Have you ever heard of the cryptocurrencies? I sincerely want to know what it is and what are its real-life implementations? Before invading into the crypto market to earn maximum returns over your money, it is imperative to know the primary concepts of cryptocurrency.
With that being said, in this short and brief article, I’ll walk you through the fundamental concepts of cryptocurrency.
Please make sure to read this content from start to finish as it is written specifically for newbies and dummies.
Overview of Cryptocurrency
Simply speaking, cryptocurrency is a peer-to-peer electronic cash transfer system. As the name suggests, it leverages cryptographic hash function algorithms to ensure the security and privacy of financial transactions.
The main distinguishing aspect of cryptocurrency that sets it apart from the traditional fiat currency is its “decentralized” nature. Therefore, it doesn’t rely on any central regulatory authority to mediate the transaction between the sender and a recipient.
Due to this attribute, the transaction that occurred via cryptocurrency is highly transparent and anonymous. As of today, the number of cryptocurrencies exceeds 4000. Now the question arises on how cryptocurrency ensures transparency and anonymity. Here the power of blockchain technology comes into play.
Overview of Blockchain Technology
Blockchain is an open-source database that is both decentralized and distributive. It works in a peer-to-peer ecosystem and it doesn’t rely on any regulator i.e. there is no centralized database storage system. Keeping this fact in mind, you can say blockchain has no single point of failure.
The name implies blockchain is a list of successive blocks in which each succeeding block is linked with the preceding block with the real-time generated hash number.
Blockchain leverages the power of cryptography to provide the most secure and easily retrievable way of storing the financial transaction or any other records.
Blockchain is an underlying technology behind bitcoin and many other cryptocurrencies such as Ethereum, XRP, and Ripple.
It is the most widely known and universally acknowledged cryptocurrency in terms of market capitalization and profits potential. The real identity of bitcoin creator is obscure to the vast majority of peoples. Some are of the view it was created by an anonymous person ‘Satoshi Nakamoto’
Generally, the price of bitcoin is extremely volatile. When the prices of bitcoin appreciate, the crypto market turned bullish and when the prices of bitcoin depreciate, the market turned bearish.
It is another well-known decentralized currency that exists independently and the successor of bitcoin. It is the 3rd largest cryptocurrency by market capitalization. Vitalik Buterin is a person who first developed it. Ethereum comes with the decentralized virtual machine, the Ethereum Virtual Machine (EVM) and it was designed specifically to pave the way for smart contract.
In contrast to bitcoin, Ethereum allows its users to create their cryptocurrency harnessing the potential of the blockchain open-source platform.
It is the cumulative market worth of all the shares of a particular company. For instance, if a company has a 1 million outstanding shares and the market worth of its every share is $10 then the market capitalization of the whole company is $10 million.
The market capitalization of cryptocurrencies is piling up at a dizzying pace, but it is subject to excessive volatility. You may check the market cap at CoinMarketCap.
Traditional Fiat Currency
It is a currency that isn’t backed by any material goods such as gold or silver. Its value is governed by a central bank or a government. If the central bank decides to inject more fiat money in the monetary system then the local fiat currency will depreciate massively. Therefore, we can say fiat currency is an inflationary asset.
Conversely, the supply of cryptocurrency is governed by an algorithm. The numbers of bitcoins at any time cannot exceed 21 million. Thus, we can say cryptocurrency is a deflationary asset. Cryptocurrency can be effectively used as an alternative to the traditional fiat money in the monetary system in a country like Venezuela whose local currency has depreciated massively.
The altcoin is the greatest cryptocurrency but it cannot compete with bitcoin. Tokens and altcoins are sometimes mistakenly envisioned as synonyms, but in reality, their structure is different from one another.
Altcoins come with their blockchain. The most prominent and state-of-an-art altcoin that exists today is Ethereum.
Satoshi Nakamoto is an anonymous person behind the creation of bitcoin. Even though no one truly knows who is Satoshi Nakamoto and where is he originate from?, but some peoples are of the view Nakamoto is a male who originates from Japan and was born in 1975.
Satoshi unleashes the hidden potential of blockchain technology to deploy his first decentralized digital currency “bitcoin”.
ICO is an acronym for “Initial Coin Offering” it is a specialized kind of funding that was raised using cryptocurrencies.
Simply speaking, when a blockchain developer creates his/her crypto project, he can seek funds from investors by selling tokens in exchange for legal tenders or cryptocurrencies such as Bitcoin or an Ethereum.
For instance, during the ICO, Ethereum has raised $18 million from institutional investors, venture capitalist firms, and individual investors.
Smart contracts are a digitized format of traditional contracts between the two peers. They operate on various crypto platforms particularly Ethereum and NEO. Smart contracts ensure the security of all the participants of the transaction regardless of trust.
Cryptocurrency mining is a process in which a new block of the transaction is embedded into the chain of blockchain. Peoples who are responsible for validating the transactions are known as miners. I strongly believe you’ve heard of making money with crypto mining. Remember, you need a behemoth amount of energy and specialized kind of hardware for mining.
Eventually, the blockchain algorithm will reward with crypto coins for spending your time and money on these resources.
Decentralized Applications (dApps) are the peer-to-peer network that runs of several computers simultaneously instead of running on just one single computer. Decentralized as the name implies, no single person has complete control over the system. dApps harness the power of Smart Contracts for its execution.
After reading this article from start to finish, I strongly believe you many have a basic understanding of cryptocurrencies. This article “crypto for dummies” is designed specifically for educational purposes. Therefore, you can use this article as a key turning point and can use this article as a reference to reap the benefits of cryptocurrency.