What is Cryptocurrency? A Simple Explanation

Hi!

Today cryptocurrencies have become a

global phenomenon known by most people

but understood by few in 2018

you'll have a hard time finding a major

bank accounting firm software company or

government that hasn't researched crypto

currencies or started a blockchain

project beyond the noise in the press

releases many people often fail to

understand the basic concepts so let's

walk through the whole story

what are crypto currencies Satoshi

invented Bitcoin in 2008 as a

peer-to-peer electronic cash system to

realize digital cash you need a payment

network with accounts balances and

transactions that's easy to understand

one major problem every payment network

has to solve is to prevent double

spending that is to prevent one entity

from spending the same amount twice

usually this is done by a central server

who keeps records of all the balances in

a decentralized network you don't have

this server so you need every single

entity of the network to do this job

every peer in the network needs to have

a full list with all the transactions to

check if future transactions are valid

or an attempt to double spend but how

can these entities keep it consensus

about these records if the peers on the

network disagree about one single minor

balance everything breaks they need

absolute consensus nobody knew how to

achieve this until Sato she proved it

was possible cryptocurrencies are a key

part of the solution

to illustrate this we'll look at the

transactions on the network the

transaction is a file that says Bob

gives X Bitcoin to Alice and assigned

digitally by Bob once signed the

transaction is broadcasted to the

network sent from one peer to every

other peer this is standard p2p

technology

nothing special happening here after a

specific amount of time the transaction

gets confirmed only miners can confirm

transactions this is their job in a

cryptocurrency network they take

transactions stamp them as legitimate

and spread them in the network after a

transaction is confirmed by a miner

every node has to add it to its database

it has to become part of the blockchain

for this job the miners are rewarded

with cryptocurrency for example bitcoins

anybody can be a miner they just need to

use some of their computers power to

qualify for the task every miner

competes to solve a cryptographic puzzle

after finding a solution a miner can

confirm the transaction and add it to

the blockchain as an incentive to do

this they then receive a payment from

the network in the form of a

cryptocurrency in this way a network

of independent actors are economically

incentivized to maintain the legitimacy

of the transaction history so that's the

gist of it cryptocurrencies are the key

to the complex digital cash problem that

Satoshi solved how to maintain integrity

and consensus across independent and

potentially malicious actors

cryptocurrencies are essentially the

monetary incentive offered to anyone

willing to keep the network secure