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What is Cryptocurrency? – All you Need to Know
- Cryptocurrencies are a new technology that decentralizes the transfer medium, i.e., currency.
- Cryptocurrency is different from Blockchain. A Blockchain is a protocol, one of the applications of which is a cryptocurrency.
- Blockchain is a decentralized network of nodes with various daily applications.
- Cryptocurrencies use decentralized control instead of centralized digital currency and central banking systems.
- One can buy and sell cryptocurrencies in a cryptocurrency exchange.
Satoshi Nakamoto, a pseudonym on the internet, borrowed from several ideas. He/she/they posted a paper to a cryptography mailing list in 2008 titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” This paper laid out the inner workings of a peer-to-peer network that would enable a “system for electronic transactions without relying on trust.” The underlying message was the elements of trust, accountability, or oversight that had characterized commerce and exchange throughout history would be replaced by a system that would not need transacting agents to know one another.
“With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless.”
Cryptocurrency – The Latest Buzz
Cryptocurrencies are entries about tokens in decentralized consensus databases. The technology is called “Crypto” currencies because the consensus-keeping process is secured by strong cryptography, which has been proven secure. However, they are not secured by people or by the trust but by math. To put that into perspective, it is more probable that an asteroid falls on your house than that a bitcoin address is compromised.
Cryptocurrencies are stored in a mechanism called Wallets. Cryptocurrency Wallets are derived from a private key, from which public key(s) can be continually generated. The private key allows the user to control and spend the value stored, while the public key allows for receiving value from other wallets. The public keys are usually represented as a hexadecimal code distributed through any medium to receive funds. The public key cannot be traced back to a private key, but a single private key can generate many public keys.
But then, what is the difference between a cryptocurrency and a Blockchain? Are both the same or different, and can they be used interchangeably?
Cryptocurrency vs. Blockchain
Cryptocurrencies are an added, non-mandatory application that forms a sub-set of Blockchains. A cryptocurrency is a cryptographically-secured digital currency stored and transacted through a base layer blockchain. Blockchain and cryptocurrencies are often perceived as synonymous, but that is not usually the case. Though cryptocurrencies provide and determine the value of their base layer Blockchains, they are not the most integral part of the Blockchain. It is possible for a Blockchain to function by issuing its cryptocurrency, just like a company can operate without issuing shares.
The Bitcoin blockchain became the first and most famous Blockchain mechanism since it was introduced in 2009. It solved the consensus problem and paved the way for a new range of applications under Blockchain’s title.
The Bitcoin network uses a Proof-of-Work (POW) protocol that allows transactions between two untrusted parties. The POW algorithm uses cryptographic methods to validate the transaction run on computers that continually solve the cryptographic puzzle. As the network traffic grows, the puzzle’s difficulty also rises to account for the increase in competition. This increase leads to an increase in the usage of resources required to solve the puzzle, which ultimately leads to a rise in electricity consumption.
A public blockchain, such as bitcoin, uses POW to provide a way for untrusted parties can exchange value without an intermediary. The resources used to verify a transaction prove its validity and authenticity.
Blockchain has a broad scope, as it forms the base layer for other sophisticated applications to be built upon, some of them being:
- Decentralized Market place
- Digital reputation-based identity
- Smart Contracts and Ricardian Contracts
- Distributed applications
- Governance models
- Medical advancements
Most famous Cryptocurrencies
- Bitcoin – The first Cryptocurrency to come into existence
- Ethereum – The most extensive blockchain application for contracts
- Litecoin – Also known as the silver to Bitcoin’s Gold
- Ripple – Recognized as the Banker friendly Cryptocurrency
Where to Buy?
Cryptocurrency exchanges are platforms where one can engage in the buying and selling of cryptocurrencies. Exchanges are all the craze in FinTech right now. Unfortunately, since 2017, hundreds of exchanges have been established and crumbled. Some outright scammed their customers by running away with the funds, and then some transformed into cryptocurrency unicorns boasting valuations in the billions. Then there’s regulatory uncertainty, scams, outside hacks, etc.
To help the readers balance the task of finding a good cryptocurrency exchange that satisfies their needs and simultaneously doesn’t fall back on its promises, we now list a few top exchanges for buying Cryptocurrencies.
There is a massive list of Countries Experimenting with Blockchain, with more on the way as they realize its potential.