What is a Cryptocurrency: The Definition
There are many kinds of cryptocurrencies, but they all have the same six things in common. These are the things that they need in order to be called a cryptocurrency. Get ready for some big words!
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Cryptocurrencies are:
Digital: Cryptocurrency is digital money (or digital currency, it means the same thing). This means that it only exists in computers. Cryptocurrencies don’t have coins with a picture of a Queen’s head on them, or paper notes with ‘In God We Trust’ written on them, either.
Peer-to-Peer: Cryptocurrencies are passed from person to person online.
Global: There isn’t one cryptocurrency for Spain and another for China, for example. A cryptocurrency is the same in every country. They can be used freely between countries and across borders.
Encrypted: There are no rules about who can use cryptocurrency, and what they can use it for. Real names aren’t used for accounts. Each user is given codes instead. This is where we get the crypto part of the cryptocurrency definition. Crypto is Latin for "hidden". So, cryptocurrency translates as hidden money.
Decentralized: In the cryptocurrency world, there are no banks. Everyone is in charge of their own money, it isn’t kept in a bank. A bank is a center where lots of people keep their money. Cryptocurrencies are not managed by a central server, that’s why we say they are decentralized.
Not trust-demanding: The way cryptocurrencies are built means that you don’t have to trust anyone in the system in order for it to work.
It’s a very strange idea, isn’t it? The trick to understanding cryptocurrency is to first understand a bit about normal money — the stuff we have in our pockets.
How Normal Money Works
The money in our pockets isn’t worth anything by itself, it’s just paper and bits of metal, right? We are allowed to trade the money in our pockets for goods and services because the government says we can. This is called fiat money. US dollars, British pounds and Chinese yuan are all fiat currencies.
We know that when we go to the grocery store, we can trade the fiat money in our pockets for food. We know this because we trust what the government tells us.
When we have more fiat money than we can keep in our pockets, we open a bank account. To open a bank account, we must give the bank our personal information. When our money is in the bank, we can’t see it, but we know it’s there. So basically, we trust the bank.
What is a cryptocurrency: a man placing coins into a jar.
Banks are an example of what we would call a trusted third-party system. Banks and governments are third-party companies that we trust. To make it clearer, let’s see an example.
Peter is hungry, and Paul wants his fence painted. Paul goes to the bank and takes out $10. Paul then pays Peter $10 to paint his fence. Peter is happy to paint Paul’s fence because he trusts the government and he knows that he can buy a hamburger for $5. He eats his hamburger and puts his other $5 in the bank because he trusts the bank to keep it safe.
The transaction above is only between Peter and Paul, but it needs them both to trust a third party for it to work.
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How Does cryptocurrency do Things Differently?
Cryptocurrencies don’t need banks and governments. Users can send each other money online, without needing to trust each other or any third parties with their money or information.
Cryptocurrencies do this by recording every transaction (like the one above between Peter and Paul) on a shared database called a blockchain. This blockchain is shared across thousands of powerful computer systems called nodes.
Each new transaction is verified by a node. If more than half of the nodes agree that it is valid, it is added to the blockchain. Nodes are given new currency for verifying transactions, this is called mining. Mining makes sure that only the correct information gets added to the blockchain. Once transactions are added to it, they can’t be changed or deleted.
What is a cryptocurrency: Dogecoin cryptocurrency logo.
You don’t have to give your name, address, or date of birth when you use cryptocurrency. Your account has a public key and a private key. Think of it as being like your email account. Your public key is like your username and your private key is like your password. You need both to access your account.
Users are hidden, but transactions aren’t. Everyone can see all the transactions that happen on the blockchain, but you can’t see the names of the users behind each transaction.
Cryptocurrency for Newbies
Now, if a newbie (and we all know one!) asks you, “what is a cryptocurrency?”, tell them that it’s digital money that you can send to anyone on the planet without using a bank. They don’t need to provide any personal information to make a transaction, and transactions take place on a network they can trust.
The newbie might also want to know how cryptocurrencies got started. Not a problem! Keep reading and you’ll be able to answer that question, too!
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ASIC ComputersOne limitation to the Lightning Network is that it requires a person to be online in order for him to receive transactions attributing towards him. Another limitation in user experience could be that one needs to lock up some funds every time he wishes to open a payment channel, and is only able to use that fund within the channel.However, this does not mean he needs to create new channels every time he wishes to transact with a different person on the Lightning Network. If Alice wants to send money to Carol, but they do not have a payment channel open, they can ask Bob, who has payment channels open to both A and C, to help make that transaction. Alice will be able to send funds to Bob, and Bob to Carol. Hence, the number of 'payment hubs' (i.e., Bob in the previous example) correlates with both the convenience and the usability of the Lightning Network for real-world applications.As part of the consensus mechanism, certain nodes (referred to as miners) perform bitcoin’s proof of work function to add new bitcoin blocks to the blockchain. This function validates the complete history of transactions and clears pending transactions. The process of mining is ultimately what anchors bitcoin security in the physical world. In order to solve blocks, miners must perform trillions of cryptographic computations, which require expending significant energy resources. Once a block is solved, it is proposed to the rest of the network for validation. All nodes (including other miners) verify whether a block is valid based on a common set of network consensus rules discussed previously. If any transaction in the block is invalid, the entire block is invalid. Separately, if a proposed block does not build on the latest valid block (i.e. the longest version of the block chain), the block is also invalid.zona bitcoin взлом bitcoin server bitcoin No bitcoin mining equipment to sell when bitcoin mining is no longer profitablebitcoin usb виталик ethereum бот bitcoin vip bitcoin bitcoin экспресс bitcoin kz ethereum упал buying bitcoin bitcoin история bitcoin indonesia
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