What is Cryptocurrency: An Insight by Ferdyberry

👉 Crypto-Currency as a Medium of Exchange
To understand what cryptocurrencies are, it is important to reflect on the meaning of money. We value money for what it can do for us, yet we do this as automatically as we breathe.
For centuries, we have used various forms of currencies to trade and buy; currency is a medium of exchange, and usually, we refer to it as fiat money. Fiat money is simply the term we use for legal tender as declared by a government. In Latin, fiat means “it shall be.”

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However, money was not always a piece of paper with intricate designs like it is today. At one point following the evolution, it took the form of a feather, a stone and even a shell.
Money’s value depended on its appearance or condition, and at times it was merely valued because of its beauty or practicality. However, the real value was ultimately based on its availability since the item was often difficult to acquire or produce.


👉 What is a 'Cryptocurrency'?
According to investopedia, A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation



👉 Differences Between Cryptocurrencies and Fiat Money 💵
Fast-forward some centuries, and money has taken a new form. The evolution is without a doubt an interesting one, which is perhaps one of the reasons why cryptocurrencies have become popular. Bitcoin and many of its competitors are digital and decentralized currencies secured by cryptography (digital signatures) and, in some cases, are anonymous as well.
The main difference between cryptocurrencies and fiat money is a government backs fiat money. However, fiat money is not backed by any physical reserves (although it has been in the past), which it has in common with cryptocurrencies. Their value depends on the faith we place in them.
Sure, it is easier to put your trust in the government declaring a currency to be its legal tender, but why is the government backing fiat money? The central banks play a significant role since they are ultimately in control of regulating the supply of money by printing what they estimate the economy will need.They also supervise other financial institutions and act as a “bank for banks” by providing financial services to them. In short, the central banks control the money supply. In the United States, the central bank is the Federal Reserve. It was created in 1913 with the goal of alleviating financial crises and banking panics.


👉 Popularity of Cryptocurrencies After Financial Crisis
Bitcoin shares a similar story in the sense that the surge in the popularity of cryptocurrencies came after the United States’ financial crisis of 2008. The crisis caused mistrust in the banking systems and led to some banks filing for bankruptcy, which caused more discontent among many citizens. The financial crisis brought to light issues that come with storing your money through a centralized, government control system, and it helped propel the rise of cryptocurrencies.


👉 First Cryptocurrency that was created
The first cryptocurrency to capture the public imagination was Bitcoin, which was launched in 2009 by an individual or group known under the pseudonym Satoshi Nakamoto. As of September 2015, there were over 14.6 million bitcoins in circulation with a total market value of $3.4 billion. Bitcoin's success has spawned a number of competing cryptocurrencies, such as Litecoin, Namecoin and PPCoin.

So, based on a System of Mathematics
Created in 2009, Bitcoin was the first cryptocurrency ever created, and it started with a value of $0.0001. The system behind Bitcoin is based on mathematics, rather than physical elements like gold or silver, or trust in a government.
To understand the current value of cryptocurrency, we need to take a look at how it operates. We know it is decentralized since no bank or government controls it. So, who controls it, then? The answer is simple, yet complicated. Since there is no middleman, transactions occur peer-to-peer, without a third party, and no single individual controls the network. Any time a transaction occurs, it is added to the ledger, which keeps growing, and it is the blockchain that powers the system.


Cryptocurrency Benefits and Drawbacks
Cryptocurrencies make it easier to transfer funds between two parties in a transaction; these transfers are facilitated through the use of public and private keys for security purposes. These fund transfers are done with minimal processing fees, allowing users to avoid the steep fees charged by most banks and financial institutions for wire transfers.
Central to the genius of Bitcoin is the block chain it uses to store an online ledger of all the transactions that have ever been conducted using bitcoins, providing a data structure for this ledger that is exposed to a limited threat from hackers and can be copied across all computers running Bitcoin software. Many experts see this block chain as having important uses in technologies, such as online voting and crowdfunding, and major financial institutions such as JP Morgan Chase see potential in cryptocurrencies to lower transaction costs by making payment processing more efficient.


However, because cryptocurrencies are virtual and do not have a central repository, a digital cryptocurrency balance can be wiped out by a computer crash if a backup copy of the holdings does not exist. Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely.


Cryptocurrencies are not immune to the threat of hacking. In Bitcoin's short history, the company has been subject to over 40 thefts, including a few that exceeded $1 million in value. Still, many observers look at cryptocurrencies as hope that a currency can exist that preserves value, facilitates exchange, is more transportable than hard metals, and is outside the influence of central banks and governments.






  👉 Transaction Verification
Peers, or miners, verify each transaction through a series of events that involve complex mathematical equations requiring supercomputers to do the work. To send someone one unit of cryptocurrency (or a fraction of one), the system will first verify you have that amount available in your account. It will then trace that back to its origin to ensure a secure transaction and prevent double-spending.
Unlike a traditional bank, whose ledger is private, cryptocurrency ledgers are public, accessible by any computer running the software and connected to the network. It keeps a running tab of all users and their transactions (think of it as all the ledgers syncing with one another to stay up to date).
The network relies upon multiple users running the software 24/7 (the blockchain) and miners who keep it secure by performing useful services. They “mine” the coins, help keep the system running smoothly, and secure the network. “Mining” is the process of creating new bitcoins, and the miners also play a vital role in verifying the transactions. In exchange, they are rewarded for their work by receiving transaction fees (optional at the time) and, through a fixed formula, they also “mine” the new coins, or bring them into existence.