When we buy or sell things the payment is usually processed by a bank or credit card company problem number one the companies often take a cut of the transaction - we have to trust these companies to protect their sensitive data from hackers three most international payments take a long time and are expensive to solve these problems we could use a special currency that is secure and based on science of cryptography which is a way of protecting information using mathematics this special type of currency is called a crypto currency and only exists in computer networks .
when you send someone this special currency the money goes directly to them removing the middleman and at the same time the transactions broadcast to the entire network and recorded in a permanent way which means it's almost impossible to fool the system costs of making payments are lower transactions are faster especially across countries and even those people around the globe who don't have bank accounts can buy or sell goods and participate in the global economy however .
There are some risks the transactions and most cryptocurrencies are anonymous some cryptocurrencies can even be untraceable this can make it easier for the bad guys to make payments without being noticed if you lose your password you could lose all your money at the moment cryptocurrencies are highly volatile they can't process large amounts of transactions quickly yet and they're not even widely accepted but if we can counter the risk then this new technology or some variation of it can completely change the way we sell buy save invest and pay our bills and who knows this could be the next step in the evolution of money.
Today, cryptocurrencies have become a global phenomenon known by most people but understood by few. In 2018, 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 realise 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 decentralised 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 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 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 Cryptocurrencies are the key to the complex digital cash problem that 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.