A question that is often asked by many internet users is the what is the meaning of cryptocurrency and its use. Although several authors have defined cryptocurrency in diverse ways, for the ease of understanding, we will make it clear for you in simple terms.
Cryptocurrency is a digital currency or currency in which difficult techniques are initiated in it to regulate the creation of units of currency and validate the fund’s transfer at the same time operating independently as a centralized bank.
Cryptocurrency or digital currency can further be referred to as a digital asset that is used as a means of transaction or exchange involving the use of cryptography to control the creation of added units and as well validates the transactions with absolute security.
Unlike traditional banking system that is centralized, cryptocurrency is highly decentralized. The ledger of the cryptocurrency is called a blockchain which is a decentralized transaction database.
Cryptocurrency is independent of the banking system or government control, and its means of transaction or exchange can be carried out only via the internet.
Therefore, in order for you to fully appreciate cryptocurrencies, you will have to become familiar with some of the modern digital currencies in circulation at the moment. This takes us to the first cryptocurrency that was invented; that is the Bitcoin.
Bitcoin was invented by a renowned mathematician and scientist known as Satoshi Nakamoto in 2009. Over the years, other currencies have evolved. In April 2011, Namecoin was created; this was soon followed by the creation of Litecoin in October 2011.
The different government of the world has declared an interest in cryptocurrency and its impact on its economy. This has increased the level of awareness and publicity that cryptocurrency has in the world’s circle.
In February of 2018, the Swiss government has decried the impact of Cryptocurrency mining on its power generation industry. Although this is a public outcry, it makes it quite obvious that cryptocurrency has become a topical issue in the world’s scene.
Recently the Russian government has indicated interest in launching its own cryptocurrency. In no time we will be exposed to the Russian government cryptocurrency, this will be a welcome development in the virtual currency world as regulations governing the use of Cryptocurrencies will be relaxed, and more patronage will be made to the transactions with the nascent digital currency.
We will not be able to exhaust cryptocurrency if major keywords like Cryptocurrency wallet and cryptocurrency exchange is not mentioned.
For every business transaction carried out, there must be an exchange; the use of wallets allows this exchange to be carried out with utmost ease and at a reasonable and reliable level of security. Without security, no cryptocurrency can last a minute nor can it attract the patronage of the public.
Therefore; in the subsequent section, we will look critically at the concept of wallet as it applies to cryptocurrency and will equally go through the necessary facts concerning cryptocurrency exchange.
What is Cryptocurrency Wallet?
Just as a bank cannot operate without people having bank accounts, the same thing goes with a cryptocurrency. A cryptocurrency itself is not a wallet rather a cryptocurrency wallet keeps or stores the private keys used to receive or send cryptocurrency. Every piece of cryptocurrency has a private key which determines the address and credentials of the transaction.
When a wallet is in use, security is among the most important facts to consider. Therefore it is necessary to avoid wallets that are prone to attacks and other vulnerabilities.
Cryptocurrencies cannot be received if there is no access to the receiving wallet, whereas the sender has to know just the recipient address.
However, before a wallet can be put to use, there must be access to it, without which the existing cryptocurrency dormant in the wallet would be lost.
These wallets can come in various forms. The most popular are the applications which could be installed on phone, tablet or PC and the web version.
The web wallet allows the private keys to be managed and secured by a third party. This will make it a little difficult for a hacker to gain access to the wallet and steal the currency. In the case of Bitcoin, each transaction is verified in a matter of minutes in the Blockchain.
The most important of the wallets is the blockchain which is widely used by Bitcoin. Before you use the blockchain, you must first create an account with Blockchain.info where you will be given a unique identification. The web blockchain can be synchronized with the mobile version by a QR scan which will automatically transfer the information stored in the web wallet to your mobile app.
The wallet allows for ease of sending and receiving of cryptocurrencies, without which there cannot be a transaction.
Other wallets which are equally used in the storage, receiving and sending of funds include the brain wallet, hardware wallet, watch wallet, etc.
What is Cryptocurrency exchange?
Cryptocurrency exchanges are merchants whose services are to allow customers or clients trade their cryptocurrencies for assets or services. They also allow customers trade cryptocurrencies for physical currency or with other cryptocurrencies.
You might begin to wonder how these people make their profits; the truth is that they charge sizable fees for the services they render.
When the question of where to buy cryptocurrency crops up, the best answer one gets is to visit the exchangers. They usually accept payments in traditional currency with an exchange with digital currency as may be required by the customer. This exchange is carried out electronically and cannot be achieved without a connection to the internet.
The mode of operation of these exchanges is usually independent of the creators of the digital currencies, but the exchangers’ help by serving as a channel through which the currency is circulated, and its usefulness attained.
In some countries of the world with strict regulation governing the operation of the digital currency exchange, licenses must be granted by the country’s regulatory body before it is allowed to operate.
Trading and exchanging with cryptocurrency has become a lucrative business over the years whereby individuals can obtain the currency from the exchangers in bulk and then sell it off in bits to clients. This is carried out with relative ease provided honesty is exhibited between the parties involved.
Bitcoin happened to be the highest in terms of utility and transactions. Exchangers are readily available in the sale of bitcoins compared to other cryptocurrencies.
Survey has shown that some exchanges do not accept fiat money as well as other cryptocurrencies apart from Bitcoin.
Each of this exchanger has its own method of fee charges. Some do charge the percentage of transaction carried out while some keep a fixed amount of charge per transaction.
The level of success recorded is usually a factor of the encryption employed by the designers of the exchanger protocol. The communication channel must be ensured to be secure and appropriate cryptography must be introduced to check third party intrusion. Cryptography to a degree is the same thing as encryption, although it is deeper than that as relative to cryptocurrency which we will examine in due course.
Most outstandingly, cryptography involves constructing and examining protocols that will ensure that there is no third party interference in the transaction. This is excitingly instituted through the use of cryptographic hash functions.
What is HASH?
A Hash is a code or function usually used to integrate or gather diverse or ambiguous data into a fixed size. The functions of HASH are employed in the computer world to accelerate the data lookup in large files. The Hash ensures that duplicated errors are fetched and detected in files.
Hash functions are more often than not applied with ciphers as well as codes that correct errors which is much useful in cryptography. As a beginner in the subject of cryptocurrency, it is pertinent to know that the Hash function enables investors to determine with an ease that some inputs match with the Hash value, and at any point in time the input data is uncertain; it becomes increasingly difficult to recreate by knowing the value of the HASH. Validating transmitted data is part of its usage and for building blocks which in turn assist in message authentication. A hash value can be used to identify and single out secret information.
How does Hash directly affect Cryptocurrency?
Hash uniquely transforms strings of long characters into fixed short lengths that represent the original data or string. Identification of data using the short strings is easier than those with long strings. Thus hashing plays a major role in cryptocurrency mining. The hashing algorithm is what is referred to as the hash function.
Hashing is more often than not applied to decrypt and encrypt signatures that are in digital forms when sending and receiving messages. Those signatures are changed with the aid of both hash value and function with a view to transmitting them separately to whoever is receiving it.
What are cryptography hash functions?
These are special classes of hash functions which are suitable for use in cryptography. It is a mathematical algorithm that maps data of complex size into short bits called hash and is designed in order for it to function in only one way. More often than not, it is pretty tedious to re-establish input data that is inherent at the output hash, although this can be attempted by using some level of force with a view to searching the possible input that will match. Another solution is to apply rainbow table to see whether it will match. The input data can also be referred to as a message while the output is referred to as a digested message. There are several benefits of cryptographic hash which includes various types of authentication, electronic signatures, and authentication codes involving messages, among others
Some outstanding applications of cryptographic hash functions are: verifying the authenticity of files or message, proof of work, password verification, file or data identifier and key derivation.
Here is a good 60 second explanation from a scholar at the American Enterprise Institute, simple for a first quick lesson: