Digital currencies are virtual or digital currencies designed to act as a means of exchange. It uses encryption to secure and verify transactions and to control the creation of new units from any given digital currency.
Essentially, digital currencies are limited entries in a database and no one can change them unless certain conditions are met.
History & Transactions
There were many attempts to create a digital currency during the technology boom of the 1990s. With systems like Flose, Penz, and Doggy Cash appearing on the market but eventually failing.
There were many reasons for its failure, such as fraud, financial problems, and even frictions among corporate employees and their supervisors. It should be noted that all these systems have used the reliable third-party approach, this means that the companies behind them have validated and facilitated transactions.
Because of their failures, the creation of a digital monetary system was viewed as a long-term and critical condition.
Then, in early 2009, an unknown programmer or group of programmers under the nickname «Satoshi Nakamoto» introduced «Bitcoin».
Satoshi described it as «A Peer-to-Peer Electronic Cash System«.
It is also a completely decentralized, which means that there are no servers involved and no central authority in control. This concept closely resembles peer-to-peer networks for file-sharing.
But one of the most important problems a payment network must solve is double-spending.
This is a fraudulent way to spend the same amount twice. The traditional solution was a trusted third party – a central server – maintains records of balances and transactions.
However, this method always involves a power that mainly controls the funds and has all personal details.
But, in a decentralized network like Bitcoin, every participant needs to do this.
This is done through the » Blockchain» technology – it is a general account book for all transactions made at any time within the network, they are available to everyone.
Therefore, everyone on the network can see the balance of each account. Each transaction is a file that consists of the sender and receiver public keys (wallet addresses) and the amount of money transferred.
The transaction must also be signed by the sender with the private key. All of this is simply an essential encryption. Ultimately, the transaction is broadcast on the network, but it needs to be confirmed first.
Within the digital currency grid, only the minerals can confirm the transactions by solving a spine puzzle.
They take transactions, mark them as legitimate, and then post them across the network.
Then, you add each node from the network to its database. Once the transaction is confirmed, it becomes unrigged and cannot be consulted in this case, the mining operator receives a bonus, as well as transaction fees.
A digital currency grid is based on the absolute consensus of all participants regarding the legitimacy of balances and transactions. If the network contract varies on a single balance, the system will break down essentially.
However, there are many rules that have been pre-programmed and built into the network that prevents this from happening. Digital currencies are also called encrypted because the preservation of consensus is ensured by strong encryption.
This, together with the above factors, makes third parties and blind confidence an entirely redundant concept.
What is the name given to cryptocurrencies and from what was its name derived:
It is called Cryptocurrency in English and it is divided into two syllables, the second syllable is Currency, while the first syllable is the word Crypto, which is an abbreviation of Cryptography.
How do digital currencies work?
Digital currencies are like paper currencies and minerals in their ability to buy with them all physical goods and services.
There are a lot of electronic currencies currently available for trading in the Forex market, and the matter is increasing hysterical, as a result of the law of supply and demand, as the price of Bitcoin for example in December 2017 exceeds 17 thousand USD, and since originally the number of Bitcoin that can be produced is 21 million Only a unit, making competition for it as a currency or product for general investors.
We must also know that cryptocurrencies, in particular Bitcoin, are decentralized currencies, that is, no government or institution can control the production of more of them.
But how to control digital currencies?
Cryptocurrencies are controlled by a technology called Blockchain.
And the blockchain as defined in the book Blockchain Revolution by the author Tabscot and his brother, it’s an electronic book of accounts that cannot be manipulated for economic transactions that can be programmed, not only to record financial transactions but for everything that has value.
Meaning that every economic or financial transaction that occurs on the system is recorded and coded in a block, and linked to other blocks to form a chain of blocks.
The cryptocurrency system or bitcoin system, which is a decentralized system for sending and receiving money, is characterized by:
1) Ultra-fast: where you can transfer money in less than seconds, unlike the traditional bank method that takes days.
2) Very low cost: Bitcoin transfers cost almost free or negligible.
3) Protection and transparency: every economic or financial process, is saved in a block and distributed to millions of computers around the world, which makes the process of its penetration virtually impossible, as the financial process takes place in front of the whole world, which makes attempts to manipulate it impossible.
4) Decentralization: This is not affiliated with any central bank.
Therefore, it can be said that the way digital currencies work makes them very unique compared to the traditional systems of financial transactions, whether online or in real life.
The most famous cryptocurrency:
1)Bitcoin: the most famous virtual currency in the world and the size of the Bitcoin market is approximately $ 233 billion.
2) Ethereum: the second most popular digital and virtual currency in the world and the size of the Ethereum market is approximately 46 billion USD.
3) Ripple: This is considered the third most important and famous electronic currency in the world, and the size of the ripple market is approximately 11 billion USD.