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What is Cryptocurrency?

“A digital currency produced by a public network instead of any government, which uses encryption to ensure that payments are sent and received securely.”

Cryptocurrencies are supported by mathematics, which means that it cannot be modified by a single group or person. The cryptocurrencies are not linked to the availability of physical assets, as in the case of gold.

In its origin, cryptocurrencies use a distributed network to allow P2P (Peer-to-Peer) payment, a transaction verification system without the need for third parties. In order to maintain this security, cryptocurrencies use mathematical algorithms and a public accounting record called blockchain to ensure that each transaction is legitimate and avoid fraud.

Most cryptocurrencies are open source. This is fundamental since it is the only way that users can be sure that the creators will not add anything that would allow them to cheat the system. Each cryptocurrency usually has a core group of developers that can add, subtract or modify features.

Origin of cryptocurrencies

The origin of cryptocurrencies comes from the Cypherpunk movement, originated in the 1980s, which advocates the widespread use of cryptography as a tool for social and political change.

  • In 1990, David Chaun created Digicash, a centralized electronic money system that allowed for more anonymous and secure transactions.
  • In 1997, Adam Black proposed Hashcash, a system based on encryption to limit spam and denial of service (DoS) attacks.
  • In 2009, a person or group of people under the pseudonym Satoshi Nakamoto public Bitcoin, the first completely decentralized cryptocurrency, using a blockchain. Bitcoin uses the SHA-256 algorithm, a cryptographic hash function, as its encryption scheme.

Currently, there are hundreds of cryptocurrencies based on Bitcoin, although they incorporate more or fewer variations with respect to the pioneer. The cryptocurrencies are subdivided into altcoins, metacoins, appchains or app-coins.

The first alternative cryptocurrency that emerged after Bitcoin was Namecoin. It was created in April 2011. Soon after, in October 2011, Litecoin was created. It differs from Bitcoin in that it uses scrypt as its SHA hash function for encryption, instead of SHA-256.