Bitcoin, the world’s first cryptocurrency, was created in 2008 during the peak of the global financial crisis. The invention was announced in a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” which was published by an anonymous person or group of people using the name Satoshi Nakamoto. Back then, only a small number of people paid attention to this truly revolutionary development in monetary technology.
The development of cryptography techniques and blockchain as a technology has led to the emergence of cryptocurrency as an alternative means of exchange, receiving a lot of attention through Elon Musk’s Twitter. Since its beginnings in 2009, the existence of cryptocurrencies is gaining more and more recognition all over the world. Because of the unique features it possesses, it has drawn a lot of attention.
When attempting to grasp the revolution of cryptocurrency, it’s crucial to understand the essential characteristics which make cryptocurrencies and blockchain technology so great. In this article, we’ll be telling you all you need to know about them.
Bitcoin : The Very First Cryptocurrency
Bitcoin is highly worth mentioning as we discuss the primary characteristics of cryptocurrencies as this currency served as the model for all others. Bitcoin is a decentralised and cryptographically secure digital currency which was designed to function similarly to cash in all aspects of payment processing. It is a form of decentralised digital money that acts as a means of exchange of value and may be exchanged from user to user over a peer-to-peer network. There is no need for intermediaries or a central regulating authority to make this possible.
Transactions in cryptocurrencies are verified and secured through the use of cryptography. Bitcoin is the world’s first cryptocurrency, and it was created with the intention of being the first decentralised and autonomous electronic payment system. Bitcoin mathematical proofs (proof of work), cryptography, and economic incentives (mining) in order to solve the issue of ”double spending” (which arises from the ease with which digital currencies may be duplicated and reused) in order to verify and process transactions.
Because the Bitcoin protocol is open-source, any developer is able to examine it and contribute to its development. As a result, during the past several years, people have been developing their own versions of Bitcoin, commonly known as “altcoins” or “alternative coins.”
Given Bitcoin’s present domination of the cryptocurrency industry at 45%, which is less than half of the total market, the idea that Bitcoin would one day replace all other forms of currency is becoming less probable. Despite this, Bitcoin and other cryptocurrencies use blockchain technology that is strikingly comparable, and the same four distinguishing characteristics can be found in each circumstance (in most cases).
Key Features Of Cryptocurrencies
Decentralised
Central authorities and banking institutions are the ones who govern the financial system with traditional fiat currencies. On the other hand, transactions involving Bitcoin and other cryptocurrencies can be processed and validated by a decentralised and open network which is not owned by any single entity. In each and every instance, the centralised authority in question evolves into the system’s primary point of failure, which ultimately results in the currency’s collapse.
The vast majority of cryptocurrencies operate in a decentralised manner on distributed networks of computers that are located in various parts of the world and are referred to as nodes. The nodes of the network use cryptography to verify transactions, and these verifications are then stored in a public distributed ledger known as a blockchain. Within a short amount of time, the transaction will have spread throughout the peer-to-peer network and been copied by each node. It will have reached a significant portion of the nodes in the network. Everyone on the network has a copy of the ledger, which means that we no longer need to trust a single entity, organisation, or third party. There is no need to trust when you yourself can simply verify against this ledger since you’d have a copy of it. The distributed ledger is generally referred to as the blockchain.
Despite the fact that we are still working out the specifics of how and why we should use cryptocurrencies, it is clear that they are here to stay. Simply finding a solution to the problem of centralised trust is a significant enough advance on its own to give cryptocurrencies like Bitcoin the ability to survive in the long term. This is in addition to the many other significant advantages offered by cryptocurrencies and the blockchain technology.
Web3
In the world of the internet, Web3 is often referred to as the third generation of the internet. The aim is to contribute to a reality where major businesses no longer have control over the system and instead have it function in a decentralised manner that is owned, built, and run by the users themselves.
Web3 will, in contrast to established web businesses that sell your information or otherwise profit from it, return control of data to the individual. It will present distinct possibilities. As an example, Instead of relying on centralised organisations to earn from their compositions, musical artists can share their works on decentralised platforms or on their own personal devices.
The goal of Web3 is to keep watchdogs and other agencies from dictating which services users are allowed to access and which are restricted. In order to enhance users’ levels of privacy, autonomy, and control over their data, transactions in Web3 take place directly between two or more parties.
A cryptocurrency that is connected to Web3 may offer a variety of services that were once provided by cloud providers. Some of the Best Web3 Cryptocurrencies to Follow in 2022 include Helium, Chainlink and Filecoin. These services may include compute, bandwidth, storage, identity, and hosting services.
Developers have been focusing their efforts on enhancing the scalability, security, and efficiency of both cryptocurrencies and Web3 in response to the rapid expansion of both of these technologies. Web3 is frequently mentioned in the same breath as cryptocurrencies due to the key concepts of decentralisation and equal access that they both share.
Web3 is a relatively new ecosystem that is still undergoing development. 2014 was the year that Gavin Wood came up with the term, yet many of these concepts have only just lately become a reality. Only in the past year has there been a significant rise in interest in cryptocurrencies, improvements to layer 2 scaling solutions, large trials with new forms of governance, and revolutions in digital identification.
Immutable And Irreversible
When discussing immutability in relation to blockchain and cryptocurrency, three guidelines must be followed:
- It should be extremely difficult or even impossible to alter the course of past events.
- It should be impossible for anyone other than the owner of a private key to transfer funds.
- Blockchain technology must be used to record every transaction that takes place (in order to ensure the 2 principles above)
Because of the irreversible and immutable properties of cryptocurrency, it is impossible for anyone other than the owner of the respective private key to move their digital assets, and once a transaction has been recorded on the blockchain, it cannot be changed in any way. This makes it impossible for third parties to use cryptocurrency.
Since we have already seen that the components of bitcoin which are associated with centralization and trust are removed, there is no longer a third party who we must trust to accomplish these things on our behalf. As a result, the records of the transactions are made public and cannot be altered (immutable).
The transaction ledger can be changed, but due to the cryptographic protection in place, doing so is immensely difficult.
Anonymity
Users transacting with cryptocurrency are not obliged to reveal their identities in order to engage in these financial transactions as there is no requirement for a centralised authority. When a request for a transaction is made, the decentralised network will investigate the transaction, verify it, and then record the results of its investigation on the blockchain accordingly. In order to verify the legitimacy of these trades, cryptocurrencies like Bitcoin employ a mechanism that consists of private keys and public keys. This indicates that users are able to construct anonymous digital identities and digital wallets in order to transact on the decentralised system while still being able to authenticate their transactions in a secure manner.
Limited Supply
Because central banks are able to issue and/or print an endless amount of fiat currencies, the supply of these types of currencies is virtually limitless. As part of their economic policies, central banks frequently engage in currency manipulation. This can have a significant impact on the value of a nation’s currency. Because of the inflationary effect of fiat currencies, the value of the money could gradually fall over the course of time.
On the other hand, the majority of cryptocurrencies have a restricted and pre-defined supply of the respective cryptocurrency which is written into the underlying algorithm as it is produced.
However, when dealing with cryptocurrencies, neither an individual nor a consortium has the ability to change the quantity of money or have considerable influence over it without first receiving the consent of the majority. The most prominent digital currencies either have fixed upper limits on the number of tokens that can be created or a limitless supply with fixed production criteria.
Several of the most prominent cryptocurrencies, including Bitcoin, Litecoin, and Dash, all have a fixed supply, which makes them inherently deflationary. The price of the cryptocurrency will increase in direct proportion to any rise in either the demand for it or the number of people using it.
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Source: thpttranhungdao.edu.vn/en/
