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Bitcoin, Ethereum, blockchain, ICOs, exchanges. As you may have noticed, crypto have invaded the public space in recent years. In the media, forums, conversations at Christmas. They are everywhere. Using new vocabulary loses most newcomers.
Originally known for their sulphurous reputation (supposedly being used by criminals and money launderers), cryptocurrencies have since come a long way, whether in terms of popularity or evolution of the technology. New applications that use the blockchain are created every day, in many sectors: finance but also health, media, insurance, technology, etc…
For many, cryptocurrencies represent the democratization of finance. They are the innovation of fintech that will bring real progress, from a revolutionary technology that challenges the political, economic and social order.
What are crypto-currencies actually used for?
If you strip away all the noise around cryptocurrencies and reduce it to a simple definition, you will find that it is just limited entries in a database that no one can modify without meeting certain conditions. It may sound trite, but believe it or not, that is exactly what a cryptocurrency is.
Take the case of your money in your bank account: what else is it but an entry in a database, which can be modified according to very specific conditions?
The same goes for coins and bills: these are entries in a physical, public database, which you can.
What is a crypto currency and for what purpose?
Cryptocurrencies are digital assets that use cryptography, an encryption technique, to guarantee their security. They were originally intended to be used to buy and sell goods and services, although more and more cryptocurrencies present technological value today. They do not depend on any central authority, unlike traditional currencies such as the euro, the dollar and others.
Not many people know this, but cryptos emerged as a side project to another larger project. Satoshi Nakamoto, the inventor of Bitcoin, never wanted to create a currency in the first place. Above all, he wanted to create a peer-to-peer digital cash system. Writing on SourceForge, he announced in 2009: “Here is the first draft of Bitcoin, a new electronic payment system that uses a peer-to-peer network. It’s fully decentralized, and doesn’t rely on any server or central authority. “.
Decentralization as a central element of cryptocurrencies
The most important part of his invention was the decentralized nature of it. In the 1990s, many people tried to create a digital currency, but they all failed. “After more than a decade of failure, they see it as a lost cause. I hope they will make the distinction, as this is the first time we have not relied on a trusted third party entity. for our system,” Satoshi Nakamoto shared in an email to a collaborator.
For Satoshi, it was simple: it was the centralized nature that was the problem. This decision to create and rely on a decentralized network gave birth to cryptocurrencies.
What does this actually change? We will explain it very simply.
To create a digital cash system, you need a payment network with accounts, balances, and transactions between each account. Pretty easy to understand so far. A major problem that every payment network must solve is the following: an entity must never spend the same amount twice. And for this, a control must be carried out by a central server, which keeps track of the sums of which each individual of the network has.
This happens every day when you make a credit card payment. You insert your credit card into the machine, the machine asks your bank to check if you have the funds. Your bank sends a positive response to Mastercard or VISA, which confirms to the machine. The machine receives the validation and withdraws the funds.
In a totally decentralized network, this server to perform this task does not exist. So each actor in the network must do the job, or part of the job. Each network actor will have a copy of all the transactions carried out on this network in order to carry out checks when necessary.
And the agreement of a transaction must be validated by consensus. But how to arrive at a consensus without a central authority? This is the feat that Satoshi has achieved. And cryptocurrencies are an integral part of this achievement.