What is Cryptocurrency and Bitcoin?

Firstly, how do you define a currency, isn't it simply an entry in the database. Take out money from your bank, what else it is other than changing numbers by following certain protocols. You might say you don't have a bank, well every valid piece of currency is issued by a central bank. Let's dive in and learn what is cryptocurrency and how it is different from traditional currencies.

Cryptocurrency is digital cash, which runs on a set of algorithms known as cryptography, which secures financial transactions. They are decentralised networks based on blockchain technology. Decentralised means there is no central authority to issue or control them.

Let's deeply understand what digital cash is, every digital currency needs a payment network with accounts, balances, and transactions. One major problem every payment network encounters is double-spending which is to prevent one person to spend the same amount twice. Usually, a bank maintains a central server that has the record of all balances which will be updated when a transaction takes place. But in a decentralized network, there won't be a server. Therefore, everyone in the network must have a list of all the transactions to check if future transactions are valid or are it an attempt to double-spend. But why would anyone maintain a database, it's because they will be rewarded for doing it.

Cryptocurrency transactions have the following properties that are different from the fiat currency
✔Once a transaction is confirmed, whatever you do, you cannot get your funds back.
✔The transactions or accounts need not be connected to real-world entities. You don't need to do KYC to transfer or receive funds. This is the reason why they are used in the dark web.
✔It doesn't matter if you send the funds to your neighbor or a person on another side of the world, any amount of money, they are settled in minutes.
✔Strong cryptography makes it impossible to modify the transactions
And you don't have to ask anybody to use cryptocurrency. Just you need to download software or a mobile application to use it.

There are more than 6000 different cryptocurrencies at present. All other cryptocurrencies other than bitcoin are called Altcoins, all with different properties and use cases. They are also referred to as coins or tokens, but they are not physical. They are issued and managed based on programmed algorithms and cryptographic proofs, which are also known as protocols.

Cryptocurrencies can be bought, sold, and traded on exchanges. There are 400 such exchanges. Most popular exchanges are Binance, Bithumb, Coinbase Pro etc. 

The market capitalization of a cryptocurrency is the price of the coin multiplied by the total number of coins in circulation. Bitcoin has the highest market capitalization among all the cryptocurrencies. The dominance of any cryptocurrency is defined as the market capitalization of that currency divided by the sum of market capitalizations of all cryptocurrencies. Bitcoin's dominance generally varies between 60 to 70 percent.

All these statistics can be found at coingecko.com and coinmarketcap.com. These websites contain current prices, charts, trading volumes, all other information of all cryptocurrencies, and also the exchanges in which a particular coin is traded. Coingecko has a real-time calculator. These websites also have their apps in the play store and Apple AppStore, which contain some useful tools like crypto-crypto, crypto-fiat calculators, price alerts, portfolio managers, etc.

Bitcoin

Bitcoin is the first-ever cryptocurrency to be created. Satoshi Nakamoto created bitcoin in the year 2009, whose identity is still unknown, didn't intend to invent a currency. In the bitcoin whitepaper, Satoshi mentioned that he developed "A Peer-to-Peer Digital Cash System". There were many attempts in '90s to create digital money, but all of them failed.

… after more than a decade of failed Trusted Third Party based systems (Digicash, etc), they see it as a lost cause. I hope they can make the distinction, that this is the first time I know of that we’re trying a non-trust based system. – Satoshi Nakamoto in an E-Mail to Dustin Trammell

As mentioned in the whitepaper, bitcoin was created as peer-to-peer digital cash, and the issue of double-spending is prevented by proof-of-work. To maintain the bitcoin network and validate the bitcoin transactions immense amount of computing power is required, this is known as proof of work and as this bitcoin network is run by individuals(also known as nodes) who use the open-source software for running this network, they are rewarded with freshly minted bitcoins for providing their computing power to the network.
So, if attackers want to change any previous transaction, they have to redo the proof-of-work, which means accumulate lots and lots of computing power and also go against the ongoing work. Instead, they prefer to work for the network so that they will be rewarded some bitcoins in a legitimate way.

Gold is referred to as a physical medium of exchange in the same way bitcoin is the digital medium of exchange. Though gold is rare, we cannot say there is a fixed amount of gold on the planet, tonnes, and tonnes of gold are mined every day. But bitcoin has a fixed supply of 21 million. From its creation in 2009 and to this day 18 million bitcoins have been mined. The last bitcoin of 21 million will be generated in the year 2140.

To know the reason, you have to know in detail how the bitcoin network works(click here to know more).

Bitcoin is stored in online or offline cryptocurrency wallets. Each bitcoin wallet has an address that is used to receive them.  ''1J62bDK7XH2J48WgCaHUPFxDHykedGoJY6'' this is how a typical bitcoin address looks like.

Bitcoin is generated by mining. For a simple understanding, Gold is mined and extracted using excavators, grinding mills, furnaces, etc. Similarly, Bitcoin is mined using the software. The processing power of the GPU is used to solve the complex algorithms and the miners are rewarded with Bitcoin. We will discuss the mining of cryptocurrency in our next post(click here).