What is Cryptocurrency and
How Does It Work
Definition, transaction processing,
and factors affecting
The
term cryptocurrency is increasingly being discussed by various virtual types
such as Bitcoin is getting a lot of interest as an investment because of its
fluctuating value. This article will cover the basic concepts, how the system
works, the facts with the system, and what can be used as a nuisance in the
financial business arrangement.
Definition of cryptocurrency
Cryptocurrency
is a digital asset designed as a medium of exchange or transaction, or more
easily we can call it as a digital currency. Cryptocurrency itself is now being
used by many people, especially for those who like to make extra money through
the internet. Some countries such as Japan, Australia, Singapore, Italy, the
United Kingdom and the United States have legalized the use of one of the most
famous cryptocurrencies of Bitcoin, but it is not legal to mean that Bitcoin
can be used for payment in that country. Existing but his government does not
forbid to search and use Bitcoin to transact on the Internet. Cryptocurrency
itself has many types such as Bitcoin, Dogecoin, Litecoin and many others whose
total reach hundreds.
Etymologically,
cryptocurrency is composed of two words, namely crypto that corrects on
cryptography or coding language in the world of computers and currency that
interfere with the value of the currency. It can be said that cryptocurrency is
a virtual currency that can be used virtually (over the internet) protected by
a complex coding computer. So
what's different with the currency that is currently used, such as currency,
which will also be used for digital? Cryptocurrency has decentralized nature,
while the transaction model that has been used in the community is centralized. For the next Information about Cryptocurrency you can open this link http://coininfo.news/a-guide-for-beginners-in-cryptocurrency-part-i/
Here's an explanation of the
two-dimensional price in a case study.
The
centralized nature is exemplified in the current model used by society. For
example, in this case, people who want to make transactions using banking
services (ATM, Mobile Banking, or directly to related banks). These payments
are made through trusted banks and services.
So
the process of money coming into the bank first, then forwarded to the
recipient. The process is not real time. However, it is quite appropriate
because through the process, then there is an answer that must be issued,
namely the administrative costs, either issued immediately (if different bank
account) or in administrative fees charged every month.
Illustration of a decentralized
process of financial transactions
While the decentralized nature
means that no one is a mediator or a special party who became intermediaries.
The transaction is done in a peer-to-peer manner from the sender to the
recipient. All transactions are recorded on computers located on the network,
worldwide, or called miners (miners who help secure and record transactions on
the network). Miner itself will earn commissions with virtual money used, but
not everyone can be a miner, because it takes special expertise with
complicated computational processing to solve cryptography used. This is one
reason why cryptocurrency miners generally use high-specific and specialized
computers.
Illustration of a decentralized
process of financial transactions
The nature of this
decentralization is the DNA of the Blockchain system. Basically Blockchain
becomes a platform that allows digital currency cryptocurrency can be used to
transact.
Identify Blockchain
Blockchain is a system of
recording or database that is widespread on the internet, often referred to as
distributed ledger. Every recorded transaction is also visible to all internet
users. So Blockhain can also be defined as a ledger that can be accessed by
anyone, including people who do not make transactions. Blockchain also has
several characteristics in transactions and records, namely as follows:
1. Have a more logical
calculation
Basically Blockhain is something
that can be calculated mathematically, because the blocks contained in it in
the form of code that can be translated and verified developers. The algorithm
in it makes its value can be more measurable, in contrast to the currency that
is used today. For example USD, its value is usually controlled by the Central
Bank in the United States. They are free to print how many are in a given
period, including interest rate implications.
In contrast to cryptocurrency,
because it is based on structured mathematical calculations, even the amount of
currency distribution can be predicted. So that everyone can know, three more
years there will be how much digital money there is in the world. Even the
inflation value can be well calculated. One picture of its growth can be
accessed in the following graph:
Projected amount and Bitcoin
inflation
2. Have a qualified security
The benefit of Blockchain's
decentralized nature is that there is no data centered in one place. All spread
to miner servers, aka the miners who helped to secure the Blockchain network.
To become a miner they must accurately solve the existing calculation
algorithm, thus creating a new block (with commission in the form of nominal
digital money). Because the information is spread, if there are hackers who try
to break into any system they should be able to control at least 50% of miner
computers in the network.
Cryptocurrency that exists today
There are several types of
cryptocurrencies that are currently widely used, such as Bitcoin, Ethereum,
Litecoin, Monero, or Ripple. Bitcoin became the first digitally launched money,
and is now the most valuable. One of its uniqueness, Bitcoin is only created up
to 21 million coins (predicted to be mined by the year 2140), this is an inviolable
protocol because it has been an agreement from the beginning.
The existence of a definite
boundary distribution, making Bitcoin can not be faked or experienced
inflation. Bitcoin is also a new beginning of financial transformation. With
Bitcoin allowing people to transact globally with computing devices, without
the need for intermediaries like banks or other services.
Which is currently no less
popular is Ethereum, created Vitalik Buterin in 2015. The concept is almost the
same as Bitcoin, because both are built on Blockchain network. Here the miners
work to get Ether, the cryptocurrency currency that helps run the Ethereum
network. For the concept of decentralized
transactions, Ethereum can utilize the Decentralized Autonomous Organization, a
transaction management body that is run entirely by programming codes and smart
contracts with no central authority and control. No third party can change the
data that has been stored into the Blockchain network.
In addition to the two types of
coins above, there are still many alternative coins with their respective
characteristics. According to Coinmarketcap.com, there are now over 1560 types
of cryptocurrency-based digital currencies spread across the world.
That affects the value of
cryptocurrency
Currency cryptocurrency
fluctuations in value are based on several conditions, one of which is due to
availability / scarcity. But sometimes the value also increases or decreases
because of trust and usage in the community of its users. In general, the rise
and fall of cryptocurrency value is influenced by market mechanism.
Bitcoin exchange rate
fluctuations in the past year
Unfortunately the cryptocurrency
market has a high volatility or rate of change, so it is very volatile. If many
people want the currency and its value is not too much, then its value will
also increase. Other factors sometimes affect. WannaCry attacks some time ago
indirectly helped increase the fluctuation of values, because it forces users
to make payments through cryptocurrency.
Transaction mechanism
The basic concept in each
cryptocurrency transaction, the entire network will record the running history,
including the amount of transactions and balances held. For example, a person
has successfully transacted and confirmed by the recipient, then the entire
network connected to the Blockchain will immediately know the information that
contains an explanation that there has been a certain number of transactions
and has been digitally signed by providing a private key into the system.
Confirmation of the receiver
becomes very crucial of a cryptocurrency transaction. The confirmed transaction
is stored in a container called Blocks. The transaction records are permanent,
irreversible, hijacked, or falsified and form part of a chain block or Blockchain.
The permanent property that makes the cryptocurrency of the transactions
immutable alias can not be canceled when it is sent.