Today cryptocurrencies have become a global phenomenon known by most people
but understood by few in 2021 you'll
have a hard time finding a major
bank accounting firm software
company or government that hasn't researched crypto
currencies or started a blockchain project
beyond the noise in the press
releases many people often fail to understand
the basic concepts so let's
walk through the whole story what
are crypto currencies.
Satoshi invented Bitcoin in 2008 as
a peer-to-peer electronic cash system to
realize digital cash you need a
payment network with account balances and
transactions that's easy to
understand one major problem every payment network
has to solve is to prevent double spending
that is to prevent one entity
from spending the same amount twice usually
this is done by a central server
who keeps records of all the
balances in a decentralized network you don't have
this server so you need every single
entity of the network to do this job
every peer in the network needs to
have a full list with all the transactions to
check if future transactions are
valid or an attempt to double spend but how
can these entities. keep it
consensus about these records if the peers on the
network disagree about one single
minor balance everything breaks they need
absolute consensus nobody knew how
to achieve this until Sato she proved it
was possible cryptocurrencies are a
key part of the solution.
To illustrate this we'll look at the
transactions on the network the
transaction is a file that says Bob gives
X Bitcoin to Alice and assigned
digitally by Bob once signed the transaction
is broadcasted to the
network sent from one peer to every other
peer this is standard p2p
technology nothing special happening
here after a specific amount of time the transaction gets confirmed only miners
can confirm transactions this is their job in a
cryptocurrency network they take transactions
stamp them as legitimate
and spread them in the network after
a transaction is confirmed by a miner
every node has to add it to its
database it has to become part of the blockchain
for this job the miners are rewarded
with cryptocurrency.
For example bitcoins anybody can be
a miner they just need to use some of their computers power to qualify for the
task every miner competes to solve a cryptographic puzzle after finding a
solution a miner can confirm the transaction and add it to
the blockchain as an incentive to do
this they then receive a payment from
the network in the form of a cryptocurrency
in this way a network
of independent actors are
economically incentivized to maintain the legitimacy
of the transaction history so that's
the gist of it crypto currencies are the key
to the complex digital cash problem.
Satoshi solved how to maintain
integrity and consensus across independent and potentially malicious actors cryptocurrencies
are essentially the monetary incentive offered to anyone willing to keep the
network secure.
