What is cryptocurrency and blockchain?
A cryptocurrency, or crypto, is simply explained as a digital currency that you can use to buy goods and services. It is an asset that is always virtual, and cryptography is used to secure the transactions. Crypto comes from Greek and means "hidden", and cryptography is a way of hiding information in various communication channels. There are now a number of cryptocurrencies. Various companies and organizations have created their own versions, often called tokens.
The first cryptocurrency that was invented is called Bitcoin. It was invented in 2008 by an as yet unknown person with the pseudonym "Satoshi Nakamoto". Bitcoin has since grown to become a worldwide financial network for safekeeping and payment.
The way cryptocurrencies work is by using a technology called blockchain. This is a decentralized technology that is spread over a large number of computers. These computers process and document all the transactions that have been on the chain in small bulks of information also called "blocks". Blockchain can be defined as a decentralized and distributed "transaction book".
Within blockchain, decentralized means that no one is dependent on a central control unit to perform a task in the network. This is in stark contrast to typically large organizations, banks, and governments. You, therefore, do not need to trust anyone, all the computers/members of the network in the chain have access to the exact same data in the form of an official "accounting/transaction book" (ledger). If an actor in the network tries to change something that is in the transaction book, this will be rejected by the majority of the members of the network. A decentralized network will therefore be stronger, more secure, and more stable the more members/computers that are part of the network.
Such a network is also not dependent on a central database storing the information from the network. This is because all nodes/computers in the network have access to the official transaction book and update their local book accordingly when transactions have taken place on the network. Since everyone has access to the same information, a decentralized blockchain is more robust than a central network. Decentralized networks have good protection against data attacks and loss of power supply, as the computers/nodes in the network are spread all over the globe. You also get a network that is always on and always working, which in turn means that you do not have to be afraid that tasks in the network will not be performed.
As a database, the blockchain stores information electronically in a digital format. Blockchain is best known for its extremely important role in cryptocurrency systems such as Bitcoin and Ethereum. The blockchain then helps to process, secure, and store all the transactions that take place on these networks. The innovation of blockchain is that it guarantees the reproduction and security of data and generates trust between users without the need for a third party (such as a bank).
The fact that you can make transactions without going through a third party is one of the most important characteristics of cryptocurrency. This feature means that a blockchain is not controlled by a central authority, which stands in stark contrast to traditional fiat currency. Cryptocurrency is thus theoretically immune to manipulation by governing entities, such as the government.
Links to books on cryptocurrency and blockchain can be found here.
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