Concept of cryptocurrency?
Cryptocurrency is an internet-based medium of exchange which uses cryptographical functions to conduct financial transactions. Cryptocurrencies leverage blockchain technology to gain decentralization, transparency, and immutability.
The most important feature of a cryptocurrency is that it is not controlled by any central authority: the decentralized nature of the blockchain makes cryptocurrencies theoretically immune to the old ways of government control and interference.
Cryptocurrencies can be sent directly between two parties via the use of private and public keys. These transfers can be done with minimal processing fees, allowing users to avoid the steep fees charged by traditional financial institutions.
Today cryptocurrencies have become a global phenomenon known to most people. In this guide, we are going to tell you all that you need to know about cryptocurrencies and the sheer that they can bring into the global economic system.
Nowadays, you‘ll have a hard time finding a major bank, a big accounting firm, a prominent software company or a government that did not research cryptocurrencies, publish a paper about it or start a so-called blockchain-project.
Cryptocurrency is a type of digital currency that uses cryptography for security and anti-counterfeiting measures. Public and private keys are often used to transfer cryptocurrency between individuals.
As a counter-culture movement that is often connected to cypherpunks, cryptocurrency is essentially a fiat currency. This means users must reach a consensus about cryptocurrency’s value and use it as an exchange medium. However, because it is not tied to a particular country, its value is not controlled by a central bank. With bitcoin, the leading functioning example of cryptocurrency, value is determined by market supply and demand, meaning that it behaves much like precious metals, like silver and gold.
Cryptocurrency transactions are anonymous, untraceable and have created a niche for illegal transactions, like drug trafficking. Because the currency has no central repository, law enforcement and payment processors have no jurisdiction over bitcoin accounts. For cryptocurrency supporters, this anonymity is a primary strength of this technology, despite the potential for illegal abuse, as it enables a shift in power from institutions to individuals.
A cryptocurrency’s blockchain (sometimes written “blockchain”) is the master ledger that records and stores all prior transactions and activity, validating ownership of all units of the currency at any given point in time. As the record of a cryptocurrency’s entire transaction history to date, a blockchain has a finite length — containing a finite number of transactions — that increases over time.
Identical copies of the blockchain are stored in every node of the cryptocurrency’s software network — the network of decentralized server farms, run by computer-savvy individuals or groups of individuals known as miners, that continually record and authenticate cryptocurrency transactions.
There are a lot of cryptocurrencies, they are all different. They are united by the fact that they bring something innovative to our world. All cryptocurrencies have one common and, probably, the main problem — scalability.
Scalability is the ability of a cryptocurrency to cope with the influx of a large number of transactions at a time. For example, Bitcoin operates smoothly at seven transactions per second. If there are more than seven transfers per second, then all transactions are queued for a refill. This queue is formed due to the free commission of Bitcoin. That is a person who paid the largest amount as a commission takes a higher place in the queue.
Such an unpleasant situation arises because of restrictions in the blockchain. The bottom line is that each block has a strictly prescribed maximum of information, which it can accommodate. Such restrictions help the system to more easily get through DDoS attacks on the network. And transactions are the very information which is written in the blocks confirming translations. It takes time for the creation of each block. Each cryptocurrency has its own creation time, but for Bitcoin, this process takes 10 minutes.
A large number of transactions requires a large number of blocks. The miners come to rescue with this. They provide “deciphering” of blocks with subsequent confirmation of transactions. It seems that everyone is happy, but no.
Even with the miners, commissions and small-sized blocks, cryptocurrencies cannot ensure the successful execution of a huge number of transactions simultaneously. That is, in the case of a large influx of operations, the systems may not be able to cope with traffic. In this case, the currency will experience a temporary blackout or simply cancellation of the entire transaction queue. Such an incident will damage the reputation of the cryptocurrency, and, consequently, its rate.
The problem of scalability very much slows down the development of cryptocurrency technology. In such conditions, all the cryptocurrency developers’ forces are aimed at solving the scalability problem. Nowadays there are discussions about which solution is better for this situation. One of them is database sharding. Sharding is a type of database partitioning that separates very large databases into smaller, faster, more easily managed parts called data shards. Database sharding allows application developers to be able to build more scalable and faster architectures. Sharding is an important solution, especially in the blockchain world, where data processing is still slow and only a small amount of data can be stored on-chain at the same time. Several blockchain / distributed ledger technology firms such as Shardus are actively pursuing implementing sharding into distributed ledger technology and existing blockchain networks are also in the process of developing sharding as a scaling solution.