A digital currency relying on the principles of cryptography
The Wiki describes it well; a cryptocurrency (such as Bitcoin, Litecoin, Feathercoin, etc.) is a peer-to-peer, decentralized, digital currency whose implementation relies on the principles of cryptography to validate the transactions and generation of the currency itself.
I don’t get it, in English please
Let’s look at the first sentence again and break it down word for word:
A cryptocurrency is a peer-to-peer, decentralized, digital currency whose implementation relies on the principles of cryptography to validate the transactions and generation of the currency itself.
Peer-to-peer refers to each node on the network being able to connect to any other node and act as both a server and a client sharing updates to the blockchain (public ledger) without the need for a central server.
Decentralized refers to the peer-to-peer architecture of the network. Because each node can act as both a server and a client, there is no need for a central server or centralized authority, thus effectively solving the double spending problem.
Digital currency, among its various names, is electronic money that acts as alternative currency in the digital realm (though offline adoption is increasing as well). Currently, alternative digital currencies are not produced by government-endorsed central banks nor necessarily backed by national currency.
Principles of cryptography
Cryptography relies on public and private keys for security. With cryptocurrencies every transaction has to be signed by a private key for security. Due to the strong security and well understood principles of cryptography, counterfeiting digital currencies is virtually impossible.
Bitcoin is a zero trust consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. It was introduced as open-source software by pseudonymous developer Satoshi Nakamoto that uses cryptography to control the creation and transfer of money.
I don’t get it, in English please
As a start, think of Bitcoin as a currency, like the USD, AUD, HKD, CNY or EUR, only digital. They aren’t printed or regulated by central banks like other currencies are. They are produced by millions of computers solving mathematical problems ensuring only a pre-determined number of coins enter circulation every day. These coins are rewarded to whoever is the first to solve the latest mathematical puzzle.
Bitcoin solves the double spending problem
Bitcoin has many advantages. One of the biggest innovations is that it solves what is known as the double spending problem. According to the Wiki:
Double-spending is the result of successfully spending some money more than once. Bitcoin protects against double spending by verifying each transaction added to the block chain to ensure that the inputs for the transaction had not previously already been spent.
Other electronic systems prevent double-spending by having a master authoritative source that follows business rules for authorizing each transaction. Bitcoin uses a decentralized system, where a consensus among nodes following the same protocol is substituted for a central authority.
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