Cryptocurrency is a special form of digital currency created based on cryptography. Most digital currencies use the blockchain to take advantage of key features such as decentralization, transparency, and immutability.
The decentralized nature of digital currencies means that no institution, group, or organization controls this kind of currency.
Cryptocurrencies can be sent directly to anyone without the intervention of any intermediaries on the Internet. This means
that you do not need to open a bank account and use the bank services or any other intermediary to send digital currencies to other users.
Like the rial and the dollar, cryptocurrencies are created and distributed using different mechanisms; and like bitcoin, some of
these currencies are created through mining. For a number of other currencies, all the coins are already mined in the network.
Digital currencies are built on distributed ledger technology, one of the most important of which is the blockchain technology. The public blockchain used by most digital currencies allows you to view all transactions, whether they belong to the people inside the network or to the people outside the network.
What is digital currency?
For many people, bitcoin is the first real digital currency or cryptocurrency, the idea of which was published in the Bitcoin
White Paper in 2008; first bitcoins were mined in 2009. However, before bitcoin, there were many attempts to create a digital currency.
The idea of digital currency is rooted in two major problems: “trust in a third party” and “double spending.”
When you use banks to transfer or keep money, you actually trust that bank. In a more general sense, trust is essential to
doing a lot of your work.
The problem of double spending on financial systems—solved by central servers through examining inventories—prevented
people from spending a certain amount of money again. This solution was presented in a decentralized way in bitcoin, and
everyone could prevent fraud by checking the transaction history.
Bitcoin was introduced as the first electronic money that could solve the problem of trust and double spending. With bitcoin,
people no longer had to trust an organization, group, or bank to transfer money to another person or to keep money.
“Trust” has become a major problem for human beings not only for keeping money, but also for many other operations. That is why the trust less system introduced by bitcoin was used in other human activities as well.
Gradually, digital currencies emerged to address a variety of concerns. Ethereum, for example, was introduced as a platform
for the development of various programs and the implementation of smart contracts, and Ripple focused on restructuring inter bank communications and providing high-speed, low-cost payment systems with an optimistic view of banks.
Today, many tokens have been created on the platform of digital currencies such as Ethereum, EOS, and Tron, which use the
power of the main blockchain to perform their transactions.
How does cryptocurrencies work?
Cryptocurrencies use different models to perform their transactions. Bitcoin, for example, uses a proof-of-work model in which miners confirm transactions.
These different models in blockchains, known as “consensus algorithms” or “collective agreement mechanisms”, determine
how network participants agree on whether or not to confirm a transaction on the network.
Digital currency transactions operate peer-to-peer (P2P) and eliminate the need for intermediaries based on the model used.
Nodes are responsible for monitoring the digital currency network and ensuring its security. They are selected in different
ways in different networks. In bitcoin, for example, nodes are selected by miners. In EOS and Tron, nodes are selected through voting, and in proof-of-stake (PoS) networks, anyone who has locked part of their coins in the network as stocks can decide
What is the difference between digital currencies and ordinary currencies?
Digital currencies and ordinary currencies are distinguished by some unique features. Not all of these features are available in all digital currencies, and there are also exceptions.
The first feature of digital currencies is the irreversibility of transactions. If you transfer digital currency and your transaction is confirmed, you will not be able to return it; this will only be possible if the recipient is willing to do so, but this is different in
If you accidentally or mistakenly transfer money to another person’s account, you can eventually get it back with a lawsuit, but if you accidentally send bitcoin or another digital currency to another address, you should forget about it!
Anonymity or semi-anonymity is the second unique feature of digital currencies. Wallet addresses that play the same role as
your card or account number in bank accounts do not include your identity information.
These addresses, which consist of the strings of letters and numbers, can only be linked to people’s identities by examining
the history of transactions and in-depth analyses. Some untraceable and privacy-oriented digital currencies, such as Monero,
Zcash have been designed in such a way that makes it very difficult and almost impossible to identify
[recipients of transactions].
The third feature of cryptocurrencies is their global or cross-border nature. Sending money to different parts of the world may take several days with current systems, but digital currencies can do that in minutes. Having no border constraints, digital currencies can be sent to/from anywhere in the world.
The fourth feature of digital currencies is their security. Security is ensured in intra-network exchanges by the HashRate shared by individuals (in proof-of-work systems). On the other hand, the public and private key encryption system allows people to control their digital money on their own, preventing others to access it.
The fifth feature that distinguishes cryptocurrencies from ordinary currencies is that they are not exclusive. People do not need to get permission from an individual, group, or organization to be able to use various digital currency networks such as bitcoin, Ethereum, Litecoin, etc. They can download the entire transaction history and send or receive digital currency themselves without the need for any permission.
Types of digital currency
Apart from bitcoin, digital currencies can be divided into two categories: Altcoins and tokens.
Altcoins have their own blockchain. Some coins are made based on the original bitcoin codes—and are so-called bitcoin
forks—through applying minor modifications to variables such as the number of coins, the mining algorithm, the block creation
Some other coins, such as Ethereum, Ripple, and Waves have built their networks without using bitcoin codes. These
blockchains are often made for applications other than digital money. Tokens are another category of digital currencies that are built on platforms such as Ethereum or Waves and EOS. They do not have a separate
blockchain and use the power of the main blockchain to carry out their transactions.
Tokens are awarded to investors during the initial public offering of coins, or ICOs, in exchange for collective capital.
Tokens have their own uses and cannot be considered as a currency. They are divided into two categories: security tokens and utility tokens.
Famous digital currencies
There are currently more than 2,200 digital currencies on the market, most of which are dead or abandoned projects. Throughout the 10-year history of digital currencies, some have kept their place at the top of the list of the most valuable currencies
from the very beginning.
Bitcoin is the most popular and oldest digital currency that has always been in the spotlight. It has been more than 10 years
since Satoshi Nakamoto created this digital currency that has not lost its leading position among digital currencies ever since.
The idea for Ethereum was introduced by Vitalik Buterin in 2013. Its coin was first mined in 2014, and its network was
launched in July 2015. From the very beginning, Ethereum appeared with innovative ideas. The digital currency of this
platform is called ether, and Ethereum can be used to create tokens.
Ripple is an OpenText platform designed for cheap and fast transactions. This payment system was launched in 2012 and
supports common currencies on its network. Ripple focuses on working with banks and developing its payment system. Its coin is called XRP.
Litecoin was created by Charlie Lee to make faster payments by making changes to bitcoin codes. This digital currency, also
known as the digital silver, is one of the oldest altcoins.
Bitcoin Cash is one of the most popular bitcoin forks created in 2017 by changing the size of the blocks. In 2018, Bitcoin Cash was divided into two chains, ABC and SV, and the ABC chain continued to operate under the name of Bitcoin Cash.
The reason for the popularity of digital currencies
Due to their volatile market, the technology used in them, as well as their liberal ideas, digital currencies quickly gained
Due to its fledgling nature, the digital currency market fluctuates considerably; as a result, the price of one of them may rise by several hundred percent or fall by several tens of percent in one day.
The technology used in digital currencies, which is based on mathematics, prevents fraud, and encourages payment systems.
to be honest using the science of cryptography.
In addition, the liberal aspect and the lack of intermediaries have led people who were pessimistic about traditional financial
systems to turn to digital currencies.