In an era when regular cash transactions have been replaced by electronic transactions and payments, cryptocurrencies, called digital currencies or crypto assets, have emerged.
This was met with growing acceptance and demand, though initially skepticism - virtual/electronic - pushed cryptocurrency prices to unimaginable heights.
Instead, he turned to international financial transactions and became the focus of everyone's interest and curiosity. In this article, we will highlight them to clarify the concept of digital currencies and how to deal with them.
Encryption concept
Before we learn about digital currencies or cryptocurrencies, let's learn about cryptography, which is attributed to the way these currencies are created and used.
Encryption was originally a method of protecting information and data through the use of codes so that only those who were targeted with the information could read them or know their secret content and obtain an encryption key that could process these codes to identify the origin. Information. The word cipher can be translated by dividing it into cipher with a secret meaning and graphic meaning writing, that is, the content written in such a way that the term conceals its content.
That is, hiding data from its usual and existing context to another context unknown to the public, which is not a new process, in a way that maintains the confidentiality of its content. The principle of cryptography, used in many diplomatic and military fields in the past, has many banking and informational uses in our contemporary times, even reaching digital currencies based on the same idea.
The difference between decoding and cryptanalysis
In contrast to encryption, encryption precedes decryption, which is the return of the encrypted content to the image of the first content in its normal and generally readable context, and this is done using the encryption key.
With the development of mathematics, computer, and communication sciences, the process of encryption and decryption has led to complex computational algorithms that are difficult to decipher, and even the process of decoding or decoding these algorithms - without decoding them. It was set up from scratch - theoretically available, not possible with known and currently available information tools, so the assumption of security and privacy has been proven so far.
This is known as cryptanalysis, and it refers to the study of decrypting cryptographic algorithms and their applications to obtain the content and source of information or encrypted assets without access to the key required for them.
This means that we can shorten the difference between decryption and cipher parsing to the fact that decryption means restoring the context of the encrypted symbols, using the pre-encryption key to recompile these symbols as they are. Deciphering these codes has attempted an incredible number of ways, by trial and error, to solve a cryptographic algorithm to translate the encrypted codes and know the original context without knowing the key.
How did the electronic cash transactions begin?
Proceeding from the idea of encryption and decryption, as well as code analysis, the idea of creating digital currencies Cryptocurrency, that is, encrypted digital virtual money for secure and confidential transactions, was born and also created. Without a supervisory authority or central bank controlling them, they are stored electronically and have no physical presence such as Saudi Riyal (SAR), Euro (EUR), or US Dollar (USD) currencies.
The idea of a digital or electronic alternative to the traditional cash transaction began in the late eighties in several gas stations or petrol stations on the motorway in the Netherlands, where many thefts occurred, and the management tried to find a solution. That's the problem, so the administration hired a group of programmers and developers to tie the money to the cards.
Thus, to reduce cases of theft, money from the terminals will be absent or at least significantly reduced, after which the idea of \u200b\u200bthe birth of smart money cards was developed, reflecting the idea of \u200b\u200bmoney. . Recorded on the card in encrypted electronic form, there is a device to decode this code, which is the point of sale at the gas station or known today as POS or point of sale idea. This is the first glimpse of electronic money evolving into what it is today.
The beginning of the idea of digital currencies or cryptocurrencies
To complete the idea of electronic transactions, at about the same time or a little earlier, an American programmer named David Chaum had an idea, whose content revolved around financial privacy and was an attempt to simulate coins or notes. Safely and privately handle currency exchange with the ability to process and transfer payments.
Therefore, he created an algorithm where money could pass indiscriminately between the sender and receiver via a token, which was called Chaum at that time. This laid a strong foundation for the idea of mathematical formulas for token cash transactions or digital currencies.
To complete the same idea, another program called Wei Dai has started to come up with the idea of an integrated, secret, and untracked money system through which transactions are executed, called B-money, which understands the idea of privacy and security. Symbolic aliases for currency analysis in a decentralized network.
He had previously submitted the white paper for his project, but the idea was not welcomed and did not gain the necessary popularity, so it did not work. It is worth noting that Satoshi Nakamura's presentation document on the Bitcoin idea - which we will discuss in detail in a later article - contains some of the elements mentioned in the B-money project white paper. This means that the race to develop cryptocurrency is the real start.
The birth of digital currencies
After paving the way for the creation of digital currencies, and with the advancement of technology and knowledge, complex cryptographic protocols were born, based on principles of mathematics and advanced computer engineering that made it theoretically almost impossible to hack. Cryptocurrency programmers relied on them with highly complex cryptographic systems that encrypt data transmissions into secure units. The principle of privacy has been the main effort since the beginning.
Thus we can say that digital money is a computer program, but it is a decentralized one, that is, it is not installed or installed on a particular machine, but rather is distributed, i.e. hosted on many computers. Computers for many people around the world rather than hosted on a single server by a specific person or company.
From how transactions are recorded to how data is stored, each function or operation is reduced to a special code that is stored in a type of database, often known as a string. Blocks - issued to a user who has a comprehensive, distributed, protected, and confidential record of all digital currency data and transactions, and generally adds transactions to the digital currency, blockchain, or blockchain network by processing these algorithms.
It remains to note that one of the most important features of most, if not all, digital currencies is that they have a limited number of units. That is, most digital currencies were created with the idea that there is a market value, that is, the process of encrypting the protocols of its creation from scratch created a certain number of coins with each decryption - or mining by adding a transaction - the number of stocks is gradually decreasing, this is similar to the idea of precious metals, For example, the more gold is mined, the fewer reserves are stored on Earth. It becomes difficult for miners to generate cryptocurrency until the upper limit is reached and minting stops completely.
To understand this more simply, Bitcoin is one of the most popular digital currencies and is currently the highest value as a cryptocurrency from the start, provided that the code contains only 21 million blocks, and once all this has been mined or after it has been mined, there will be no new Bitcoin, i.e. The new money is minted like any other normal currency and this means that if you own 1 Bitcoin, you have 1/21,000,000.
Advantages of digital currencies
1. Protected from losing value, or inflation
2. Self-control and sustainable maintenance
3. Security and privacy
4. Easy currency exchange
5. Decentralization
6. Low cost and speed of transfers
Disadvantages of digital currencies
1. It can be used in illegal transactions
2. If loss of data occurs it means huge financial losses
3. Some cryptocurrencies can't be exchanged for regular currencies
4. It has negative effects on the environment because mining
5. Cryptocurrency exchanges are vulnerable to hacking
6. There is no refund or cancellation policy
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