What is a cryptocurrency?
Cryptocurrency stands for Crypto which means secret, and Currency, you all know. So it can be said that it is a secret form of currency. It is a digital form of asset which is based on the principle of the medium of exchange. The coins are assigned ownership record and stored in a ledger.
In simple words, a unique form of a computerized database for a particular currency or coin is created and stored using strong cryptography technique, so as to secure the transaction. The ownership records are verified and secured in the database. Cryptocurrency is based on blockchain technology, as it uses transparency, decentralization and immutability.
Cryptocurrency is based on the ownership of the user and cannot be guarded by any central authority and also cannot be controlled by old ways of government control and interference.
How the exchange between two person in cryptocurrency works?
Between two person, the currency exchange takes place in crypto (hidden) and using public and private keys. A minimum charge is processed into a user’s account and hence skipping the high charges that are taken in bank or any other financial institution.
The confirmation part is a very crucial concept in cryptocurrencies. You can even say that cryptocurrencies are all about the confirmation of these transaction and only miners can confirm these. This is their job in a cryptocurrency-network. They took transactions, stamp them as legit and spread them into the network. If a transaction is confirmed by a miner, then every node adds it to the database an thus, it becomes a part of this blockchain. For this, the miners also get rewarded with a token of the cryptocurrency.
How does Cryptocurrency works?
Cryptocurrency was earlier introduced by Satoshi Nakamoto, who was also called as unknown inventor of Bitcoin.
In a decentralized system and without a server. A single entity or unit of a network might do this job. Only the peer in a network needs to list all the transaction and also to check if the future transactions are valid or not.
A cryptocurrency consists of a ledger, in which all the transactions are publically visible. It makes a fairway and removes the risk of double-spending. A ledger is a list of all entries present in a database that cannot be changed without satisfying specific requirements.
Crypto-currency miners verify each transaction and then add them to the public ledger (a record). They use very powerful computers to solve complex and technical mathematical problems that are the key to the verification process. Cryptocurrency Mining is open source technology which means that anyone can confirm the transaction. The first miner to solve this complex problem gets to add a block to their transaction ledger. This process is also known as a “proof-of-work system.”
Bitcoin is currently used in 96 countries and it’s growing every year, with approximately 12,000 of transactions occurs in every hour. Understanding more about cryptocurrency working process is the first path, and the second is to try it.
A simple example to understand this by considering a transaction in a file that says, “Bob gives X Bitcoin to Alice“ and is signed by Bob‘s private key. It‘s basic public key cryptography, nothing special at all. After signed, a transaction is broadcasted in the network, sent from one peer to every other peer. This is basic p2p-technology.
Some Examples of Cryptocurrencies with Market value
Why Cryptocurrencies are considered illegal?
Let’s get an overall idea of this transaction, the semi-anonymous nature of cryptocurrency helps in a host of illegal activities, which can be money laundering and tax exemption. Sometimes, this currency can advocate high-value anonymity and citing benefits of privacy like protection for whistleblowers or activists living under repressive governments. Sometimes, these can be more private than others, hence challenging the government for tax.
For example, Bitcoin is considered a bad choice for conducting illegal business online. The forensic analysis of Blockchain has helped the authorities in arresting and prosecuting the criminals.
Are Cryptocurrencies legal in India?
The lawmaker chaired a conference at the UN India’s headquarters the same month which discussed issues surrounding cryptocurrency in the country. Both the government and the RBI have confirmed that cryptocurrencies, including bitcoin, are legal in India.
Is there any risk in Cryptocurrency Investing?
There is a lack of guaranteed value and digital nature in Cryptocurrency, which means that the purchase and use of it involves very high inherent risks. The investor are alerted with the rules, which have been issued by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the Consumer Financial Protection Bureau (CFPB), and other National Agencies.
Hence, the governments may seek to regulate, restrict or banning the cryptocurrency, and some already have. While other nation are coming up with various rules.
If you have any question, feel free to post a comment below. And Stay tuned with DigitalGyan for awesome blogs.