Today there is talk of virtual currency or cryptocurrency around the world. But in spite of being a global phenomenon, it is still widely misunderstood and thought to be geeky since the whole process is a bit complex with technicalities involved.
Definition of cryptocurrency simplified
Simply speaking, cryptocurrency is a set of limited entries made to a database which remains unaltered unless specific conditions are met to alter it. This sounds very similar to the definition of money which is all about making verified entries in a database including transactions, balances and accounts. Thus cryptocurrency is also known as digital cash or virtual cash since it:
- Is not redeemable and thus has no intrinsic value attached to it,
- Does not have a physical form with its existence being limited to the network only and
- Its supply is not controlled by any central bank thereby making its system completely decentralised.
How does it work
The working of cryptocurrency is quite simple since it is a virtual medium of exchange created by and also electronically stored in a blockchain. Encryption techniques are used to control the creation of this medium of exchange and also to verify its movement. Bitcoin is one of the best examples of cryptocurrency available as shown by this site.
The whole process that follows a single cryptocurrency transaction after it has been initiated involves:
- Broadcast of the transaction initiation to the relevant P2P network with the help of computers serving as nodes,
- Validation of both the transaction and the status of the user using special algorithms designed for this purpose,
- After the transaction has been verified, it is used to create a new data block in association with other verified transactions and
- This new block is then added permanently to an existing blockchain using a process that is unalterable in any way thereby completing the transaction.
Importance of cryptocurrency
The importance of cryptocurrency lies in the fact that it is:
- An irreversible process which cannot be forged,
- Pseudomonas since it cannot be connect to real time entities in any way,
- An extremely fast global process with a high level of security and
- Its use is permissionless.
All set to change the way virtual money is perceived globally, cryptocurrency has the potential to open up a whole new way of trading that is easy, smooth and almost hassle-free.
