Crypto Basics: What is cryptocurrency?
Cryptocurrency is a new kind of internet money.
You can use it to buy things online, and you can send it instantly to other users anywhere in the world, at a meager cost,
needing nothing more than a smartphone and an internet connection.
Cryptocurrency can be cheaper and more convenient than many existing services like Paypal or Transferwise,
if – for example – you regularly send money overseas. Several million people are actively using it today for that purpose.
Worthwhile as that is, it isn’t what’s drawing people’s attention
1. Crypto Definition
Below is a list of six things that every cryptocurrency must be for it to be called a cryptocurrency;
Digital:
Cryptocurrency only exists on computers.
There are no coins and no notes. There are no reserves for crypto in Fort Knox or the Bank of England!
Decentralized:
Cryptocurrencies don’t have a central computer or server.
They are distributed across a network of (typically) thousands of computers.
Networks without a central server are called decentralized networks.
Peer-to-Peer:
Cryptocurrencies are passed from person to person online.
Users don’t deal with each other through banks, PayPal or Facebook. They deal with each other directly.
Banks, PayPal and Facebook are all trusted third parties. There are no trusted third parties in cryptocurrency!
Note: They are called trusted third parties because users have to trust them with their personal information to use their services.
For example, we trust the bank with our money and we trust Facebook with our holiday photos!
Pseudonymous:
This means that you don’t have to give any personal information to own and use cryptocurrency.
There are no rules about who can own or use cryptocurrencies. It’s like posting on a website like 4chan.
Trustless:
No trusted third parties mean that users don’t have to trust the system for it to work.
Users are in complete control of their money and information at all times.
Encrypted:
Each user has special codes that stop their information from being accessed by other users.
This is called cryptography and it’s nearly impossible to hack.
It’s also where the crypto part of the crypto definition comes from. Crypto means hidden.
When information is hidden with cryptography, it is encrypted.
Global:
Countries have their currencies called fiat currencies.
Sending fiat currencies around the world is difficult.
Cryptocurrencies can be sent all over the world easily. Cryptocurrencies are currencies without borders!
2. The Origin of Cryptocurrency
In the early 1990s, most people were still struggling to understand the internet.
However, some very clever folks had already realized what a powerful tool it is.
Some of these clever folks, called cypherpunks, thought that governments and corporations had too much power over our lives.
They wanted to use the internet to give the people of the world more freedom.
Using cryptography, cypherpunks wanted to allow users of the internet to have more control over their money and information.
As you can tell, the cypherpunks didn’t like trusted third parties at all!
At the top of the cypherpunks, the to-do list was digital cash.
DigiCash and Cybercash were both attempts to create a digital money system.
They both had some of the six things needed to be cryptocurrencies but neither had all of them.
By the end of the nineties, both had failed.
Satoshi Nakamoto creator of bitcoin:
The world would have to wait until 2009 before the first fully decentralized digital cash system was created.
Its creator had seen the failure of the cypherpunks and thought that they could do better.
Their name was Satoshi Nakamoto and their creation was called Bitcoin.
Understanding cryptocurrency means first understanding Bitcoin
3. The Story of Bitcoin
No one knows who Satoshi Nakamoto is. It could be a man, a woman, or even a group of people.
Satoshi Nakamoto only ever spoke on crypto forums and through emails.
In late 2008, Nakamoto published the Bitcoin whitepaper.
This was a description of what Bitcoin is and how it works.
It became the model for how other cryptocurrencies were designed in the future.
On January 12, 2009, Satoshi Nakamoto made the first Bitcoin transaction. They sent 10 BTC to a coder named Hal Finney.
By 2011, Satoshi Nakamoto was gone. What they left behind was the world’s first cryptocurrency.
Bitcoin became more popular amongst users who saw how important it could become. In April 2011, one Bitcoin was worth one US Dollar (USD).
4. What is Blockchain?
All cryptocurrencies use distributed ledger technology (DLT) to remove third parties from their systems.
DLTs are shared databases where transaction information is recorded.
The DLT that most cryptocurrencies use is called blockchain technology.
The first blockchain was designed by Satoshi Nakamoto for Bitcoin.
A blockchain is a database of every transaction that has ever happened using a particular cryptocurrency.
Groups of information called blocks are added to the database one by one and form a very long list.
So, a blockchain is a linear chain of blocks! Once information is added to the blockchain, it can’t be deleted or changed.
It stays on the blockchain forever and everyone can see it.
The whole database is stored on a network of thousands of computers called nodes.
New information can only be added to the blockchain if more than half of the nodes agree that it is valid and correct.
This is called consensus. The idea of consensus is one of the big differences between cryptocurrency and normal banking.
At a normal bank, transaction data is stored inside the bank. Bank staff makes sure that no invalid transactions are made.
This is called verification.
5. So, What is Cryptocurrency Mining For?
It’s the way cryptocurrency networks like Bitcoin verify and confirm new transactions.
It stops double spending without the need to trust centralized accounting as banks do.
Cryptocurrency blockchains aren’t secured by trust or people.
They are secured by math done by computers!
6. Using Cryptocurrencies
Using cryptocurrencies isn’t like using fiat currency.
You can’t hold crypto in your hand and you can’t open a cryptocurrency account.
Cryptocurrency only exists on the blockchain.
Users access their cryptocurrency using codes called public and private keys.
It’s a bit like sending emails. If you want someone to send you an email, you tell them your email address.
Well, if you want someone to send you cryptocurrency, you tell them your public key.
Now, if you want to read your emails or send an email, you need to enter your email password.
This is how private keys work. Private keys are like passwords for cryptocurrency.
Public keys can be seen by anyone, but private keys should only be seen by you.
If there is one paramount detail you should learn from this What is Cryptocurrency guide,
it’s that keeping your private keys safe is extremely important!
What is Cryptocurrency Private and public keys are kept in wallets.
Crypto wallets can be online, offline, software, hardware, or even paper.
Some can be downloaded for free or are hosted by websites.
Others are more expensive.
For example, hardware wallets can cost around a hundred US Dollars.
You should use several different kinds of wallets when you use cryptocurrency.
Whoever has the private and public keys owns the cryptocurrency, so don’t lose your wallets!
Cryptocurrency is pseudonymous, remember? There is no way to prove your cryptocurrency unless you have the keys to it.
7. Crypto Trading
Buying and selling cryptocurrencies has become a very big business. The total value of all the cryptocurrencies in the world is more than 350 billion US Dollars.
Just under 17 billion US Dollars’ worth of cryptocurrency was bought and sold today!
Binance cryptocurrency trading platform logo
You can trade online with crypto exchanges like Binance, KuCoin, and Kraken.
You can also arrange to trade cryptocurrencies in-person with peer-to-peer sites like LocalBitcoins.
The cryptocurrency market is an exciting place. Traders can make millions and then lose it all.
Cryptocurrencies are created overnight and then disappear just as fast.
My advice to any newbie trader out there is to only spend what you can afford to lose.
I know I sound like your Grandma, but it’s true!
Crypto trading should be used as a way to support technology and not as a quick way to get rich!
8. Can Crypto Save the World?
Crypto has a lot of critics. Some say that it’s all hype.
Well, I have some bad news for those people. Crypto is here to stay and it’s going to make the world a better place.
Centralized organizations have let us down.
In 2008, banks cost taxpayers trillions of dollars and caused the world economy to fall apart.
The credit checking agency, Equifax, lost more than 140,000,000 of its customers’ details in 2017.
This year, Facebook was forced to apologize for selling its users’ data.
Cryptocurrencies offer the people of the world another choice.
The governments of Syria, Yemen, and Libya have all failed to protect their people from violent civil wars.
What is cryptocurrency to the people of Syria? It’s hope.
Thirty percent of UN Aid is lost to third-party corruption so UNICEF has been using Ethereum to raise money for the children of Syria.
About 2 billion people around the world don’t have bank accounts. One in ten Afghanis is unbanked, many of them women.
What is cryptocurrency for an Afghani woman? It’s freedom.
Bitcoin is giving women in Afghanistan financial freedom for the first time.
Blockchain technology could be used for elections in some of the most corrupt countries in the world.
What is cryptocurrency for the people of Sudan or Myanmar? It’s a voice.
Free elections could be held without fear of violence or intimidation.
Cryptocurrencies can help make the world a fairer, safer, and more peaceful place for us all to live in.
9. How to store crypto
Once you have purchased cryptocurrency, you need to store it safely to protect it from hacks or theft.
Usually, cryptocurrency is stored in crypto wallets, which are physical devices or online software used to store the private keys to your cryptocurrencies securely. Some exchanges provide wallet services, making it easy for you to store directly through the platform.
However, not all exchanges or brokers automatically provide wallet services for you.
There are different wallet providers to choose from. The terms “hot wallet” and “cold wallet” are used:
Hot wallet storage: “hot wallets” refer to crypto storage that uses online software to protect the private keys to your assets.
Cold wallet storage: Unlike hot wallets, cold wallets (also known as hardware wallets) rely on offline electronic devices to securely store your private keys.
Typically, cold wallets tend to charge fees, while hot wallets don’t.
Is cryptocurrency safe?
Cryptocurrencies are usually built using blockchain technology.
Blockchain describes the way transactions are recorded into “blocks” and time stamped. It’s a fairly complex, technical process,
but the result is a digital ledger of cryptocurrency transactions that’s hard for hackers to tamper with.
In addition, transactions require a two-factor authentication process.
For instance, you might be asked to enter a username and password to start a transaction.
Then, you might have to enter an authentication code sent via text to your cell phone.
While securities are in place, that does not mean cryptocurrencies are un-hackable.
Several high-dollar hacks have cost cryptocurrency start-ups heavily. Hackers hit Coincheck to the tune of $534 million and BitGrail for $195 million, making them two of the biggest cryptocurrency hacks of 2018.
Unlike government-backed money, the value of virtual currencies is driven entirely by supply and demand.
This can create wild swings that produce significant gains for investors or big losses.
And cryptocurrency investments are subject to far less regulatory protection than traditional financial products like stocks, bonds, and mutual funds.
sources of this post:
https://learncrypto.com/knowledge-base/basics/what-is-cryptocurrency
https://www.kaspersky.com/resource-center/definitions/what-is-cryptocurrency
https://www.bitdegree.org/crypto/tutorials/what-is-cryptocurrency
http://netkafe.epizy.com/2023/03/10/crypto-basics-what-is-cryptocurrency/
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