You are probably bombarded every day with news about price fluctuations for Bitcoin and other cryptocurrencies but has anyone ever bothered to explain what is a cryptocoin, exactly? If you want to become familiar with the history of cryptocurrency bear with me and let’s look into the past.
Back in 2008, a man named Satoshi Nakamoto invented Bitcoin while working on a very different project. When he announced Bitcoin he said that his creation was “A Peer-to-Peer Electronic Cash System.“ which was something that had eluded a lot of people who had been trying to develop just that.
Announcing the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority. – Satoshi Nakamoto, 09 January 2009, announcing Bitcoin on SourceForge.
After Satoshi realized that a centralized system wouldn’t work he decided to go with a decentralized approach, something like a peer-to-peer file sharing network. This small change gave birth to Bictoin as a currency.
For digital cash to work you need a payment network with accounts, balances and a track-record of transactions so someone can’t use the same amount of digital cash for two different transactions. That is a centralized system. In a decentralized system, there is no server so every entity on the network has to do the job itself. This means that every peer in the system has to have a list of transactions in order to prevent double spending.
In theory, if one entity has the wrong numbers everything fails because if every single peer doesn’t agree on every single digit there is no consensus and the system can’t work. Satoshi changed all of that with Bitcoin. Bitcoin made it possible to achieve consensus without a central authority
What is a cryptocurrency?
The definition of a cryptocurrency – limited entries in a database no one can change without fulfilling specific conditions. It may sound complicated but that is the most basic explanation that you will find. Think of a purchase with cash, you want to buy a pair of shoes but the price requires a certain amount of money. In the cash world, that would be a database entry that fulfills a specific condition – the price of the product.
How is it mined?
As we said earlier, the purpose of this network is to keep track of every transaction on the planet. If you make a payment with Bitcoin every peer in the network will know that you made a purchase and have that record stored in the database.
It takes some time for the network to confirm your transaction, but once it gets confirmed there is nothing that can reverse the process. You could say that it is the most secure payment system in the world right now. The transaction becomes a part of a blockchain and that is how a bitcoin is forged.
The job of miners in a cryptocurrency-network is to confirm transactions by solving the blockchains. The more transactions made, the bigger the blockchains and that is why miners need to upgrade their equipment every now and then. After solving a blockchain a miner is rewarded with a number of tokens or just a fraction, it depends on the value of the cryptocurrency that he is mining and the difficulty of the blockchain.
I hope that this article helped you understand how cryptocurrency works and what is a cryptocoin. Right now, you know more about cryptocurrency than 70% of people on our planet. We know that because recent studies showed that over 70% of people either have no idea what a cryptocurrency is or how it works. Feel smart yet?