A Quick Overview of Cryptocurrencies
A Cryptocurrency is a currency that combines different traditional elements, such as money and trust, to operate in a completely different manner than how they function in most traditional monetary systems. Cryptocurrency is created by combining different currencies, most notably the US dollar, with each of them differing from each other. In order for a Cryptocurrency to be considered valid, a specific mathematical algorithm is used to ensure that two differing currencies will have an identical long-term value when paired. Since there is no physical money backing up these different currencies, the only thing which prevents Cryptocurrencies from being copied or stolen is the cryptography that is used to prevent such copycat crimes.
Decentralized Cryptocurrencies are based on a model called the “blockchain”. The use of the word “blockchain” in this instance refers to the central database of all transactions that occur between individual parties within the system. Most Cryptocurrency networks will allow users to add their own input to this network, which allows them to vote, create blocks, receive payments, and initiate transactions as necessary. A group of central banks can create a “consortium” of Cryptocurrency networks, or if they wish to take a more hands-on approach, they can create a central database and regulate the activities of all the cooperating Cryptocurrency users.
This brings up the question of how the new cryptocurrency units will be determined. In the past, the system defined by the value of each individual Cryptocurrency by the amount of gold or silver that was involved in the transaction. With the advent of new technologies which allow for new forms of validation, the system may decide that a new Cryptocurrency unit is created by either adding a new supply of money, or by subtracting a previous supply of money. This will likely be done by creating new units which are derived from the most recent transaction that was processed and was successfully validated.
Once the ledger has been established, it can be used for all Cryptocurrency transactions. However, the ledger will not be able to store all of the information that happens during the transaction. When you send a payment to another party, they will have access to all of the details that were sent along the transaction. They will be able to check the ledger to see if the transaction was successful. If the transaction failed, then they will have to go back through the ledger and other transactions in order to make sure that the original destination received the money that was sent.
Another feature of Cryptocurrency systems is what is called proof of stake. Proof of Stake is designed to help people who are interested in investing in digital currencies with a low risk level. When you place your money into a transaction, your money is divided up into a number of equally sized coins. All of the virtual currency holders who happen to be able to extract the coins at a given point in time will receive a portion of the amount of value that was spent, regardless of whether or not the transaction was successful.
The biggest feature of Cryptocurrency systems is the fact that they are considered to be “permission free” rather than centralized. This means that there is no central administrator who decides how your money is invested, how it is spent, or who it allows to spend it. You will never have to worry about being locked in to any one person’s personal money because of an unfortunate divorce, death, or job loss. There is also no third party that is making decisions on your behalf. This makes Cryptocurrency a great investment opportunity for people who are worried about the future of the economy.