The year 2009 was the beginning of it all; the era of Cryptocurrency. When the first coin was announced, it seemed like it was nothing nobody wanted to get involved with. I mean, why would anyone need a coin? And for what purpose? They would have asked. But ever since the use of Bitcoin became pronounced, there has been a creation of numerous cryptocurrencies. As of September 2017, over a thousand cryptocurrency have been created.
Not many people know that cryptocurrency started as a side product of Satoshi Nakamoto’s invention. He never intended to invent a currency when he invented bitcoin. He set about wanting to create something that most people failed at before digital cash, “A Peer-to-Peer Electronic Cash System.”
Nobody knows who Satoshi Nakamoto is. This person remains a mystery to everybody in the digital world. ‘Satoshi’ is a pseudonym for either one person or a group of people who wrote the whitepaper for bitcoin in 2008. In 2009 Satoshi announced the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double spending.
Not like there hadn’t been centralized attempts at preventing double spending, there have been centralized attempts to build a digital cash system but these digital currencies, in one way or the other were all short lived. For example, Digicash. Digicash was founded in 1983, 25 years before bitcoin, by an American cryptographer, David Chaum, who believed that in order to do safe commerce, we would need a token money that will emulate physical coins and paper notes. He eventually invented the blinding formula, an extension of the RSA algorithm. It was called the blinding formula because his Digicash required user software in order to withdraw notes from the bank and designate specific encrypted keys before it could be sent to a recipient. However, he fell out when Digicash ran out of money.
It is however noteworthy that Satoshi found a way with his invention of bitcoin to build a decentralized digital cash system. This was what led to the birth of cryptocurrency.
Satoshi found a way to prevent double spending. Double spending is an attack on digital currencies because they are at a risk of having to be spent more than once. This causes inflation.because it creates a new amount of currency that did not previously exist.
What are Cryptocurrencies then?
Cryptocurrencies are digital assets that use cryptography, an encryption technique, for security. They are primarily used to buy and sell goods and services.
According to Wikipedia, cryptocurrency is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency.
For the purpose of understanding what cryptocurrency really is, here are some few important terms and pointers you need to know.
Altcoin: This is a collective name given to other coins that are not Bitcoin. There are over 700 cryptocurrencies which include Golem, Monero, Etherum, Ripple, Reddcoin and many others
BTC: A unit equivalent to one Bitcoin.
Bitcoin: Bitcoin is a digital payment system (you can also see it a digital currency) operating independently of a central bank or government. Although it is not an official form of money, it is easily tradable and used for online transactions. However, it is the first decentralized cryptocurrency introduced on the third of January in the year 2009.
Blockchain: This is a list of records, ledger books which acts a storage to transactions. It is in chronological order i.e. relating to or arranged according to temporal order, which is easy to navigate transactions if the need be.
Cryptography: The process of using codes to decrypt or encrypt sensitive data and information.
Double Spending: This is a fraudulent act of spending the same Bitcoin more than once.
Fork: This results from the process of updating a new software causing a split in the version of the cryptocurrency.
Wallet: This is a software / program that allows you to store, save and spend your coins.
There are basically four types of wallets:
i. Mobile Wallet: These are applications you can have installed on your phones, tablets or computers. They usually include QR CODE scanning and phone-to-phone transfers for on-the-go transactions.
ii.Software Wallet. These are programs you load onto your desktop or laptop computer.
iii. Paper Wallet: These are hard copies of your currencies, usually in forms of QR codes, which allows you to keep your currencies in hard copies.
iv. Web Wallet: These are usually gotten through exchanges, and stored on third-party servers via cloud computing. They can be accessed by any computing device.
Mining: is a process of adding and verifying of transactions records in the ledger books known as the block chain. It is an important part of the cryptocurrency not only because it verifies transactions but also creates new cryptocurrencies.
Minting: The process of making new coins as a reward for verifying transactions in a block.
Miners: they verify transactions and create new coins. Principally anybody can be a miner. A miner builds a block and adds it to the blockchain. As a form of incentive, a miner gets Bitcoins after solving a cryptographic puzzle.
Node: A node is a computer connected to the Bitcoin network. It performs the function of validating and relaying of transactions.