A cryptographic digital currency typically serves as a medium of exchange in a peer-to-peer (P2P) digital economy. The application of cryptographic methods guarantees these systems’ absolute protection against fraudulent activities and counterfeiting.
Bitcoin, the inaugural cryptocurrency, was launched in 2009 by an anonymous developer, Satoshi Nakamoto. The primary objective of Nakamoto was to establish an innovative digital payment system. This system was designed to facilitate financial transactions digitally between users, eliminating the necessity for middlemen like banks or government entities.
Cryptocurrency systems typically operate on a decentralized structure collectively upheld by a distributed computer network. Each computer (or device) that becomes part of this network is known as a node. A node is any physical device that can connect to a network and send, receive, and relay information. Nodes are classified based on the roles they play within the system. For example, the Bitcoin network consists of, at a minimum, seven distinct types of nodes, with the nodes that carry out all possible functions being referred to as full nodes.
Cryptocurrency platforms are deemed decentralized due to their lack of reliance on a single authoritative entity. Nodes within the network are globally dispersed, and pre-set algorithms and mathematical validations govern the creation and administration of cryptocurrency units. Nonetheless, each cryptocurrency operates uniquely, leading to different levels of decentralization. Hence, the degree of decentralization can vary among cryptocurrencies, contingent on the network configuration and the distribution of nodes.
Cryptocurrency systems predominantly depend on a public distributed ledger called a blockchain. This is essentially a continuously expanding list of extremely difficult records to alter. As its name implies, a blockchain consists of a sequential chain of blocks. In relation to cryptocurrencies, it maintains a permanent log of all verified transactions and associated data, all of which are protected by cryptography. Broadly, every cryptocurrency operates on a blockchain-based on predetermined rules or an underlying protocol. This protocol outlines the operational guidelines for the blockchain and the cryptocurrency system.
