What is a currency and What is Cryptocurrency?

It is basically anything that wins the trust of the masses and is accepted by everyone as the medium of exchange. More than the government or any other regulatory authority, it is the trust of the people that gives validity to a currency. Let's say one day 50 percent of the Indian population starts transacting using old notes that are no longer in circulation. Then the outcome would be an economy of believers within an economy of non-believers. The world of cryptocurrencies works on this very characteristic of trust of the masses in its system.

Bitcoins, the most widely used cryptocurrency of the world first came up in 2009 and was started by a mysterious personality under the name Satoshi Nakamoto. It is believed that Bitcoins were bred out of the dissatisfaction of the people after the famous sub-prime crisis in the US in the year 2008. At this point in time, the default rate of subprime borrowers was at the highest point due to which the US banks were on the brink of bankruptcy. In order to save them, the US government financed their losses which led to the devaluation of the US dollar and the ultimate result was dissatisfaction among the people. This was the time when the existing technology of blockchain was used with the highest efficiency and Bitcoins were invented.

Photo by Andre Francois / Unsplash

Now, what is blockchain?

It is a technology powering cryptocurrencies. Blockchain was something in existence well before Bitcoins but was suffering from the problem of double spending which was ultimately solved by Bitcoins. So coming back to what is a blockchain, it is a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly. In layman's language blockchain is a network of numerous computers where same data is stored on all such computers and the data present on 51 percent computers is considered correct.

What is mining of cryptocurrencies?

The structure of blockchain is like that of sheets of papers attached through strings. On each paper or rather block data is entered and that data is accessible by the use of a public key and a private key. It is estimated that every 10 minutes a new block is added to the blockchain. To add a new block to the blockchain a person needs to solve a mathematical problem the solution of which depends on the data in the previous block and this involves a lot of computing power. This process of adding blocks is called mining of cryptocurrencies.

Also, blockchain ensures safety as when data in any block is scrambled then their arises an error in the subsequent blocks which ensures detection of the variation in a block. Now we would be talking about two most widely used cryptocurrencies in specific which are bitcoins and ethereum. Bitcoins were the first cryptocurrency that solved the problem of double spending. The solution provided was that the longer blockchain has to be considered correct and the data of shorter branch be adjusted in the subsequent longer branch. This made bitcoin as the most trusted and popular cryptocurrency in no time.

What is Ethereum?

Most of us must have thought about the total number of bitcoins available in the world. To be precise the number is 21 million. Coming to ethereum which is both similar and difficult from bitcoins, let's create a background in which ethereum can be understood. What is the traditional way of entering into contracts- you require a legal body like a court to witness the agreement of both the parties to enter into a contract. But ethereum is an ecosystem that allows people to make smart contracts. Smart contracts are the ones that use blockchain for storing the particulars of contracts between two parties. Any computer that helps in the execution of a contract is awarded ethers for the same.

Also, as a matter of fact, ethereum is considered a much longer serving cryptocurrency as compared to bitcoins. In the world of cryptocurrencies, trading in these has been made much simpler by the emergence of cryptocurrency exchanges and cryptocurrency wallets. Just like a stock exchange where shares are traded, cryptocurrency exchange is a platform where cryptocurrencies are traded.

Cryptocurrency wallet is an account where all public keys and private keys are entered and record of all holdings of a person is maintained. Currently, blockchain.io is the most widely used cryptocurrency wallet in the world.

Conclusion: Many digital currencies will come and go but not everything will stay in the market for long. Investment depends on you, choose wisely on which tech you want to spend, at what time you should buy and at what time you should sell. These things are game of time.