The
term blockchain, or blockchain, or blockchain usually refers to a basic,
publicly available registry that allows us to securely transfer ownership of
units of value using public-key cryptography and various Proof of Work methods
in a decentralized form to maintain the network so that it is not centrally
controlled by a bank, company or government.
Cryptocurrency
In
an era when the usual cash transactions were reduced to be replaced by
electronic transactions and payments, the so-called digital currencies or
encrypted assets Cryptocurrencies appeared, which despite the doubts that
hovered around it in its beginnings - being virtual / electronic - but it was
welcomed and increasingly accepted and demanded, which raised the prices of
digital currencies to levels It was a standard that was impossible to imagine,
and even made its way to international financial transactions, and it became
the focus of curiosity and interest from everyone. In this article, we will
shed light on it to demonstrate the concept of digital currencies and how to
deal with them.
We will address the issue of digital
currencies through the following points
The
concept of Cryptography
The
difference between Decryption and Cryptanalysis
How
did the idea of electronic cash transactions begin?
The
beginning of the idea of digital currencies or cryptocurrencies
The
birth of digital currencies
Advantages
of digital currencies
Disadvantages
of digital currencies
Most
Frequently Asked Questions About Cryptocurrency
The
concept of Cryptography
Before
getting to know digital currencies or encrypted currencies, let's learn about
cryptography, which is attributed to the method of creating and using those
currencies.
Cryptography
is originally a way to protect information and data through the use of codes,
so that only those who are targeted by the information can read them or know
their hidden content and have the cipher key that enables them to process those
codes to identify the original information. The word cryptography can be
translated by dividing it into crypt, which means hidden, and graphy, which
means writing, meaning that the term means that it is written content in a way
that hides its content.
That
is, hiding data from its usual and current context to another context unknown
to the public in a way that preserves the confidentiality of its content, and
it is not a new process. The principle of encryption was used in many
diplomatic and military fields in the past and has many banking and information
uses in our contemporary time, until we reached the digital currencies that
depend in Built on the same idea۔
The
difference between Decryption and Cryptanalysis
Opposite
to encryption, comes decryption, which is the return of the encrypted context
to the image of the initial content in its usual and publicly readable context
before the encryption process, and this is done using the encryption key.
With
the development of mathematics, computer and communication sciences, the
process of encryption and decryption has become based on complex computational
algorithms that are difficult to solve, and even if the process of cracking the
code or solving these algorithms - without decoding them in the way they were
prepared from the beginning - is theoretically available, it is not possible to
do Through the well-known and currently existing information means, which is
why the assumption of its security and confidentiality has been proven so far.
This
is known as cryptanalysis and means the study of decoding cryptographic
algorithms and their applications to obtain the content and source of
information or encrypted assets without access to the key required to do so.
That
is, we can shorten the difference between decryption and cryptanalysis to that
decoding means returning the encrypted codes context to its first state using
the cipher key prepared from the beginning to re-translate these codes to what
they were, while cryptanalysis is an attempt to decipher those codes By trial
and error an incredible number of times to arrive at a cryptographic algorithm
solution to translate the encrypted symbols and know the original context
without knowing the key۔
How
did the idea of electronic cash transactions begin?
Proceeding
from the idea of encryption and decoding, as well as coding analysis, the
idea of creating digital currencies was born Cryptocurrency, that is, the
digital virtual currency that has been encrypted for secure and confidential
transactions, as it is created and stored electronically without a supervisory
authority or a central bank controlling it, and it has no physical entity such
as currencies Other regular or so-called mandatory cash issued by central banks
such as the Saudi riyal (SAR), the euro (EUR) or the US dollar (USD).
The
idea of a digital or electronic alternative to the usual cash transaction
began in the late eighties approximately in the Netherlands in a series of
refueling stations or petrol stations on the highway in which many thefts
occurred, and the administration tried to find a solution to this problem, so
the administration hired a group of programmers and developers to link money to
cards Especially through which drivers wishing to deal with these stations can
obtain fuel from them without the need to deal with paper money in those
stations, and thus there is no or at least the money will be significantly
reduced from the stations in order to reduce cases of theft, after which the
idea of the birth of smart money cards developed, Which used to reflect the
idea of money saved in an electronic form encrypted in the card, while at the
gas station there is a device to decode that code, which is the point of sales
or what is known today as the idea of POS or point-of-sale. This is the first
image of electronic money that has evolved to reach what it is now.
The
beginning of the idea of digital currencies or cryptocurrencies
To
complement the idea of electronic transactions and almost at the same time or
a little before, there was an idea wandering in the head of an American
programmer named David Chaum, its content revolves around financial privacy and
trying to simulate coins or paper into token money that has the same ability to
deal in payments and move from hand To a hand safely and privately, he created
an algorithm formula through which money could be passed between the sender and
the recipient in a hidden and untracked way through a token currency he called
at the time Chaum. 1998 in which he nevertheless laid a strong foundation for
the idea of algorithmic formulas for token cash transactions or
cryptocurrencies.
To
complement the same idea, another software called Wei Dai begins to put forward
the idea of an integrated, hidden, untracked monetary system that achieves
the idea of privacy and security, called B-money, where transactions are
carried out through symbolic pseudonyms to analyze currencies within a
decentralized network, and he has already presented the paper The whitepaper
presented for his project, but the idea did not receive the welcome and desired
popularity, so it was not successful. It is worth noting that the presentation
paper presented by Satoshi Nakamura for the idea of Bitcoin - which we will
talk about in detail in a later article - contained some of the elements that
were mentioned in the whitepaper The B-money project, which means that it was
the real start of the race towards the development of cryptocurrencies.
The creation
of digital currencies
After
the path became paved for the creation of digital currencies, and with the
development of technology and information, complex cryptographic protocols were
born based on the principles of mathematics and advanced computer engineering
that made it almost theoretically impossible to break. The programmers of
digital currencies relied on them through very complex coding systems that
encrypt data transmissions to secure units Its exchange, in addition to its
ability to conceal the identity of its dealers, making transactions, transfers
and money flows anonymous, in order to achieve the principle of privacy, which
was the main endeavor from the beginning.
Thus,
we can say that the digital currency is a software computer program, but it is
a decentralized program, that is, it is not installed or built on one
particular device, but rather it is distributed, which means that it is hosted
on many computers for many individuals around the world instead of hosting on a
single server by a specific individual or company.
The
supply and value of cryptocurrencies are controlled by the activities of their
users through highly complex cryptographic protocol codes. Every function or
transaction, from how transactions are recorded to how data is stored, is
reduced to a special code that is usually stored in a type of database known as
a string. Blocks - Blockchain, which is a comprehensive, distributed, protected
and hidden record of all digital currency data and transactions, and by
processing these algorithms in general, the digital currency is given to the
user who adds transactions to the blockchain network or the blockchain, and the
process of adding transactions to the blockchain is known as mining .
It
remains to be known that one of the most important characteristics of most
digital currencies, but not all, is that they have limited numbers of units.
That is, most digital currencies were produced on the idea that they have a
market cap, that is, the process of encrypting the creation protocols from the
beginning created a specific number of currencies With each decryption process
- or mining by adding a transaction - the number of the stock gradually
decreases, and this is similar to the idea of precious metals, for example,
the more gold is extracted, the less the reserve stored in the ground. It
becomes difficult for miners to produce cryptocurrency units, until the upper
limit is reached and minting stops completely.
To
understand this in a simpler way, Bitcoin is one of the most famous digital
currencies, and the most valuable currently, as a digital currency that has
been encrypted from the beginning, provided that the code contains only 21
million pieces, and once all of them are mined or extracted, there will be no
new Bitcoins, that is, there will be no Printing new money as it happens in
other regular currencies, and this means that if you own 1 Bitcoin, it means
that you own 1/21000000 of the total wealth of the world in Bitcoin.
Advantages
of digital currencies
Below
we list the most important advantages of dealing with digital currencies, which
have emerged with its spread in the recent period
1.
Protected from losing value, or inflation
Inflation
is the scourge of the world’s economies, and many ordinary currencies have
faced and face the threat of inflation, but the idea that digital currencies
are produced on the basis of determining a market ceiling for them, and a
limited amount of them, increases with the high demand for them their value in
line with the market, and protects them from inflation in the long run. the
long
2.
Self-control and sustainable maintenance
Managing
and maintaining any currency is one of the main factors in its development and
sustainability. In cryptocurrencies, transactions are stored by miners in the
blockchain network on their computers, and in return they get the same currency
as a reward. Therefore, they keep transaction records accurate and constantly
updated, which maintains the integrity of the digital currency and its
decentralized record.
3.
Security and privacy
It
can be said based on what we mentioned in our article here from the beginning
that they were the main motive for building digital currencies from the ground
up, so the records of the Blockchain network are based on different
cryptographic algorithms that are difficult to decipher or analyze. This makes
the digital currency more secure than normal electronic transactions, in
addition to using pseudonyms or account numbers that are not linked to any
user, account or stored data that can be linked to a profile, in order to
achieve the principle of privacy.
4.
Easy currency exchange
One
of the very important advantages, which gave digital currencies a real value in
the middle of physical transactions, as it can be exchanged for regular
currencies as a corresponding exchange value, which means that each has a
variable exchange rate with the main global currencies - such as the US dollar
USD, GBP, EUR or yen Japanese JPY - which helped in its spread, acceptance and
demand as an alternative to regular cash transactions, and equivalent in value.
5.
Decentralization
Unlike
regular currencies or fiat currencies controlled by governments represented by
central banks, digital currencies are decentralized in nature and cannot be
controlled, increased, stopped dealing with, or made available except by those
who use them and own the largest amount of them, or through the organization of
their creation Or develop it before putting it on the market, which helps it
preserve it from monopoly and protect it from determining the flow or value to
ensure its stability, privacy, transparency and security
6.
Low cost and speed of transfers
One
of the main uses of digital currencies is the transfer of funds, and the cost
or fees of transfers are one of the most important factors that are taken into
account to judge the quality of a system or transfer process, in digital
currency exchanges the transaction fees paid by the user are reduced to a small
amount or maybe even zero and are directly between user accounts and quickly.
So we do not need third parties, such as VISA or SWIFT, to verify the
transaction. This eliminates the need to pay any additional transaction fees,
or wait a long time.
Disadvantages
of digital currencies
As
it has advantages, dealing with digital currencies has some disadvantages that
must be taken into account before dealing with or investing in them, and they
are as follows:
1.
It is easy to use in illegal transactions
Security
and absolute privacy, which were the most important features that make it
difficult for governments to track any user through his wallet address or know
his data, and we may mention that Bitcoin was used as a means of exchanging
money and financing in many illegal transactions, and some also use digital
currencies to launder money that they obtained in a way Illegal through a clean
medium to hide its source.
2.
Loss of data can mean huge financial losses
Cryptocurrency
developers wanted to create source code with untraceable encryption algorithms
and unbreakable authentication protocols, with the aim of making keeping money
via cryptocurrency more secure and confidential than traditional cash, but the
flip side of this much privacy is that if a user loses the private key to access
their wallet digital or its account, it cannot be restored. The wallet will
remain locked on the coins in it, making it in the judgment of lost
3.
Some digital currencies cannot be exchanged for regular currencies
Which
loses it the advantage of the exchange as some digital currencies can only be
traded against one currency or certain currencies. This forces the user to
convert these digital currencies to one of the major currencies, such as
Bitcoin or Ethereum first and then through private exchanges, and then to the
currency they want. This only applies to a few cryptocurrencies, so fees or
commissions may be added to additional transactions in the process, costing
unnecessary money.
4.
The negative effects of mining on the environment
Mining
is a complex process that requires modern and sophisticated computers, which
makes it energy-intensive. This cannot be done on normal computers. Bitcoin
miners in countries like China that use coal to produce electricity, their work
increases China's carbon footprint tremendously.
5.
Cryptocurrency exchanges are vulnerable to hacking
Despite
the security and privacy of cryptocurrencies, their exchanges are not that
secure. Most exchanges store users' wallet data to properly operate their User
ID. Professional hackers can infiltrate and access this data and also steal the
digital currencies stored in it. Some exchanges, such as Bitfinex or Mt Gox,
have been hacked in the past years and thousands of Bitcoins worth millions of
US dollars were stolen. Most of the exchanges are currently very safe, but
there is always the possibility of another hack.
6.
There is no refund or cancellation policy
Financial
dealing in digital currencies is like other financial transactions, if there is
a dispute between the parties involved, or if someone sends money by mistake to
a wrong wallet address, the sender cannot recover the digital currencies sent.
This can be used by many scammers to steal money. Since there are no refunds or
returns in the process, a transaction whose product or services were never
received can easily be created.
Today,
there are more than 1,324 encrypted digital currencies in the market, which,
despite being an electronic virtual currency, has spread in electronic
transactions on the Internet and has been accepted in many international
stores, especially Bitcoin.
