In 2008 the world was faced with a financial crisis. The financial market crashed, businesses failed, banks were weak, and people lost their funds and were unable to pay out loans and mortgages.
After this, people realized that the current financial system, controlled by banks, governments, and other institutions, was fragile and unreliable. Something had to change.
Somewhere around this time, interest in cryptocurrencies started to surface.
So, let’s answer the main question:
What is cryptocurrency?
Simply put: Cryptocurrency is an online-based medium of exchange value. Cryptocurrency relies on encryption, which makes transactions secure and confidential. To complete transactions, you don’t need a third-party institution such as banks.
The mysterious history of the most popular cryptocurrency
Surprisingly, the idea of digital currencies didn’t start out with bitcoin, but earlier. In 1980, David Chaum created an electronic form of money called ecash.
This form of digital money was anonymous and untraceable by any third party, including banks and government.
And ecash, isn’t the only one. During the years many people attempted to create forms of digital cash. However, all attempts failed, since none of the digital currencies became mainstream and accepted by a large number of people.
The idea existed, people recognized the need for decentralized, anonymous forms of payment, but there was no hero. Until Satoshi Nakamoto created one.
Bitcoin – peer to peer electronic cash system
In October 2008, a mysterious person or group of people named Satoshi Nakamoto published a nine-page white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System. The white paper explains in-depth the purpose and usage of the cryptocurrency, describing its features and advantages over traditional fiat currencies.
Finally, in January 2009, Satoshi Nakamoto mined the genesis block number 0 of bitcoin, and with that the bitcoin network came into existence.
Despite the fact that bitcoin exists since 2009, it wasn’t popular worldwide until 2017, when bitcoin price hit $20,000. After that, bitcoin became a global phenomenon, and along with that, cryptocurrencies got in the spotlight.
What problem do cryptocurrencies solve?
The main problem that cryptocurrencies solve is a Double Spend Problem. Let me explain.
Banks are necessary to the payment and financial system because they serve as the gatekeepers. For example, when you send someone certain amount of digital money, that money is basically a file stored on a laptop/computer.
The problem is, that anyone with a little skill can copy and paste the money you’ve sent. And this what they call counterfeiting.
To prevent this Douple Spend Problem, we have banks. But, with cryptocurrencies, you don’t need a third party to control transactions. Why?
Because cryptocurrencies are built on a distributed ledger technology called blockchain, which is responsible for decentralization, transparency, and immutability. Transactions you make, are under your control. Speaking of transactions…
What are the most important cryptocurrency transaction features?
Cryptocurency transactions have numerous features that separate them from the regular fiat currencies. Let’s take a look at them:
- Transactions occur with the help of private and public keys, and with minimum fees.
- Confirmed transactions are irreversible. There is no way to reverse confirmed crypto transaction. Not even with the help of Satoshi Nakamoto himself. However, if your (bitcoin) transaction didn’t get confirmed, there are some ways you can try to reverse it.
- Cryptocurrencies are also anonymous. The address you use for transactions, can’t be connected with your real identity as long as you control your private keys.
- They are global and fast. You can send cryptocurrencies around the world, from your neighbor to someone on another part of the globe. And they get confirmed in a couple of minutes.
- Crypto transactions are secure. They’re locked with your private key, which is required for sending and receiving transactions.
Despite that cryptocurrencies are still in the early stage of development, they have massive potential and power to transform the financial system as we know it today.
They are safer, more private, and the transactions are faster and more efficient. Sounds promising, don’t you agree?