Introduction to Cryptocurrency

What is virtual currency?

Virtual currency, also known as Cryptocurrency, is an electronic currency used cryptography and distributed ledger technology to create. It is safe, anonymous, and can track its own performance.  The names we often hear like Bitcoin, Ethereum, OKCoin, etc. are all virtual currencies.

Origin

Cryptography is a doctrine about information encryption, and is usually applied at confidential transmission of information and verification function. Since 1988, people have been trying to develop decentralized electronic currency by adapting encryption protocols and distributed networks. It was not until the emergence of Bitcoin in 2008 that the dream of virtual currency was truly realized.

Bitcoin

On November 1, 2008, an individual or team calling themselves "Satoshi Nakamoto" published a paper called "Bitcoin: Peer-to-Peer Electronic Cash System" in a cryptographic review group. The paper has introduced its latest idea of electronic money, that is, how to use a peer-to-peer network to create an electronic transaction system that doesn’t rely on trust. That is, Satoshi Nakamoto invented Bitcoin.

How does Bitcoin work? 

Bitcoin uses P2P  (peer to peer) technology, which also means "point to point ", "peer-to-peer connection", "peer-to-peer network", etc. It is a non-centralized server. Each user has the same ability and technology to exchange information with each other. Each client of the peer-to-peer network is not only a node, but also functions as a server. The generation and consumption of every bitcoin will be checked through the P2P decentralized network to avoid counterfeiting.

The new Bitcoin is produced by a P2P client computer through a mathematical operation. Complicated equations connect all the users, who also called "miners." Miners use their computer resources to solve the equations and get a small amount of Bitcoin as a reward.

Decentralization is the biggest feature of Bitcoin. Traditional currencies are issued and managed by the central banks, while Bitcoin can avoid inflation and deflation caused by the policies of central bank and human interference. It can also reduce transaction costs and is anonymous.

Application of Bitcoin

Payment: At present, the number of merchants that support Bitcoin payment is increased rapidly, such as Amazon, Steam games, Japanese Big Camera, etc. 


Investment: The total number of bitcoins is fixed at about 21 million, with a scarcity similar to gold. Many people has already invest in bitcoins for a long time. Investment is also currently the major user demand of Bitcoin.

World currency: Every country has its own legal currency, but there is no proper world currency among countries. Bitcoin can operate as long as it has a network. It is a currency that can be used by everyone in the world. It is objectively neutral and not controlled by any countries. It is expected to become a proper world currency.

Limitation and its future

Though virtual currency is close to the transaction currency used in our daily lives, its issuing agency is not monetary authority. It does not have the same legal status as legal currency and can not widely circulate in the market. Citizens investing and trading virtual currency are not protected by law. 

As such , Libra, an Cryptocurrency developed by Facebook, wants to break through this obstacle. It’s purpose is to establish a private payment system that can cover the world. In this system, Libra serves as a medium of exchange, anchoring a country's legal currency, and can be exchanged for other countries' legal currency at any time.