What is a cryptocurrency?

Usually when we talk about Bitcoin in OroyFinanzas.com we define it as cryptocurrency, for that reason, and to provide knowledge about the new concepts that are appearing in the Bitcoin world, we are going to define the term.

On many occasions, when talking about Bitcoin, the terms ‘virtual currency’, ‘digital currency’, and ‘cryptocurrency’ are often used interchangeably in the press. Therefore, we believe it is convenient to start by defining these terms:

What is a virtual currency?

The European Central Bank (ECB) defined in 2012 ‘virtual currency’ as “a type of unregulated, digital money, which is broadcast and usually controlled by its developers, and used and accepted among the members of a specific virtual community

What is a digital currency?

Digital currency, however, is a form of virtual currency that is created and stored electronically. Cryptocurrencies are a type of digital currency, but not the only ones.

The cryptocurrencies are, therefore, a subset of the digital currencies based on cryptography.

The prefix crypto, comes from the Greek word kruptos, which means hidden, secret. Cryptography is the study of information encryption methods, mainly used to send a message in a secure and private way, and for the security and authentication of data.

Definitions of cryptocurrency

Currently there is no definition of cryptocurrency in the dictionary of the Royal Academy of the Spanish Language. The Oxford dictionary included the definition of its translation in English (cryptocurrency) last May:

“A digital currency that uses encryption techniques to regulate the generation of currency units and verify the transfer of funds, and that operates independently of a central bank.”

The Cambridge dictionary, meanwhile, has defined with these terms the English word:

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

The digital newspaper specializing in Bitcoin Coindesk defines the term cryptocurrency as:
“A form of currency based solely on mathematics. Instead of the fiduciary currency, which is printed, a cryptocurrency is produced by solving mathematical problems based on cryptography. ”

Wikipedia defines it as: “A cryptocurrency is a means of exchange that cryptography uses to secure transactions and control the creation of new units.”

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

In its origin, the cryptocurrencies use a distributed network to allow P2P payment – Peer-to-Peer (peer-to-peer), 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, in Spanish) 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 working proof 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 fully decentralized cryptocurrency, using a chain of blocks (blockchain in English) with proof of work. Bitcoin uses the SHA-256 algorithm, a cryptographic hash function, as its work proof scheme (Proof-of-Work in English).

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

The first alternative cryptocurrency that emerged after Bitcoin was Namecoin. He was born in April 2011. Soon after, in October 2011, Litecoin was born. It differs from Bitcoin in that it uses scrypt as its SHA hash function for work proof, instead of SHA-256. Another prominent cryptocurrency is Peercoin (2012), which was the first to use a proof-of-work / proof-of-stake hybrid (proof of work / participation test).