Everything you need to know about cryptocurrencies

The cryptocurrencies have become a global phenomenon known by most people, although not understood by all of them. Even so, banks, governments and many companies are aware of their importance, and invest in them.

But beyond the news that can be read in crypto-economy, or press releases, the vast majority of people have very limited knowledge of cryptocurrencies. Often they do not even understand the basics. So let's start at the beginning.

Few people know, but cryptocurrencies emerged as a byproduct of another invention. Satoshi Nakamoto, the unknown inventor of Bitcoin, the first and most important cryptocurrency, never intended to create a coin.

Satoshi said a few years ago that he developed "An electronic cash-on-demand system to avoid double spending." But the most important part of Satoshi's invention was that he found a way to build a decentralized digital cash system, something that had already been tried, but without success.

After seeing that all attempts failed, Satoshi attempted to build a digital cash system without a central entity. As a point-to-point network to share files. This was the birth of cryptocurrencies, the missing piece to be able to make that cash.

What are cryptocurrencies really?

If we reduce its description to a simple definition, we would say that they are limited entries in a database that nobody can change without fulfilling specific conditions. And if you think about it, it is also how you can define a physical currency.

For example, the money in our bank account is nothing more than an entry in a database that can only be changed under specific conditions.

The money, after all, is a verified entry in a database of accounts, balances and transactions.

What is the mechanism that governs cryptocurrency databases?
A cryptocurrency, for example Bitcoin, consists of a network of pairs. Each pair has a record of the complete history of all transactions and, therefore, of the balance of each account.

A transaction is a file that says "A gives X Bitcoin to B" and is signed by A's private key. After signing, a transaction is transmitted on the network, sent from one pair to each pair. This is the basic p2p technology.

The transaction is known almost immediately throughout the network. But only after a specific amount of time is confirmed.
As long as a transaction has not been confirmed, it is pending and may be falsified. But when it is confirmed, it is immutable, and can not be reversed, it is part of an immutable record of historical transactions: of the so-called blockchain.

Only the miners can confirm the transactions. Your job is to seal transactions as legitimate and distribute them on the network. After a miner confirms a transaction, each node must add it to its database. It has become part of the block chain.

For this work, the miners are rewarded with a cryptocurrency token, for example with Bitcoins.

Who can be a miner?
As a decentralized network does not have the authority to delegate this task, a cryptocurrency needs some kind of mechanism to prevent a government from abusing it.

Satoshi established the rule that miners need to find a hash (a product of a cryptographic function, which connects the new block with its predecessor) in order to be a miner. This is called a work test system or "POW" system. In Bitcoin, it is based on the SHA 256 Hash algorithm.

This algorithm is the basis of a cryptological puzzle that the miners compete to solve. After finding a solution, a miner can build a block and add it to the block chain. As an incentive, you have the right to add a coinbase transaction that gives you a specific number of Bitcoins. This is the only way to create valid Bitcoins.

Bitcoins can only be created if miners solve a cryptographic puzzle, and there is only a specific amount of cryptocurrency token that can be created in a certain period of time.

Properties of cryptocurrencies
You must differentiate between transactional and monetary properties.

Transactional properties: it is irreversible, it is discrete (it is not always possible to connect the real world identity of the users), it is fast, it is global, it is secure and anyone can do it.

Monetary properties: they have a controlled supply, they represent themselves, like gold.

If you have cryptocurrencies, you can find out about their economy, capitalization, the companies that are investing in them, and their regulation on the web www.crypto-economy.net.