There is no doubt that the era of information and communication technologies has created many golden opportunities in several aspects. One of the fields that benefit from these technologies and online connections is the financial and business sector. A growing number of online users has activated virtual world concepts and created a new business phenomenon. Thus, new types of trading, transactions, and currencies have been arising. One of the remarkable financial forms that have emerged in the past few years is Cryptocurrency
What exactly are Crypto Currencies!?
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. This decentralization of power is only possible due to blockchain technology, which is used by most cryptocurrencies to make a decentralized network to carry out transactions.
How do cryptocurrencies work?
Suppose you write a Word document in Google Docs that you want to share with someone. The document is just a piece of text data that you generate using a client application, say a word processor on your computer or a phone. Once you write it and upload it, it goes into a centralized server, like Google’s file server, which receives it and processes it by converting it into a file format that’s compatible with the database. When this processing is done, the data is then stored in the database, using some particular format, like SQL or Hadoop, which uses particular file types designed to facilitate fast searching and fast data retrieval. Then from the Google server, it goes to the device of the person you have shared the document with.
A blockchain does a very similar thing using a different process.
Let’s understand the blockchain process taking the google document as an example. To send cryptocurrency to someone else we first need to upload the cryptocurrency on the blockchain, the cryptocurrency is essentially data, which is very similar to the text we typed in the Google doc. Instead of using Google Docs, we use a cryptocurrency client, an app that generates the cryptocurrency, as a Bitcoin wallet.
The main difference between the Google server and the blockchain is that, instead of uploading the data on the Google server, it is broadcasted onto an entire peer-to-peer network of computers. These computers collectively take on the role of the single database server. The data, cryptocurrency, then travels through this network, using the consensus algorithm, and once processed the cryptocurrency will reach the receiver.
The entire process of transferring cryptocurrencies appears complicated, but it is really not, it is as easy as sharing a google document! It ensures that there are no problems in the transferring of the currencies while maintaining anonymity and protection.
First came gold, then came cash, then came the revolutionary credit cards, now it’s time for cryptocurrencies- the future of finance.
