Okay, crypto, blockchain, Bitcoin, Safemoon, China, proposed US government regulations, Dogecoin, and Elon Musk are all trending topics these days when it comes to the world of crypto. But…what is it?
Here we go and I’ll try to keep jargon terms to a minimum without further explanation.
Cryptocurrency 101: Basics
Cryptocurrency is a digital currency. Cryptocurrency is based on blockchain technology (more on that later). It uses cryptography to secure transactions and to verify the transfer of funds. Blockchain is often used in conjunction with cryptocurrency.
From a wiki for cryptocurrency, blockchain “is a continuously growing list of records called blocks, these blocks are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp, and transaction data. By design, there is no centralized database or mint for these currencies.” It provides an entire ecosystem that allows peer-to-peer value exchange through encrypted software technology [source]. First, you can transfer funds between accounts by checking the balance of one account and sending funds from that account to another.
For example, if I have 5 Mooncoin in my wallet. I want to send 1 to Safemoon for something we are working on together. (The Mooncoin currency is a fun one.) I check my wallet and see that I have 5 Mooncoin. Then I go to Safemoon’s address, a string of characters and numbers: “XMFivvts4Q56TE5QZ3XSbrci4m4sK6bboMJwvxXp9Db5PYF 8Uu”. Then, I send 1 Mooncoin. Within minutes, Safemoon knows she has 1 Mooncoin and I no longer have 5 Mooncoin. If we want to buy or sell from others, we can check the price of the currency against other currencies like Bitcoin to figure out the value.
Wait, stop. Blockchain…let’s talk about it really quick then get back on track. Blockchain is simply a ledger like a checkbook registry or spreadsheet to track items. Of course, there is a much more technical foundation for securing those items tracked within a blockchain an so on but if no one can understand the complex tech, how can we trust it and use it? Right?
This is where cryptocurrency comes into play and why I have spent the last few years involved in it. So, Don’t be scared, but cautious.
Cryptocurrency is a trustless system. Trustless systems are those lacking the need for centralized trust like financial institutions, governments, etc. In other words, these transactions occur without a third party service providing guarantees about whether or not funds will be available when needed. This is often referred to as “self-executing contractual states” or “smart contracts”.
How can a system provide trustless transactions? A list of transactions is compiled into a ledger. These transactions are grouped in blocks that are chained together to ensure that no party can make a change to the records without the consent of every other party on the network.
Whoa! Wait, what? It’s true. Let’s break it down further: In order to make sure a transaction is legitimate, every party on the network must first agree upon the transaction. This is how a distributed ledger functions. A blockchain system ensures that it is impossible for one person to change or alter any transactions without the approval of others who are part of that network.
This could be an online account like a bank, credit card company, or digital currency exchange like Coinbase and Binance that hold customer funds in virtual wallets (crypto wallets) and accept transactions to their accounts for goods or services using other cryptocurrencies.
Benefits of cryptocurrency?
One of the biggest benefits of cryptocurrency is its decentralized nature.
Decentralized Nature: This means that no central authority issues new money or tracks transactions. Decentralization stands in stark contrast to centralized banking systems where large entities like banks control currency issuance and transactions. A central authority has the potential to censor your money flow or freeze your assets depending on their whimsy or current policies.
Cryptocurrency was developed to create a system that was “unstoppable, censorship-resistant, and required no trusted third parties”. The goal of cryptocurrency was to have a system that could transform the relationship between individuals and the trust placed in centralized institutions. Cryptocurrency is designed to operate outside of national borders and is not subject to regulation or control by any government.
Transactions can be sent anywhere in this world without permission via email addresses or wallet addresses.
What is cryptocurrency?
To repeat: Gold, gold bars, silver and silver coins, are all forms of currency. Cryptocurrency is a money system that uses cryptography to secure transactions. Cryptocurrency was developed to create a system that was “unstoppable, censorship-resistant, and required no trusted third parties”. The goal of cryptocurrency was to have a system that could transform the relationship between individuals and the trust placed on centralized institutions.
Since its inception in 2008 by an anonymous application developer (or group of developers) known as Satoshi Nakamoto, cryptocurrency has undergone explosive growth into an emerging financial technology that touches nearly every industry in some way. Some form of cryptocurrency is expected to be a part of your future as a business leader.
The Rise of Cryptocurrency
In 2009, the first cryptocurrency, Bitcoin was created. It was intended to serve as an alternative to traditional money transfer systems. Since then, more than two-thousand cryptocurrencies have been developed and are in use today. However, Bitcoin still remains the most popular and widely used cryptocurrency on the market. There are several reasons for this popularity including its brand recognition and ease of use. However, its popularity is also due to the fact that it has already proven that cryptocurrencies can become widely adopted by individuals and countries around the world despite their volatile nature.
Where does cryptocurrency come from?
The answer is mining. This is how new cryptocurrency is created and put into circulation. Once a transaction has been verified on the blockchain, miners compete to solve complicated math problems that are used to confirm new transactions on the blockchain network. The first miner to solve the problem receives a reward in cryptocurrency for their efforts.
Like gold, cryptocurrency is also limited in supply. There is a mathematical limit to the total number of bitcoins that can be created. In fact, there could never be more than 21 million bitcoins because of this limit. However, most other cryptocurrencies do not have hard caps on their supply and some could eventually reach an unlimited supply depending on how the token creators design how the supply works.
What is the difference between a stable coin and a DEP20 token?
A stable coin is a cryptocurrency that is pegged to a fiat currency. This means the value of the cryptocurrency remains consistent with the USD but in addition, it is backed by the US Dollar. If you take out this backing, then the value of a stable coin will almost surely go down as its supply becomes less precise compared to its tether USD counterpart.
This can also be called a “sovereign” token. These tokens are not backed by any central authority or counterparty like they are on a DEP20 blockchain where these tokens are pegged on top of one central authority or counterparty. Instead these tokens have their own independent blockchain and can be pegged to a cryptocurrency, fiat currency or another token. These types of tokens are most susceptible to volatility as the market is not tied to a centralized entity whose policies can change.
Why use cryptocurrency?
Cryptocurrency offers several benefits, primarily because of its decentralized nature. However, it also offers some tremendous benefits in the way that it allows for utility-based tokens that are not possible with traditional financial instruments like stocks or bonds.
First of all, cryptocurrency is available anywhere in the world almost instantly. This means international payments do not rely on banks to facilitate funding and processing as with other payment methods like wire transfers.
What is a token exchange?
A token exchange is a marketplace where you can trade cryptocurrency tokens. These tokens are considered as digital assets in which traders can buy and sell them on an online exchange. Since these assets have no intrinsic value, they rely on investor confidence to function.
If you’re interested in investing in digital currency, then it’s important that you invest only as much as you can afford to lose. This is because cryptocurrencies are quite volatile and there is a strong likelihood that they may decline in value over time. In most cases, the currencies will rise again, but there is no guarantee of this happening so it’s best to be prepared for both outcomes when investing in these types of currencies.
What is a wallet?
A wallet is a digital storage for your cryptocurrency. If you’re a cryptocurrency enthusiast, then your most important duty is to keep the private keys in a safe place. However, you should also keep track of other factors that are important when it comes to using cryptocurrencies.
The most common factor to take note of when it comes to cryptocurrencies and their wallets is the fact that these assets are always at risk of being stolen so you should always make sure that your wallet uses multi-factor authentication or 2FA and use other security measures like encryption whenever possible.
What is a hardware wallet?
A hardware wallet is a small and portable physical device that connects to the Internet. It is considered to be one of the safest methods of storing cryptocurrency because it is nearly impossible to hack. This means you can store your cryptocurrency in this type of physical storage for an indefinite period of time and not have to worry about them being hacked or compromised in any way.
What is a cold wallet?
Cold wallets are physically disconnected from the Internet. This means there are no risks related to hacking or intrusions from 3rd parties. This is because you need to be capable of backing up the wallet’s private key if you lose it in storage.
Why use a hardware wallet?
If you’re serious about storing your precious cryptocurrencies, then a hardware wallet is the best method to reduce risks associated with traditional methods. You can store these online or offline based on your own preference. With this physical device, you can control access to your digital assets and provide safer and more reliable storage for them than with other ways of storing cryptocurrencies, like paper wallets.
What types of online wallets exist?
There are two primary types of online wallets. These are custodial wallets and non-custodial wallets. With a custodial wallet, the platform you are using has full control over your cryptocurrency and they can also make modifications to their terms and conditions at any time without your permission. When it comes to non-custodial wallets, your cryptocurrency is stored on a third-party server but you retain full control over your private keys.
What is a smart contract?
A smart contract is a fully autonomous digital mechanism that executes the terms of an agreement regardless of disruptive events (like hardware failures or network hacks). A pure smart contract requires no third parties to enforce or perform actions. The value of cryptocurrencies rises and falls based on the ability of all participants to hold onto their money. A smart contract is a type of digital contract that allows people to interact with each other while having these interactions verified and recorded on the blockchain network forever.
What is mining?
Mining is what allows users to validate the blockchain and earn cryptocurrency for their efforts. While no one can deny that mining cryptocurrencies can be profitable, it should only be considered an investment tool if you know how it works in detail. It’s important to understand the difference between Proof of Work (PoW) and Proof of Stake (PoS).
Mining is simply the process of verifying cryptocurrency transactions and recording them on the blockchains. A block consists of a chain of transactions that have been verified by miners. These blockchains are stored on many computers around the globe called “nodes”. These nodes are run by miners and they record all activity on their respective chains locally to verify that all parties involved in a transaction have agreed to it, to make sure that the same transaction has not been duplicated, and to ensure that transactions have not been altered after they were agreed upon.
In order for these nodes to process data, each must solve complex algorithmic math puzzles which are easily solved with parallel processing but it takes a very long time with a single processor.
Are there scam cryptocurrency tokens?
There are scam coins whose value is based on the hype that they reach. One of the most widely used terms in cryptocurrency is an ICO (Initial Coin Offering). This term is used to describe the process that companies go through in order to raise money by issuing their own cryptocurrency and selling it to investors. Before you can invest in a company issuing an ICO, you should find out whether or not they are operating legally or if they are registered as a security with any regulatory agencies. It’s vital that you conduct due diligence before investing in an ICO and you should never invest more than you can afford to lose.
How do you know if a cryptocurrency is legit?
The best way to figure out whether or not a cryptocurrency is legitimate is to do thorough research. If you’re interested in learning more about the company issuing an ICO, then you should understand who the founders are and what their respective roles are, as well as what their goals are for the project they’re promoting. You should also be able to find information regarding the developer’s team so that you can learn more about the experience of those behind the project.
Resources for performing cryptocurrency research
Here are a few sites that may be helpful when researching ICOs and various cryptocurrency values and news.
Coinmarketcap is a great site for seeing crypto-currency market cap rankings. It lists all of the most valuable cryptocurrencies on a single page. You can also see the total number of coins in circulation and the price of individual tokens along with their daily changes.
CryptoPanic is a site that keeps you up to date on cryptocurrency values and trends, including ICO statistics, price predictions, and a lot more. It’s a great feed to have open on a streaming basis if you have monitor room to spare.
Well-Known Cryptocurrencies
The following are descriptions of the most well-known cryptocurrencies available today. This list includes both old and new cryptocurrencies, so you can get an idea of where the field of cryptocurrency has come from and where it’s headed in the future. The prices given here are approximate based on the market value for one unit (coin) at the time of writing.
Bitcoin
Bitcoin is the most popular cryptocurrency available today, followed by Ethereum, Litecoin and Ripple. It was created in 2009 by a mysterious computer programmer or group of programmers named Satoshi Nakamoto. Bitcoin was released as an open-source software for anyone to use along with the instructions on how to use it. The concept behind Bitcoin is that it is not controlled by anyone; there are no third parties involved in converting its value and no central authority controls who can or cannot use it. This means that when one user exchanges their Bitcoin for another, the transaction will be completed instantaneously with no fraud involved. As of January 2019, the value of one Bitcoin is still $15,060.20 USD.
Bitcoin mining is the process of confirming transactions and adding them to the blockchain; it is what creates new cryptocurrency units. Once you have Bitcoin, you can use it to purchase other cryptocurrencies such as Ethereum or LiteCoin. This process is called “mining” because miners are rewarded with new cryptocurrency for their effort. It’s important to note that there are many different types of mining available including; Proof-of-Work (PoW) and Proof-of-Stake (PoS). When choosing between these two, you should keep in mind that while PoW takes a great deal of time, PoS minimizes user rewards for security reasons.
Ethereum
Ethereum is next on the list of popular new cryptocurrencies. In 2014, it was founded by Vitalik Buterin who wanted to have a cryptocurrency that would work as an alternative to Bitcoin. However, Ethereum allows developers to build applications on top of it which can then run without needing to be verified by anyone else. This makes it easier for Ethereum to scale into a viable option for enterprise-level use cases. As of January 2019, the value of one Ether (the unit used when making transactions) is $151 USD.
Litecoin
Created in 2011, Litecoin is a cryptocurrency that’s based on Bitcoin. However, it was created with a different approach to solving the blocksize problem by decreasing the amount of data that’s recorded in each block and increasing the maximum number of transactions that can be added per second. As a result, Litecoin has no blocksize limit and allows for faster processing times. In January 2019, the value of one Litecoin is $183 USD.
Ripple (XRP)
This cryptocurrency was launched in 2012 as an alternative to Bitcoin. It’s based on blockchain technology rather than Bitcoin’s PoW system, which is why it has a secure ledger instead of a blockchain. Ripple uses a ledger that directs the creation of new cryptocurrency units as needed rather than having each unit created at a fixed rate. This means that in the case that one unit is worth less than another, they can be swapped with each other without affecting other transactions because they are handled separately. In January 2019, the value of one Ripple (XRP) is $0.28 USD
Okay, let’s also talk about Dogecoin.
Dogecoin
Created in 2013, Dogecoin is based on Litecoin. The main difference between Dogecoin and other cryptocurrencies is that it uses a different proof-of-work algorithm known as Scrypt. This means that mining Dogecoin is easier to do with a normal computer than it is with most other cryptocurrencies. This also means that there are far fewer blocks created per day than there are for other cryptocurrencies, which makes them easier to mine in bulk. Of course, we saw the rise of Dogecoin due to none other than the Dogefather, Elon Musk, who helped pump-and-dump Dogecoin during SNL to an all-time high then quickly preceded to fall down to an all time low where it currently hovers between $0.17 and $0.23 USD as of this post.
Conclusion
Crypto-assets have become more mainstream and you can find an abundance of information on the Internet regarding them. Before investing in any cryptocurrencies, you should understand how they work and what role they serve in the blockchain ecosystem. Fortunately, I’ve given you a list of resources that will make this process a lot easier.
You can find an abundance of FAQs on any given cryptocurrency that has become mainstream so take your time and read thoroughly before making any investment decisions. Much of your research will depend on how dedicated you are to understanding the tech behind these digital assets so be sure to explore as many details as possible if you want to learn everything there is to know about cryptos.
Disclaimer:
Cryptocurrencies are highly speculative and risky investments. It is important to do your research before choosing any coins or tokens you want to invest in. Cryptocurrencies can still be a solid investment, but you should not expect huge returns in the short term.
This post is by no means meant to discourage anyone from investing in cryptocurrencies and blockchain technology. I am merely trying to convey that there are a lot of unknowns and high risks involved with this new technology. It may take years for cryptocurrencies to catch on, but there is also the possibility that they will never break into mainstream use at all.
