Once upon a time, there lived a dwarf named Grumpy. He lived amongst his kin, always working hard to mine precious earth metals and minerals. Every day goes by with them singing while mining. However, at the end of each harvest, they are to surrender the fruits of their labour to the prying eyes of the Evil Wizard. Now, the Evil Wizard is cunning and ensures a detailed paper trail of all resources that come in and out. He dictates the process and audits every transaction. In the process, he was able to achieve a monopolized and centralized system that he used to his benefit. “Damn that wizard, I’m tired of his shenanigans” shouted Grumpy grumpily. He was so tired of it all and decided to find an ore on which the Evil Wizard has no chance to have a control over. So he researched day in and day out if such a valuable ore exists. He consulted and collaborated with all cohorts of magic, and magical creatures. One day, as he was mining he found a sparkly ore, one which was foretold by the seeker that only those who truly believed has access to. “This! This is our answer and we shall call it Fairy Dust!” happily announced Grumpy to his fellow dwarves. The Evil Wizard heard the news and tried his very best to halt the process however only those who believe in good magic can use the Fairy Dust. –The end.
Well, the thing about fairy tales is they are just that – tales. However, this is exactly what a man named as Satoshi Nakamoto, or at least his alias, has done successfully. He disrupted the monetization system by inventing Bitcoins, the first and still most important cryptocurrency. His goal was to invent a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority. Like the dwarf Grumpy, he wanted to challenge the system and succeeded. The single most important part of Satoshi‘s invention was that he found a way to build a decentralized digital cash system that led to the birth of cryptocurrency.
Evil wizard central authority
There is no one
Evil wizard central authority that manages the system. Instead, it relies on peer to peer networks of computers. Free of all government oversight, the cryptocurrency economy is monitored by a peer to peer internet protocol.
Computers or the modern day dwarven miners
And just like the dwarven miners, computers work tirelessly day in and day out to mine coins and confirm transactions. If the peers of the network disagree about only one single, minor balance, everything is broken. They need an absolute consensus.
Only miners can confirm transactions. This is their job in a cryptocurrency-network. They take transactions, stamp them as legal 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 become part of the blockchain.
For this job, the miners get rewarded with a token of the cryptocurrency, for example with Bitcoins. Since the miner‘s activity is the single most important part of cryptocurrency-system we should stay for a moment and take a deeper look at it.
Bitcoins can only be created if miners solve a cryptographic puzzle. Since the difficulty of this puzzle increases the amount of computer power the whole miner’s invest, there is only a specific amount of cryptocurrency token that can be created in a given amount of time. This is part of the consensus no peer in the network can break.
Decoding magic –err cryptographs to earn bitcoins
Basically, cryptocurrencies are entries about token in decentralized consensus-databases. They are called CRYPTOcurrencies because the consensus-keeping process is secured by strong cryptography. Cryptocurrencies are built on cryptography. They are not secured by people or by trust, but by math. It is more probable that an asteroid falls on your house than that a bitcoin address is compromised.
Describing the properties of cryptocurrencies we need to separate between transactional and monetary properties. While most cryptocurrencies share a common set of properties, they are not carved in stone.
Cryptocurrencies: Dawn of a new economy
Mostly due to its revolutionary properties cryptocurrencies have become a success their inventor, Satoshi Nakamoto, didn‘t dare to dream of it. While every other attempt to create a digital cash system didn‘t attract a critical mass of users, Bitcoin had something that provoked enthusiasm and fascination. Sometimes it feels more like religion than technology.
But while cryptocurrencies are more used for payment, its use as a means of speculation and a store of value dwarfs the payment aspects. Cryptocurrencies gave birth to an incredibly dynamic, fast-growing market for investors and speculators. Their daily trade volume exceeds that of major European stock exchanges.
Those who invested early and believed in the power of Bitcoins reap its reward early on but people who are still undecided if investing in bitcoin is a great idea will surely regret it in a few years. If the trend continues, the average person will not be able to afford to purchase one whole bitcoin in 2 years. As global economies inflate and markets exhibit signs of recession, the world will turn to Bitcoin as a hedge against fiat turmoil and an escape against capital controls. Bitcoin is the way out, and cryptocurrency as a whole is never going away, it’s going to grow in use and acceptance as it matures.