What are cryptocurrencies?

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Cryptocurrency is a virtual currency. It is represented by a hard-to-change code, which uses cryptography and blockchain technology to ensure the decentralized functioning of internet trading.

In addition, a cryptocurrency can be converted into real values ​​and its trading takes place through the web, without intermediaries, and without bureaucracy.

It is, in fact, a very particular instrument.

Its main feature is the absence of a regulated monetary system, which makes it circulate without submission to a financial authority.

Precisely because they are decentralized, cryptocurrencies can be transferred from one person to another without the resource going through a bank, as in the traditional system.

This is a movement called a peer-to-peer system.

Although much is said today about cryptocurrencies, it cannot be said that they are a consolidated instrument.

In fact, they couldn’t be, since the first was created in 2009 (less than ten years ago), being named bitcoin.

It is worth noting that, essentially, cryptocurrency, virtual currency and digital currency are terms that have the same meaning.

The first refers to cryptography, while the other expressions “digital” and “virtual” refer to the intangible and abstract characteristics of online currency.

How do cryptocurrencies work?

As something “digital”, cryptocurrencies do not physically exist .

They are stored in a virtual wallet and can be managed via a mobile device or personal computer.

In this way, the quotation, purchase and sale occur anonymously, always over the internet.

But to better understand how they work, it is necessary to place another actor in this analysis.

We are talking about the blockchain , also known as the trust protocol, which is the technological innovation behind cryptocurrency.

It consists of shared databases and records whose main security measure is decentralization.

It is on the blockchain that a kind of global index is created for all transactions within the same market.

It works like a ledger, fully public and shared.

This absence of third-party mediation ends up creating a sense of trust in direct communication between the parties involved in the transaction.

The emergence of Cryptocurrencies (A Brief History)

Shall we go back in time a little?

We have already mentioned that 2009 is a landmark year for cryptocurrencies, but the movement that gave rise to bitcoin began before that.

The idea of ​​an electronic and anonymous payment system came about in 1998 , when Wei Dai published the description of “Cash B”.

Shortly thereafter, Nick Szabo created Bit Gold, an e-currency system to say the least.

It required its users to complete a proof-of-work function, in which solutions would be cryptographically computed and published.

All these instruments ended up functioning as a kind of validation for a larger project , realized in 2009 by Satoshi Nakamoto: bitcoin.

By the way, about Nakamoto, it is known that this is not his real name. Many try to decipher who is the mastermind behind the most famous virtual currency, while others do not even believe in its existence.

Whether Nakamoto is a real or also a virtual character, what is known is that he was instrumental in cryptocurrencies.

From his initiative, others emerged, such as Namecoin and Litecoin, in 2011.

These are just a few examples, as the list of cryptocurrencies could be much longer if many of those that were launched didn’t disappear for lack of technical innovation.

But things changed from 2014, when a new generation of cryptocurrencies emerged.

Among them, Monero, Ethereum and Nxt, some of which remain active and growing, including advanced features such as smart contracts and hidden addresses.

And do not stop there.

The RaiBlocks cryptocurrency, also created in 2014, solved some known problems with bitcoin, such as transaction delays, fees and high energy consumption (mining).

In 2018, it was renamed to Nano, and today it is instant and does not charge fees for transactions.

What are the different types of cryptocurrency architecture

Cryptocurrency architecture is nothing more than the existing structure for virtual currency to circulate .

It is like a system, a network, through which transactions take place in a decentralized manner, as already highlighted.

In this topic, we are going to talk about the different types of cryptocurrency architecture.

Blockchain

Blockchain is a list of records secured and linked through cryptography. It is what gives validity to each cryptocurrency. Roughly speaking, which grants authenticity to transactions.

They can be registered from the blockchains efficiently and permanently, including with great resistance to any change in the information.

For its functioning, the blockchain depends on the management of a peer-to-peer network, which also involves a collective adhesion to a protocol used in the validation of new blocks.

From the moment the data of a block is registered, there is no way to promote retroactive modifications without impacting the so-called subsequent blocks.

Timestamping

A timestamping is a timestamp scheme, which also plays a relevant role in the movement of cryptocurrencies.

It avoids having to look for another method of trust to record transactions that are added to the blockchain.

Proof of work schematics

This was the first type of timestamp created. The most used are based on SHA-256 and scrypt.

The latter is the one that dominates the world of cryptocurrencies, having at least 480 confirmed implementations.

Combined proof of work and participation schemes

There are cryptocurrencies that make use of a combined proof-of-work and participation scheme.

It is quite dependent on the currency, and today there is no standard form of it.

For its proof to happen, there must be a method that guarantees a network of cryptocurrencies, producing consensus from the request of users so that the ownership of a certain amount of the virtual currency is exposed.

Mining

Remember when we talked about virtual mining? So, just like in real life, this is a mining process.

It is seen as a kind of validation of cryptocurrency transactions on the network.

Thus, miners, when successful, receive a new cryptocurrency as a prize, which reduces the fees involved in the transaction and generates an additional incentive for the so-called processing power of the network.

wallets

The cryptocurrency wallet, in turn, serves to store private or public keys , as well as addresses that can be used to earn or spend cryptocurrency.

Anonymity

Some cryptocurrencies allow for true anonymity, making use of technologies such as ring signatures and zero-knowledge proofs.

This feature, for example, was employed in Zcash and Monero cryptocurrencies.

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