Cryptocurrencies are the latest form of currency and the world is after it because of its future potential. The form of currency has been changing since forever. In the past, people use to barter trade, which then converted into trading stuff for coins. From coins, we shifted to paper-based currencies and then the plastic currency, which comprises your debit and credit cards. The newest form of currency is the digital currency, or cryptocurrency to be more accurate. What is it and how does it work? Let us help you understand.
Ido Fishman says that calling cryptocurrencies digital currencies can be a bit confusing for many people. A lot of people know that their funds in the bank accounts are available to them in the digital form. When you transfer funds using a banking app, you are doing that digitally. However, the difference between that type of currency and the cryptocurrency is that the former still has a physical form. On the other hand, the latter does not exist physically. It is created in the digital world and used there for all your transactions.
According to Ido Fishman, “You have to take the digital world as a LITERALLY a world to understand the concept of digital currencies. In this digital world, cryptocurrencies are mined. The miners are rewarded for their hard work and those who then own the currency can use it for whatever they like, just like they use their physical currencies in the physical world”.
How Cryptocurrencies Are Created
They are created through a process called mining. Mining is performed by people who are connected to network through powerful computers. The idea of having powerful computers is to be able to solve algorithmic riddles. Upon solving these complex riddles, the person who successfully does that is rewarded with a specific unit of that cryptocurrency. The mining of cryptos relies on proof of stake or proof of work consensus. In the proof of work consensus, the party that does more work gets the reward. On the other hand, with the proof of stake model, the party that has the highest stakes in the transaction has a higher chance of being rewarded.
The Decentralized Nature of Cryptocurrencies
One of the most important things you have to know about cryptocurrencies is that they are decentralized. Ido Fishman says, “People pay less attention to this idea than they should. If they could understand the value of decentralization, they would never think about any centralized currencies.” So, when it comes to physical currencies, it’s your bank and government that print and validate these currencies. When you spend this currency, they always have a record of your transactions. In addition to that, to be able to use your currency digitally, you have to store it in bank accounts.
On the other hand, when you have a cryptocurrency, you store it on your personal crypto wallet. You keep record of all of your transactions and there is no third party to keep the record. Furthermore, the record of transactions on a blockchain network, which is the technology at the foundation of cryptocurrencies, is available to everyone connected to that network. In other words, there is no single party that can control cryptocurrencies or their movement from one person to another.
Bitcoin is the most famous cruyptocurrency and has been around for the longest time. It is the first digital currency and it was launched by Satoshi Nakamoto. Whether Satoshi is a man or woman, a person or an organization is not known to this day. The next big cryptocurrency is Ethereum, which is always head to head with Bitcoin. Ethereum is not just a cryptocurrency but also a platform on which several cryptocurrencies and blockchain solutions are created. Other famous cryptocurrencies include but are not limited to EOS, Stellar, Ripple, Litecoin, Dogecoin, etc.
Keep visiting our website to learn valuable insights from Ido Fishman about all of these cryptocurrencies.