By Christiana Ioannou
The pandemic has already left its scars on the global economy.
Underemployment is at its peak, and businesses are facing bankruptcy. However, as a result of this, we must have the ability to change our financial scenario. There is an array of technologies that prepare us to face economic challenges. One of them is cryptocurrency.
The versatility of this internet-based money
While many people invest in cryptocurrencies as they would in other assets such as stocks or precious metals, you can use crypto to purchase daily products and services.
Although cryptocurrency is a novel and exciting asset class, investing in it can be risky because you must undertake thorough research to comprehend how each framework operates entirely.
Let’s dive in
What is cryptocurrency?
It is a digital or a virtual currency used as a medium of exchange in simple terms. It has no physical embodiment-digital, encrypted and decentralized. There is no central authority that controls and retains a cryptocurrency value, unlike the US dollar or the Euro.
The buzz around this medium of money transfer is due to the following reasons:
- It involves little or no transaction costs.
- It allows 24/7 access.
- There is no confinement on purchases and withdrawals.
- International transactions are faster.
- Anybody has the freedom to use it.
Time travel to 2008 financial crisis: History of cryptocurrency
Do you recall the financial crisis of 2008, which was one of the worst since the great depression of 1929?
This epoch was where it all began. The consequences of such a massive economic disaster were latent, and the coins’ value was rapidly eroding.
The first-ever cryptocurrency
The first cryptocurrency, Bitcoin, was developed in 2009 by Satoshi Nakamoto, an individual whose identity is still unknown.
He wanted to create a new form of payment mode that has come into use globally, is decentralized and is not accountable to any financial institution.
How does cryptocurrency work?
1)Principle of blockchain technology
As the name implies, Blockchains include blocks of records for every single transaction ever made with that currency and the coins an individual hold.
All members share the crypto blockchain. The record of every transaction is in “blocks.’ it then connects to previous cryptocurrency transactions in a “chain.”
2)Strong cryptographic functions
“Crypto” in the cryptocurrency is encryption and decryption to ensure communication in the presence of third parties.
Functioning of public key and private key
- A public and a private key are mathematically connected. Since the keys are a combination from the same data set, they have a relationship.
- A public key can be distributed to anybody and is required for transactions to take place. The paired private key, on the other hand, must remain entirely hidden.
It is like that only the correct key can unlock the door.
- Encryption turns data into specific, complex codes and algorithms that are almost unreadable. To decrypt and access the data, you need to have the correct key only.
3)Proof of work and proof of sake: verification methods
”If you crack it first, you win a price.”
Proof of work is a method of checking blockchain transactions in which an algorithm creates a mathematical problem for computers to solve.
Think of it as a game
- You and your friends are “nodes” in the Bitcoin network.
- The five of you are “miners,” which are particular nodes that solve puzzles.
- Each puzzle is a new Bitcoin transaction block (cryptographically disguised)
- The miners compete to solve the “mining” puzzle.
Proof of stake
”Don’t worry. There are no more crazy brainstorming equations.”
Proof of stake is much more effective than proof of work because it prevents energy-intensive equation solving.
Here’s how it works!
- To add transactions and blocks to the blockchains, you have to stake some of your coins.
- The idea behind staking is to put them in a particular wallet where they’re frozen. Because you have coins staked, you will be able to make more transactions.
In proof of system, the likelihood you can make a transaction depends on how much of the staked cryptocurrency. Think of it as collateral.
The future of cryptocurrency
It is all sunshine and rainbows.
The future of metropolitan cities is to build an economy based on digital currencies for things like buying food, paying bills, giving loans, and buying a car.
Digital currencies are ubiquitous, and blockchain-based transactions are commonplace among individuals, customers, companies, and perhaps even governments.
The future for sure is bright!
1 Comment