iPaulina

It does not glitter, nor can you hold or feel it, and it can be quite risky. However, it is also fascinating: our own evolution from the gross to the sophisticated is paralleled by currency’s evolution from gold and metal to invisible and digital.

Cryptocurrency is a form of virtual currency that uses cryptography to aid secure financial transactions. Cryptocurrencies are special because, unlike typical currencies, they are not overseen by governments or any authorities. Instead, they run on their own individual programs, called distributed ledgers (digital systems for recording transactions wherein all transaction information is recorded). These are based on what is known as blockchain technology. Blockchain technology keeps a record of all transactions made; whenever a new one is made, a block is added on. It is stored across tens of thousands of computers, making it a secure and almost impenetrable database. There are numerous cryptocurrencies around the world, but the most popular ones include Bitcoin, Ethereum, and Tether. However, these cryptocurrencies are limited: for example, there is only a certain number of Bitcoins that exist (21 million), and so far, over 18 million have been discovered. Scientists believe that all Bitcoins will be completely mined by the year 2041.

How do cryptocurrencies work? 

Cryptocurrencies are transacted through specialised storage spaces called wallets. All transactions, which are completed and verified by network participants, are added to a block in the blockchain. Blocks are mined, meaning that new units are created by using advanced computers to solve extremely complicated math problems. People control the computers, and, if they successfully mine and add blocks, they are rewarded with bitcoins. Soon after, the digital money is sent through a decentralised network and obtained via the recipient’s wallet. In simple terms, a decentralised network is when pieces of information, power, or control are stored in various nodes that work together, instead of keeping it in a single database. Advantages of decentralised networks include that if a device or network fails, there are multiple others to keep the system going. Moreover, decentralised networks are not controlled by anyone or administered by authorities, and they are extremely safe to use, as they have multiple pieces of information stored in various places (meaning that hackers would need a great amount of information and resources to infiltrate a system).

A blockchain functions similarly to a shared note on a device: everyone has a copy of it but must ask for permission before applying any changes, and no-one can cheat as everyone else’s notebook would be different from theirs. Now, imagine that the note is a blockchain note: something which stores a digital currency called cryptocurrency. These currencies are all used online, and every time a new transaction is made, everybody’s notes app is updated as a new entry is made (a block in the chain). This process keeps taking place until all the bitcoins/notes have maxed out. The process of mining could be thought of as the pages of the app: you need multiple pages to make multiple notes. However, the pages are designed mathematically, and you need to solve complicated equations to be allowed access to the next page.

History of cryptocurrency 

The idea of cryptocurrency was originally formed in the late twentieth century (between the 1980s and 1990s) and was theorised as a digital currency with a decentralised network. A remarkable base point for cryptocurrency was when David Chaum invented DigiCash or when Wei Dei structured the idea of ‘b-money,’ which are what we now know as cryptocurrencies. Ten years later, an anonymous person or group used the pseudonym Satoshi Nakomoto. Soon after the creation, they published a whitepaper based on Bitcoin titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System.’ In 2009, the first blockchain, called the Genesis blockchain, was mined. In 2010, Bitcoin exponentially expanded and started becoming more popular and expensive. It sharply crashed in 2021 (likely due to the recessions during Covid), but, astonishingly, it recovered and shot back up to the price of $60,000.