Tech in Two: An Introduction to CryptocurrenciesWatch
What are cryptocurrencies?
Cryptocurrency is a digital currency, which uses cryptography for security, making transactions secure and difficult to counterfeit. An important aspect of cryptocurrency is not controlled or regulated by any central authority of government, meaning it is, in theory, immune to government interference.
The first cryptocurrency, and many of the others that have followed it, are based in blockchain technology.
Note: Blockchain and Cryptography will both be covered in later editions of Tech in Two.
What are some examples of cryptocurrencies?
Bitcoin was the first cryptocurrency, and continues to be the most popular, as well as the most valuable, but there are thousands of alternatives currently available, including Ripple, Ethereum, and Tether.
How do they work?
Cryptocurrencies allow two parties to carry out a transaction without the need for a trusted party such as a bank, due to cryptocurrencies being decentralised and managed through cryptographic method. These transactions are added to a log of all the transactions that have ever taken place.
Cryptocurrencies can be stored using a variety of methods, including paper wallets, cloud wallets, software wallets, and hardware wallets. These can be covered in a later guide if anyone is interested, but the key distinction around these is whether they are hot or cold; a hot wallet is connected to the internet and can be accessed at any time, whilst a cold wallet is not, and allows you to store your funds offline.
What are they used for?
Like any form of currency, cryptocurrencies can be used to pay for goods or services, and many businesses and merchants are now accepting bitcoin payments. You can also trade it for another cryptocurrency, or for fiat currency - aka for regular, government issued, money. You can also hold onto it; cryptocurrencies, particularly bitcoin, are predicted to continue to rise in value, though it is a notoriously volatile market.
What are the benefits?
Cryptocurrency has low transaction costs, and quick transaction fees, when compared to other payment systems, and it's also an easy way to make payments online. This lowered cost is because cryptocurrencies allow two parties to carry out a transaction without the need for a trusted party such as a bank, due to cryptocurrencies being decentralised and managed through cryptographic method.
Bitcoin, the leading cryptocurrency, uses blockchain technology to store a record of all transactions that have ever taken place using the currency, which means that it is almost impossible for transaction histories to be forged; the concept behind this will be further explained in 'Tech in Two: An Introduction to Blockchain'.
It's worth noting, however, that cryptocurrencies are not legal in many countries, including China, Russia, Vietnam, Bolivia, Columbia, and Ecuador.
What is cryptocurrency mining?
Cryptocurrency mining, also known as cryptomining, is the process through which cryptocurrency transactions are verified and added to the blockchain ledger mentioned earlier.
Whenever a cryptocurrency transaction takes place, a cryptocurrency miner is responsible for verifying that the information provided is authentic, and updating the blockchain with the transaction if it is, in a public list that can be accessed by anyone. In this process, a miner is a computer that is part of a network of millions of computers that are spread across the world.
The mining process involves a miner competing with the millions of others to be the first to complete a complex mathematical problem; the first to crack the code is allowed to authorise the transaction, and is rewarded with a small amount of cryptocurrency of their own for this service.
This process is also known as cryptocoin mining, altcoin mining, or bitcoin mining.
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