What is the Cryptocurrencies

Cryptocurrencies are virtual or digital currencies designed to act as a medium of exchange. They use cryptography to secure and verify transactions as well as to control the creation of new units of a given digital currency. Essentially, cryptocurrencies are limited entries in a database that can only be changed if certain conditions are met.

History
There were several attempts to create a digital currency during the technology boom of the 1990s, with systems such as Flooz, Binance, and DigiCash hitting the market but ultimately failing. There were many reasons for their failure, including fraud, financial problems, and even friction between company employees and their bosses.

It is worth noting that all of these systems used a trusted third-party approach, meaning that the companies behind them verified and facilitated transactions. Because of the failures of these companies, the creation of a digital cash system was long seen as a hopeless case.

Then, in early 2009, an anonymous programmer or group of programmers under the pseudonym “Satoshi Nakamoto” introduced “Bitcoin.” Satoshi described it as a “peer-to-peer electronic cash system.” It is completely decentralized, meaning there are no servers involved and no central authority in control. The concept closely resembles peer-to-peer file-sharing networks.

However, one of the most important problems that any payment network must solve is double spending. This is a fraudulent method of spending the same amount twice. The traditional solution has been for a trusted third party – a central server – to keep records of balances and transactions. However, this method always involves an authority that essentially controls the funds and has all the personal details.

But in a decentralized network like Bitcoin, every participant needs to do this. This is done via blockchain technology – a public ledger of all transactions made at any given time within the network, which is publicly available. So everyone on the network can see the balance of each account.

Each transaction is a file consisting of the sender’s and recipient’s public keys (wallet addresses) and the amount of money transferred. The transaction must also be signed by the sender with the private key. This is all basically cryptography. Eventually, the transaction is broadcast on the network, but it needs to be confirmed first.

Within a cryptocurrency network, only miners can confirm transactions by solving a cryptographic puzzle. They take the transactions, mark them as legitimate, and then publish them across the network. Each node of the network then adds them to its database. Once confirmed, the transaction becomes tamper-proof and irreversible, and the miner receives a reward, in addition to transaction fees.

Basically, any cryptocurrency network is based on the absolute consensus of all participants regarding the legitimacy of balances and transactions. If the network nodes disagree on a single balance, the system essentially breaks. However, there are a lot of rules that have been programmed and built into the network in advance that prevent this from happening.

Cryptocurrencies are also called cryptographic because the process of maintaining consensus is secured by strong cryptography. This, combined with the factors mentioned above, makes third parties and blind trust as a concept completely redundant.

What can you do with cryptocurrencies?

Buying goods
Cryptocurrencies can be used to pay for even a college degree.

In the past, trying to find a merchant that would accept cryptocurrency was extremely difficult, if not impossible. But these days, the situation is completely different.

There are many merchants – both online and offline – that accept Bitcoin as a form of payment. They range from large online retailers like Overstock and Newegg to small local shops, bars and restaurants. Bitcoin can be used to pay for hotels, flights, jewelry, apps, computer parts and even a college degree.

Other cryptocurrencies like Litecoin, Ripple, Ethereum and so on are not yet as widely accepted. Things are changing for the better, though, with Apple now allowing no fewer than 10 different cryptocurrencies to be accepted as a form of payment on the Apple Store.

Of course, non-Bitcoin users can always exchange their coins for Bitcoin. Furthermore, there are gift card sites like GiftOff, which accepts around 20 different cryptocurrencies. With gift cards, you can basically buy anything with cryptocurrency. Finally, there are marketplaces like Bitify and OpenBazaar that only accept cryptocurrencies.