Cryptocurrency stands for ‘cryptographic currency’, or encrypted money. While everyone knows the euros and dollars as the official currency, there is a development going on on the internet to make the disadvantages of traditional money disappear. You are undoubtedly familiar with the most famous cryptocurrency, which is Bitcoin .
What is the idea behind Cryptocurrency?
To explain how cryptocurrency works, it is important to understand the technology behind cryptocurrency to a certain extent. The innovative thing about cryptocurrencies such as Bitcoin is that it is a completely decentralized currency. This means that there is no central body that manages or issues the Bitcoins. With traditional money such as the Euro, there are always trusted parties that act as intermediaries, namely banks.
How do you pay with Cryptocurrency?
If you transfer money from yourself to someone else, normally your money always goes through the bank first. With cryptocurrency, however, this works in a different way. With cryptocurrency you can transfer money directly (in the form of Bitcoin or Ethereum, for example) to another person without the intervention of a third party.
Because there is no third party in between, cryptos have a number of important advantages, namely:
- Transactions can take place much faster and cheaper than in the past.
- There is no process loss due to interference from banks.
- It doesn’t matter where in the world the person is, everything moves at the same speed.
- Cryptocurrency is completely fraud proof.
What is ‘Blockchain’ the Tech Behind Crypto?
Every cryptocurrency works via a so-called blockchain. This blockchain can be seen as a database in which all transactions made are stored. However, this is not a central database that is only in one place. This database is continuously copied and updated across all users. So there is not just one database, but there are millions of databases that all contain the same data. This makes cryptocurrency fraud-proof. This is because as a hacker you cannot sabotage things in this way.
Suppose you, as a hacker, would (try to) change a transaction in such a database, then this has only been modified in one place. But because there are millions of other copies of the blockchain database in circulation and they are synchronized with each other, this adjustment is not going through. By combining this principle with mathematical cryptographic ( where the name cryptocurrency comes from ) encryption, fraud has become virtually impossible.