What is a cryptocurrency and how does it work?

A cryptocurrency is a type of digital money that works on the internet, protected by cryptography (advanced mathematics) to secure transactions. It does not depend on banks (except for the ones that are CBDC) nor governments, and its use is direct between people.

A cryptocurrency is a form of money or currency. P2P (peer to peer) Purely digital. Being digital, they can be sent anywhere in the world in a matter of seconds. Also, like any other currency, you can exchange them for goods and services, just as we do today with traditional currencies such as the Euro or the Dollar.

Why were cryptocurrencies created?

These digital currencies are definitely a better form of money. In fact, they are the best form of digital money that can exist. The reasons that support this statement are the security, transparency and privacy that allow us to experiment. Features that we can experience thanks to the tecnología blockchain. And a blockchain is nothing more than a database supported by a completely decentralized network.

The blockchain makes use of advanced asymmetric cryptography. That is, it makes use of the well-known public key y private key. All this in order to create a payment system that allows you to send money with a global, incensible, secure and immutable reach. This has led to a boom in the development of this technology. A situation that we can see reflected in the thousands of sites that now accept them as a form of payment.

The origin of cryptocurrencies

Its origin is in the 80s when the movement Cypherpunk He was betting on the use of cryptography as a means for social and political change.

In 1990, David Chaum developed a form of digital money called Digicash. This was electronic money centralized that allowed to carry out anonymous and secure transactions. But seven years later, Adam Back devised Hashcash based on proof of work to reduce spam and DDoS attacks.

This software was the one that laid the foundations for the security and mining protocols of the cryptocurrencies of the future. Later, Wei dai would design b-money. This was a virtual currency that used a very advanced crypto mining scheme. Although this project was never completed, b-money is considered by many to be the world's first cryptocurrency.

But it was in 2008 when Satoshi Nakamoto, from whom the real identity is unknown, public the bitcoin whitepaper. This was the birth of the first fully decentralized currency, the Bitcoin.

To achieve this, Nakamoto relied on the blockchain technology using proof of work devised by Adam Back, using Hashcash. Thus, Satoshi proposed using the SHA-256 algorithm, as a function hash of cryptography and a system of Proof-of-Work (PoW). Furthermore, Bitcoin was limited to an issue of just 21 million coins.

Since then, the technology has attracted and captured the attention of the entire world. Today, there are thousands of different cryptocurrencies, each of them created with the aim of improving the technology. However, there are few cases that have achieved this goal and reached a large audience and users.

We talk about cases like Ethereum, Bitcoin Cash, Dash, EOS, Monero, Grin o ZCash. Each of these cryptocurrencies has very particular characteristics with which they seek to improve their presence around the world. A healthy competition that seeks to provide the best that this technology can offer in all corners of the world.

What makes cryptocurrencies special?

Since the invention of this type of digital money, many specialists have talked about them and their unique characteristics. One of these specialists is Jan Lansky. Lansky did a work entitled «Possible State Approaches to Cryptocurrencies«, presented in the year 2018 in which he describes these digital currencies as follows:

1. The system does not need a central authority. Thus, its status is maintained through a distributed consensus.
2. The system maintains all units and their owner.
3. The system defines whether new units can be created. In this case, the system must define the circumstances of its origin and how to determine the owner of the new units.
4. You can only secure ownership of a unit to a user cryptographically.
5. The system allows unit transactions, in which the owner of said units is changed. A transaction can only be made if the current owner of these units can be proven.
6. If two transactions are made on the same units, the system only executes one of them.

This series of characteristics encompasses the nature of cryptocurrencies and what makes them what they are. In other words, any digital currency system that meets these requirements can be considered a cryptocurrency in its entirety.

Cryptocurrencies vs. traditional money: Which is better?

As we said in the beginning, cryptocurrencies are a kind of digital currency, and are related to the money fiat money (traditional currencies). However, cryptocurrencies and fiat money have huge differences. Among these differences we can mention the organization and control of them.

In the case of cryptocurrencies, they are not controlled by any government or institution, they are decentralized. In addition, their value depends directly on the trust of users. However, fiat money is completely the opposite. It depends on banks or the authorized central authority and governments for its operation. All this centralization allows these actors to handle these currencies at will.

Another main feature of cryptocurrencies is that they are crypto-based. With this, it is sought that the operations are not easily modifiable. In addition, they are usually the origin of open source projects (auditable by anyone). But the most important thing is that your ledger (the blockchain or chain of blocks) is made up of a huge database network. Supported by thousands of computers around the world and that work in a decentralized way and by consensus.

Another great advantage is that they are open source,  Anyone can access the code. This allows them to develop a new cryptocurrency based on an existing one on the market. It also allows them to validate the code or detect different problems and errors. This obviously has a great impact on the security of the cryptocurrency and also guarantees that its development is maintained over time.

Blockchain: the heart of cryptocurrencies

This blockchain is nothing more than a way of recording transactions and totals. It keeps track of all the units of a cryptocurrency in circulation and all the transactions carried out.

Each cryptocurrency has its own blockchain, which acts as a ledger (among other things). Therefore, each of these currencies has its own register, that is, its own accounting book for registering units and transactions.

This blockchain network is distributed in nature, like P2P file networks BitTorrent. There is a whole network of interconnected computers throughout the world that validates and stores the information on this network. Thanks to this there are millions of backup copies synchronizing at all times to safeguard the information instantly. Thus, the information of the creation and distribution of money through transactions, is recorded immutably. And by immutable, it is understood that its manipulation is not possible.

The future of cryptocurrencies

The future of crypto is bright. Since its creation in 2008, they have gone from being a simple curiosity to being a very important global economic force. One driven by creativity and the birth of new projects and technologies thanks to the Initial Coin Offering (ICO).

But not only that, they have shown that another form of economic control is possible. One where the economy does not respond to the interests and manipulations of power groups, but is completely free and decentralized. A form of economy where scourges like uncontrolled inflation have no place.

But in addition, they have also opened the doors to an economy that reaches everyone in the world. It is no longer necessary for a person to have a bank account to send or receive money. A simple cryptocurrency purse is more than enough for such a task and to manage any digital asset of this nature. This opens the door to a true global financial revolution, which we are only just beginning to witness.

Imagine that in the future you decide to buy a car or a house. You would only need to access a dAPP, request a loan by guaranteeing your coins and almost instantly your loan is approved. No need for paperwork, going to a bank and huge waiting times. This is just a sample of the immense power of cryptocurrencies, the blockchain and what we can expect in the future.

But the revolution doesn't stop there; in fact, it's possible to imagine an even more revolutionary world. One where every thing connected to the Internet can interact with every other thing securely. One where no matter what country you live in, you can access products and services anywhere in the world and pay for them without complications. This is the power of cryptocurrencies. A power that tells us that the future of cryptocurrencies is assured and that we are just beginning to build it. Despite this, the world of cryptocurrencies moves millions of dollars daily around the world and continues to strengthen. This gives us an idea of ​​the current relevance of the cryptocurrency market.

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