What are cryptocurrencies

Cryptocurrencies are virtual or digital currencies which are used as mediums of exchange in buying of goods and services. The earliest known electronic method of payment was Digicash invented by David Chaum who was an American cryptographer who migrated to Amsterdam. At some point he was offered $180 million by Microsoft to put his invention on every Windows PC but he complained that the money was not enough, the deal never materialised and DigiCash became bankrupt.

Cryptocurrencies are created using Blockchain technology. So what is Blockchain technology? It is a decentralised, digitised public ledger for all cryptocurrency transactions. All completed blocks (recent transactions) are recorded and added into the blockchain in chronological order which allows all participants to keep track of the digital currency transactions with no central record keeping authority.

Blockchain which uses distibuted ledger technology (DLT) was originally developed as an accounting method for the virtual currency Bitcoin. A block is a current part of a blockchain which records some or all recent transactions. When a new transaction, block or edit to an existing transaction comes into the blockchain a majority of the nodes within a blockchain must execute algorithms to evaluate and verify the history of the individual block that is being proposed. If there is consesus among the majority of the nodes that the history and signature is valid, the new block of transaction/s is accepted into the ledger and a new block is added to the chain of transactions. When completed the block goes into the blockchain as a permanent database.

If a majority invalidates the addition or modification of the ledger entry, it is rejected and not added to the chain. This distributed independent consensus model is what allows blockchain to run as a distributed ledger without the need for central authority confirming what transactions are valid and which ones are not. Because of crytographic hashing which creates a unique code, each block is tied to the next block or page creating a chain of blocks. The blockchain has information about all the different user balances and their addresses starting from the very first block to the most recntly completed block.

Blockchain is designed in such a way that transactions cannot be deleted. Blocks are added through cryptography which ensures that they are meddle proof. Blockchain data can be distributed but cannot be copied.

 

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