of computer graphic cards together to solve the complex mathematical equation faster.
You can also refer to the video link below to better understand how Bitcoin Mining works:
For the last part of this article, you might be wondering if cryptocurrencies are tagged as digital cash, where would you store them?
To answer your question, Cryptocurrencies are stored in what we call a digital wallet. Digital wallets are storage of reference or credentials of your cryptocurrencies distributed in a ledger system that gives you the ability to spend them. Digital wallets are a combination of public and private keys. Anyone can see the public address that you may have but you are the only one with the corresponding private key, then you can be the only one to spend the cryptocurrencies that you have. It’s just having a login name and a password but with more complexity.
For better understanding, here’s a link on understanding what is a Bitcoin wallet to get you started:
This article is meant to give you the basic information on how cryptocurrencies work. We will be releasing more articles to help you understand cryptocurrency and get valuable information to get started with this technology.
Need to expand more of your Crypto Knowledge? Check more of our Crypto 101 articles below