What Is Cryptocurrency?

CRYPTO CRAZE: DEFINING CRYPTOCURRENCY

What Is Cryptocurrency?

Cryptocurrency stands poised to take over the world, yet so few truly understand what it is and how it functions. With some experts claiming that crypto possesses the power to become bigger than the internet, it's time for everyone to pay serious attention. The future is here—and it's crypto.

SAYONARA TO CENTRAL BANKING

While the internet disrupted several industries, cryptocurrency, by its very nature, could transform even more important sectors. Cryptocurrency, in fact, aims to supplant perhaps the most entrenched institution of all time—the central bank. By definition, crypto operates outside of the central banking system, which makes it the ultimate game-changer. Those who are new to crypto may hear people referring to fiat currency; this is the phrase that crypto enthusiasts use when talking about the currency that is backed by a government.

DIGITAL CURRENCY VS. CRYPTOCURRENCY

Even some news organization will get it wrong from time to time, referring to cryptocurrency as digital currency or using the terms interchangeably. This is misleading, as cryptocurrency is specifically defined as a digital currency that is generated, verified and sent through encryption methods. Therefore, all cryptocurrencies would be considered digital currencies. However, not all digital currencies are crypto. Bitcoin, which is the cryptocurrency with which most are probably familiar, uses SHA-256 hashing to mine coins and generate Bitcoin addresses. Its cryptographic features make it a cryptocurrency as opposed to just a digital currency.

BITCOIN: A SIMPLE SOLUTION

Although this process may sound complicated at first glance, it is actually masterful in its simplicity. Using a network of computers known as nodes, mathematical problems are solved. The node that solves a given mathematical problem first is then rewarded with Bitcoin. This is what we call mining. Again, hashing is the cryptographic process by which information can be obscured, making the peer-to-peer system function in a way that allows outputs to be generated without having their inputs revealed to the public. Because Bitcoin operates through a public ledger system, transactions are seen. However, people are not able to see who originated a transaction or from whence it was sent.

CRYPTOCURRENCY: THE ORIGIN STORY

Like any good superhero, cryptocurrency boasts an epic origin story, as well as a mysterious behind-the-scenes founder. Way back before the days of Bitcoin, a digital currency known as Bit Gold was proposed by an eccentric, American computer scientist named Nick Szabo. However, Bit Gold possessed a fatal flaw. Unlike Bitcoin, Bit Gold did not rely upon the power of hashing. Instead, it was based upon the concept of a group of computers networked together. Technically, one or more of these computers could have become compromised and then taken down the entire system. For these reasons, among others, Bit Gold never made it to the masses.

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