Cryptocurrencies are already emerging in our daily transactions. Cryptocurrency is a digital asset that exists in the world of cryptography as many refer to it as “digital gold”. But what is really cryptocurrency? You must be wondering.
This is a digital asset intended to be used as a medium of exchange. This is clearly a near alternative to money. However, it uses strong encryption to secure financial transactions, verify asset transfers and control the creation of additional units. All cryptocurrencies are either virtual, digital, or alternative currencies. It is imperative to note that all cryptocurrencies use a decentralized control system instead of the centralized systems of banks and other financial institutions. These decentralized systems operate through distributed ledger technology serving a public financial database. Usually, blockchain is used.
What is blockchain?
This is an ever-growing list of records being linked and secured with cryptography. This list is called blocks. A blockchain is an open, distributed ledger that can be used to record transactions between two parties in a verifiable and permanent manner. To enable the use of a block as a distributed ledger that is managed by a peer-to-peer network that collectively adheres to a protocol to validate new blocks. Once data is recorded in any book, it cannot be changed without changing all other blocks. Therefore, blockchains are secure by design and also serve as an example of a distributed computing system.
History of cryptography
David Chum, an American cryptologist, discovered an anonymous cryptocurrency called ecash. This happened in 1983. In 1995, David implemented it through Digicash. Digicash was an early form of cryptocurrency electronic payment that required a user program to pull notes from a bank. It also allowed specific encrypted keys to be assigned before they were sent to the recipient. This feature allowed the digital currency to be untraceable by the government, the issuing bank, or any third party.
After increasing efforts in the following years, Bitcoin was created in 2009. This was the first decentralized cryptocurrency and was created by Satoshi Nakamoto, a developer under a pseudonym. I used Bitcoin SHA-256 as a cryptographic hash function (Proof of Work Scheme). From the Bitcoin release, the following cryptocurrencies have also been released.
1. Namecoin (April 2011)
2. Litecoin (October 2011)
These three coins and many others are referred to as Alternative currencies. The term is used to refer to the alternative variants of Bitcoin or simply other cryptocurrencies.
It is also necessary to note that cryptocurrencies are exchanged over the Internet. This means that they are primarily used outside of banking systems and other government institutions. Cryptocurrency exchanges include exchanging cryptocurrencies with other assets or other digital currencies. Traditional paper money is an example of an asset that can be traded in a cryptocurrency.
These refer to a proposed mechanism whereby a cryptocurrency can be exchanged directly for another currency. This means that with atomic swaps, there will be no need for a third party to participate in the exchange.