In the past few years, thousands of cryptocurrencies have emerged. The first and the most well-known cryptocurrency is Bitcoin. In 2017, Bitcoin’s value amounted to $20,000, and in 2018 this value crashed more than 60%. It took three years for Bitcoin to return to its prior high, and in 2020 its price doubled in less than a month. As of today, large corporations are buying in, and Wall Street skeptics are reconsidering their attitude. It is impossible to ignore crypto.
If you wonder what cryptocurrencies are and how they work, you are in the right place to learn.
What is cryptocurrency?
The most straightforward description of a cryptocurrency is that it is a digital-only token. It uses cryptography to regulate the process of token creation, trading, and security. Cryptocurrency does not require a government or central bank to manage or control it.
The first cryptocurrency was Bitcoin, developed by a person or a group of people under the pseudonym Satoshi Nakamoto; it was described in a whitepaper where the concept was called “A peer-to-peer electronic cash system.” The network on which Bitcoin runs is called blockchain, it was launched in 2009. These days there are many more blockchains.
The main aspects of all cryptocurrencies:
- Digital. Every cryptocurrency is fully native to the internet. They do not have a physical representation.
- Decentralized. Every transaction that involves cryptocurrencies is stored on a ledger, global public list. It implies that the records exist in several different places (nodes) at the same time.
- Peer-to-peer. Cryptocurrencies can be exchanged electronically without a middleman or a central party required to confirm the transaction.
The creation of cryptocurrencies
Predominantly new coins are generated through the mining process. However, there are exceptions. This process involves the usage of expensive computers that run to solve complex cryptographic puzzles to verify bundles of blocks to the ledger. Miners get rewards in the form of new coins, and this is how new coins are minted.
The use of cryptocurrencies
Currently, there is a debate over whether cryptocurrencies possess qualities of fiat currencies or commodities. Some people say that they should be referred to as “digital assets.” The purpose of cryptocurrencies is not just to be an alternative to fiat currencies. These can be used for many different things. Here are some other examples of cryptocurrencies:
- Litecoin – this blockchain appeared in 2011 as a fork of the Bitcoin blockchain. The creator of Litecoin is Charlie Lee, and he planned it to be silver to Bitcoin’s gold. Its token is called LTC.
- Ethereum – the Ethereum blockchain was launched in 2015, and its main purpose is to power Dapps (decentralized apps) and smart contracts. Its token is called ETH or Ether.
The diversity of cryptocurrencies
The first cryptocurrency, Bitcoin, solved several key problems of creating digital money. Nevertheless, there are flaws. As a response, entrepreneurs and developers continue their work of creating new cryptocurrencies that address different needs and problems.
What makes cryptocurrencies more appealing than fiat currencies?
- Cryptocurrencies are semi-anonymous. They are designed in a way that no one can find out what you are spending your money on or who you are. However, the transactions associated with a wallet address are more accessible.
- Cryptocurrencies are not controlled by any government. People who live in countries where currencies are extremely volatile need a more reliable way to store their savings.
- Cryptocurrencies are secure. It is very difficult to hack distributed ledgers, as there is no centralized party in control.
- Cryptocurrencies facilitate cheaper and faster transactions. Crypto exchanges charge fees when you buy, sell, or transfer any cryptocurrency, although the fees are substantially lower than those for fiat currencies.
- Cryptocurrencies are used to carry out contracts. Crypto is not just a form of money. It can be used to store and carry out contracts.
We are at the dawn of the crypto age. Many coins will come, some will go, and some might drop to zero, while others will become extremely valuable. However, cryptocurrencies as a whole and the technology behind them will stay with us for a while. We invite you to check out our Crypto Marketing Services and propel your crypto business to new heights.