The emergence of cryptocurrency has taken over our daily transactions. Cryptocurrency is a digital asset that exists in the crypto world, and many people call it “digital gold.” But what is the real cryptocurrency? You must be thinking.
This is a digital asset designed to be used as a medium of exchange. Obviously, this is a substitute for money. However, it uses strong encryption technology to protect financial transactions, verify asset transfers and control the creation of other units. All cryptocurrencies are virtual currencies, digital currencies or alternative currencies. It must be noted that compared to centralized systems of banks and other financial institutions, all cryptocurrencies use a decentralized control system. These decentralized systems work through distributed ledger technology that serves public financial databases. Usually, the blockchain is used.
What is blockchain?
This is a growing list of records that are linked and protected with passwords. This list is called a block. Blockchain is an open, distributed ledger that can be used to record transactions between two parties in a verifiable and permanent manner. In order for a block to be used as a distributed ledger, it is managed by a peer-to-peer network that collectively abides by the protocol for validating new blocks. Once the data is recorded in any book, all other blocks cannot be changed. Therefore, the blockchain is secure in design and can be used as an example of a distributed computing system.
The history of cryptography
American cryptographer David Chaum (David Chaum) discovered an anonymous cryptographic electronic currency called ecash. This happened in 1983. In 1995, David implemented it through Digicash. Digicash is an early form of encrypted electronic payment that requires user software to withdraw banknotes from the bank. It also allows a specific encryption key to be specified before sending to the recipient. This attribute makes the government, issuing bank or any third party unable to trace the digital currency.
In the following years, after continuous efforts, Bitcoin was created in 2009. This is the first decentralized cryptocurrency, created by the pseudonym Satoshi Nakamoto. Bitcoin uses SHA-256 as its cryptographic hash function (Proof of Work Scheme). From the issuance of Bitcoin, the following cryptocurrencies were also issued.
1. Namecoin (April 2011)
2. Litecoin (October 2011)
These three coins and many other coins are called Altcoin. The term is used to refer to alternative variants of Bitcoin or other cryptocurrencies.
It must also be noted that cryptocurrencies are exchanged via the Internet. This means that their use is mainly outside the banking system and other government agencies. Cryptocurrency exchange includes cryptocurrency exchange with other assets or other digital currencies. Regular fiat currencies are examples of assets that can be traded in cryptocurrency.
These refer to a proposed mechanism through which one cryptocurrency will be able to be exchanged directly from another cryptocurrency. This means that through atomic swaps, there will be no need for a third party to participate in the exchange.