Whenever we have a new technological breakthrough, there are always people who are left wondering what that very breakthrough is. The problem is, even with all the information online, there is too much of it and it overloads people. Too much information at a single time can be daunting.
Cryptocurrencies are relatively new, and they still baffle lots of people. They have become extremely popular though, so much so that they are used as currencies on many ecommerce sites. Even casinos are using cryptocurrencies, and the Best Crypto Gambling Sites are doing this on the regular.
Yet, one should be able to understand cryptocurrencies in order to know what they are dealing with, if they should invest their time and money. Let us take a closer look.
A Short Cryptocurrency History Lesson
Cryptocurrencies were conceived in the 1980s. The first notion of the term was conceived by David Chaum, a cryptography expert. He created ecash or electronic money in 1983. This did not become popular until 1995, when he named it Digicash. It was a cryptographic payment system which required software in order to withdraw money from a bank, but each transaction would get a special encrypted key. This allowed the transactions to be anonymous.
In 1996, the NSA published a paper called How to Make a Mint: The Cryptography of Electronic Cash, describing what we now know as cryptocurrencies. 1998 saw a couple of breakthroughs in cryptocurrency research, through the works of Wei Dai and Nick Szabo. Nick Szabo worked on bit gold, a crypto system which uses proof of work, while Wei Dai worked on b-money, an anonymous, decentralized electronic cash system.
All changed in 2009, when Bitcoin went online.
Bitcoin – A Cryptocurrency is Born
In 2009, created by Satoshi Nakamoto (a pseudonym), Bitcoin was launched. Bitcoin is a cryptocurrency. It is decentralized, meaning that it is not governed by any country or bank. It uses cryptography on its own peer-to-peer transaction network. It uses SHA-256 as its encryption method. Every transaction is verified in a distributed ledger, which is actually a blockchain. Blockchains are growing lists of records which use cryptography to grow. Each block contains a cryptographic hash of the previous block.
There are a limited number of bitcoins available, which increases its value. Its value is mostly due to scarcity and being the first “stable” cryptocurrency. It is used for online transactions most of the time, though El Salvador was the first country to legalize cryptocurrencies, in 2021, and allow them to be used wherever they can be accepted in the country.
Bitcoin started the cryptocurrency craze, including mining. Mining is what powers the proof-of-work system used in record keeping. Every transaction must be verified by expending a little power.
This is one of the reasons as to why mining is an obligatory part of cryptocurrencies. However, mining is not without its rewards. Creating new blocks in the chain awards a person some money, because one is essentially creating more coins. Bitcoin is the hardest to create and is worth the most money.
Cryptocurrencies can be very daunting, yet with a good explanation, they start to make sense.