Many consider cryptocurrency to be the currency of the future but what it actually is? Let us dig deeper and find out more about cryptocurrencies as well as why everyone is talking about it.
Is hype about cryptocurrency justified? Let us find out
Common people are still not very clear about what cryptocurrency actually is but after going through the details we will share here, you will be able to develop a clear idea about it. Few of the things we will look into would include:
- Insight into how cryptocurrencies originated
- Why it is necessary to know more about cryptocurrencies?
- What are the detail one should be aware of about cryptocurrencies?
Insight into How Cryptocurrencies Originated
Cryptocurrencies surfaced in the form of side product for some other invention. Bitcoin’s (still the leading cryptocurrency) inventor, Satoshi Nakamoto never planned to create a new currency. Way back in 2008 he had made an announcement that he created Bitcoin to function as P2P (Peer to Peer) electronic cash system.
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The importance of this invention stems from the fact that it worked as a method that can be used for building a cash system which remains fully decentralized.
“I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party…” – Satoshi Nakamoto
Problems with Payment Networks
To implement a digital cash system what is required is a payment network that consists of accounts, transactions and balances. However, most payment networks face a common problem which relates to prevention of double spending.
Double spending refers to a situation where same amount is spent twice by a single entity. Normally, payment networks make use of a central server for keeping record of the balances so that problem of double spending can be avoided.
Is hype about cryptocurrency justified? How decentralized networks are different?
In case of decentralized networks, there is no server for keeping record of balances and as such, all the entities that are part of the network have to carry out this task.
Accordingly, all the peers who are part of the network should have access to a list that shows details of transactions that are to be checked to ensure that future transactions remain valid and there is no attempt to create double spending.
Upon reading this, it is highly likely that one question will come up in your mind, how these peer entities will be able to reach a consensus regarding these records? If peers who are part of the network disagree about a transaction then there will not be any absolute consensus and a transaction cannot complete.
So, how every can reach to a consensus when there is no central authority to decide about the same? Well, Satoshi solved this riddle by introducing the concept of cryptocurrencies.