You have certainly crossed the word cryptocurrency or digital coin while surfing the net or even heard it on TV. Yet you may not be totally familiar with the concept and it is OK.
In this article we will discuss the concept of cryptocurrency and how it works thoroughly so that you can then explain it to your friends and show off the knowledge that you have. Although your friends would also appreciate it if you could introduce us to them so that they can learn all about blockchain and crypto world on their own.
What is Cryptocurrency?
In order to know what cryptocurrency is, it is better to know what cryptocurrency does. Through cryptocurrencies, financial transactions can be done on internet without the need of a third party. The digital coins are encrypted, untraceable coins that can not be hacked by any thief or controlled by any authority. Such encrypted currencies are used in the modern era for the purpose of safety in the realm of financial transactions, relationships and information. The first and most well-known cryptocurrency is Bitcoin which was based on a safe platform called blockchain by a pseudonymous individual or group people called Satoshi Nakamoto . Here, you can learn more about bitcoin!
Now blockchain is considered as the entrance gate of cryptocurrencies since the digital asset is based on blockchain. We will cover blockchain in another article but in order to get started on understanding the concept of cryptocurrencies, you need to know a basic definition of blockchain.
Blockchain, as its name offer, is a chain of blocks inside a decentralized network which has removed the existence of a main and central authority in control. It is in fact managed by users connected to its network. This is how blockchain is considered completely safe. However, the concept needs a lot more than a paragraph and you can get the full article here.
The crypto world has been on fire during the last decade and right now we can witness the existence of at least 1000 different kinds of coins being traded in exchanges. Yet, it does not have any physical essence and is completely digital.
How cryptocurrencies work?
As we said, cryptocurrencies are digital assets that fulfill financial transactions without the use of any medium like banks. The data of such transactions are stored on a digital ledger which is secured using a strong cryptography. Almost all these coins are running a distributed ledger called blockchain and they can be mined using hardware with great computing power.
- No medium needed
- No control or management of government
What is the distributed ledger technology (blockchain)?
Any system or network that is not managed or controlled by an individual or central organization, is called decentralized. Now imagine such a system is also distributed.
What does is it mean? You may ask!
A decentralized network which is distributed means that it is managed by its users. This way, every user connected to the network is considered as the manager of the network and along with accessing to a copy of the whole network. Since every user has a copy of the whole network, changing the information stored on it is impossible and that adds up to its security.
Storing your digital assets
You have probably asked this question before you get here: How can I store my digital asset?
Certainly, you cannot store a digital asset without any physics in your pocket or wallet. Therefore, to store them, a new technology called digital wallet or crypto wallet was designed. Your digital assets like bitcoin or any other cryptocurrencies that you buy should be stored on one of these wallets. Actually, the digital wallet acts as the medium between you and the blockchain and without it, you can not work in crypto world.
Furthermore, these digital wallets have many security features that you need to know since you don’t want to loos all your money just because of a simple mistake like not choosing the right wallet. Therefore, I suggest you read the article on digital wallets to know all about its concept and their kinds.
Most popular cryptocurrencies
As it was said earlier, the number of cryptocurrencies has received a great increase in the past decade and is growing rapidly. However, a few of them have gained the largest portion of the market.
Bitcoin: Bitcoin is the first and most popular cryptocurrency of the world which was introduced to the world of economy in 2009 by a pseudonymous person or persons called Satoshi Nakamoto. Currently it has gained the biggest part of the market and its market cap is more than $70B and the value of each BTC at the time of this article is around $8500.
Ethereum: Ethereum was first introduced by a young Russian man named Vitalik Buterin in 2015. Ethereum has its own private blockchain just like bitcoin, but its not just a payment method. Ethereum has provided its users with a blockchain on which many decentralized software and smart contracts can be executed. The value of this cryptocurrency at the time of this article is around $190.
Ripple: As its owners claim, ripple known by XRP is the fastest & most scalable digital asset, enabling real-time global payments anywhere in the world. It was first introduced in 2012 by Arthur Britto, David Schwartz and Ryan Fugger. The value of ripple at the time of this article is around $0.2.
Litecoin: In 2013 Litecoin was introduced having small differences with Bitcoin. It came to make the transactions faster and the mining easier. Currently, its value is around $42.
Bitcoin Cash: Bitcoin cash is a fork of Bitcoin. It is an altcoin which was created in 2017. At the time of this article, it is valued around $230.
How to earn cryptocurrencies?
There are several methods to earn cryptocurrencies and consequently from them.
Trade: One of the most profitable and at the same time dangerous methods of earning cryptocurrencies is trading. Cryptocurrencies transaction done by traders are based on market and technical analysis of how a crypto is going up or down in a specific period of time. If you can do it well, you can earn a lot more than stocks.
Mining: Another good way of earning crypto is through mining. Since cryptocurrencies blockchains are distributed, then in order for a transaction to complete, there should be some active users with high computing power. The confirmation and completion of these transactions are done using the computing power of the CPU of these users’ hardware. After a transaction is done, a specific amount of that crypto is rewarded to the users participating in the process. This process is called mining.
For mining you need a hardware with strong computing skills and high durability to stay on for a long time. You can also buy miners which are specifically designed for this purpose, but make sure you know all the details about the m before making any effort to buy one.
Cryptocurrencies are one aspect of a whole new technology which is changing the world around us. Blockchain can be used in every corner of life and cryptocurrencies are the first step. Now you can say that you have started to learn about blockchain.