You must have often heard the word cryptocurrency. If you are a trader then this term you must be reading in every website that you consider for trading. Do you clearly understand what it implies?
In the year 2012, the US Senator, Thomas Carper said at a banking conclave that virtual currencies a la Bitcoins have very well captured the imagination of the some of the great minds, while it has been able to strike fear among the others and capably confused the heck out of the rest of them.
It is possible that a lot of people are still using the term even without fully able to understand the term and since they do not understand it really too well, they are not in a position to appreciate it either or even the role that they play in the markets.
So, let us break it down into bite-size pieces so that it is easier to understand:
Bitcoin has not only been the pioneer in the field of crypto-currencies but it has also been widely regarded as the king of all crypto-currencies. It has been the forerunner of thousands of spawns that have developed once the concept of cryptocurrency became a hit. Satoshi Nakamoto, a computer hacker still unknown in identity is the person who is attributed with the invention of the bitcoin. The irony is that he never really intended to make a currency!
In a website in 2009, Nakamoto introduced his cryptocurrency bitcoin as a peer to peer electronic cash system. In a way, it was the precursor to the digital cash era that has rung in with the millennium.
How is cryptocurrency different from the normal currency?
When normal currency is transferred it has to pass through a centralized authority like a bank or a financial institution which entails double spending while cryptocurrency can totally prevent this double spending by doing away with any server or central authority. Therefore, it is right to say that it is completely decentralized currency.
However, confirmation by the peers is crucial for the transfer:
Since the currency is a peer to peer transaction called the blockchain, every peer’s confirmation in the chain is extremely important in order that the transaction is completed and set in stone. As long as the confirmation is pending by even a single peer in the blockchain it can be forgeable and therefore not immutable. The peers who confirm the transactions are called miners. They are responsible for confirming the transaction, stamping it as legit and spread in the network.