Cryptocurrency 2021 – What are its uses? What type of cryptocurrencies are there? Should you invest in cryptocurrencies? Here’s a beginner’s guide to cryptocurrency.
Cryptocurrency 2021 – Here is a simple, real-world example of cryptocurrency: you go to a casino and buy chips to play.
How do you buy the chips? You pay real money or the conventional money that you have right now in your bank or as cash in your wallet. Suppose you pay $ 0.50 for every chip, and you purchase 500 chips.
You play a few games. Maybe you win some chips. Maybe you lose some chips. Let us say you won, and right now you have got 700 chips in your pocket. You don’t cash the chips. You keep them with yourself.
Something happens and the value of every chip increases. If you go back to the casino and try to cash the chips, you are told that for every chip, you will get $ 3.60.
Interestingly, you discover that many places accept that casino’s chips as payment. So, at a local café that accepts that casino’s chips, if you buy a cup of coffee that costs four dollars, you can pay a chip and $ 0.40 of your usual currency.
The same concept is applied to cryptocurrency. These cryptocurrencies are tokens created by organizations and companies. We will explain further.
Cryptocurrency 2021 – A little history of crypto coins and tokens.
- In the beginning, cryptocurrencies were mostly used in the dark web where conventional money could not be exchanged.
- In 2008 a white paper was published on Bitcoin by Satoshi Nakamoto
- In 2009 Nakamoto released Bitcoin to the public.
- Additional cryptocurrencies began to appear by late 2010.
- WordPress started accepting payments in Bitcoin in 2012.
- Tesla, Microsoft and Expedia followed.
- By April 2021, the cryptocurrency market value was over $ 2 trillion.
This is the beginner’s guide to cryptocurrency as it unfolds in 2021 and our primary attempt is to make it as simple to understand as possible.
Some famous cryptocurrencies are
- USD Coin
- Polka Dot
- Bitcoin Cash
What are cryptocurrencies?
The main features of cryptocurrency:
- Decentralized nature.
- Peer-to-peer cryptocurrency exchanges.
- Irreversible transactions.
- Unparalleled security.
- Based on distributed ledgers.
- High-level encryption.
- Complete anonymity.
- No interference by third-party financial institutions.
Cryptocurrencies digital currencies. They run on decentralized computer networks called blockchains. Some well-known currencies are Bitcoin, Binance Coin, and Ethereum. In fact, recently Bitcoin has gained so much importance that recently El Salvador spent $25 million to buy 400 Bitcoins. It also became the first country to declare Bitcoin as a legal currency.
A cryptocurrency is a digital manifestation of a legally bound document. You can also call it a small program that runs on a blockchain. These are also called ledgers, or distributed ledgers.
One of the highlights of cryptocurrency is that it is not controlled by a centralized authority or institution like a bank or a finance ministry. Hence the term, “decentralized”.
Once a crypto coin is created, once all its terms and agreements have been programmed into the coin, it is validated throughout the chain and once all the people down the line have “mined” the coin, it becomes available to be bought, sold, loaned, and preserved.
Consequently, cryptocurrency does not exist in physical form. It is a digital agreement protected by a hash key. It cannot be altered because thousands of blockchain users are involved in creating a crypto coin like Bitcoin.
Crypto coins are usually known by the blockchains they are built on. Hence, a Bitcoin crypto coin is built on the Bitcoin blockchain, and an Ethereum crypto coin is built on the Ethereum blockchain, and so on.
Cryptocurrency is called so because it is built through cryptography. Every transaction of a cryptocurrency can be traced back to a unique cryptographic code that secures that particular blockchain.
What is the difference between a token and a coin?
- Tokens represent existing assets.
- Tokens are non-fungible – they cannot be replaced by other tokens or tampered with.
- Tokens cannot be used to buy other items.
- Tokens can be bought, sold, traded, or loaned.
- Crypto coins can be used to purchase other items and make payments for services.
- They are built over chosen blockchains.
- They have distributed ledgers.
- Initially, conventional money needs to be pumped in to attach value to crypto coins.
When you talk of cryptocurrencies you often come across terms like “coins” and “tokens”, and any beginner’s guide to cryptocurrency would be incomplete without understanding the difference between them.
The meanings of coins and tokens are quite literal. Just like your usual coin, you can use a crypto coin to purchase things. Just as if you have lots of coins (or cash) you can go anywhere and buy anything. It is your usual currency, but crypto.
Tokens are like smart contracts. They represent ownership. If you own real estate or a piece of art, it can be tokenized.
Whereas cryptocurrencies are part of a blockchain, tokens can be created on top of those blockchains. A token represents a particular property. For example, if you own an office building a crypto token can represent it. If you have a popular YouTube video, you can tokenize it. Twitter founder Jack Dorsey a few months ago tokenized his first tweet.
You cannot use a crypto token to buy other assets although you can use it to raise funds. A cryptocurrency on the other hand, can be used to buy real-world things such as a mobile phone or a cup of coffee.
How is a cryptocurrency created or mined?
Cryptocurrency is a piece of software. It contains all the routines and validations it needs to process data and attach value to the coin. This piece of software exists on a blockchain. Some also prefer to call it the database where all the information about the cryptocurrency is saved.
Cryptocurrencies are also called distributed ledgers because as a transaction is carried out, it is validated throughout the blockchain by all the blocks (people using computers to mine cryptocurrencies) using complicated mathematical algorithms.
Every newly added block references the previous block and is appended at the end of the existing chain. This goes on and builds a blockchain.
When a block is created for the first time, it contains a hash value that uniquely identifies the block. The hash value is strictly defined according to the attributes of the block. Even if a single attribute of the block changes, the hash value also gets regenerated.
Cryptocurrency 2021 – What are some practical uses of cryptocurrency & cryptocurrency basics?
One of the biggest benefits of cryptocurrencies is that they are peer-to-peer transactions and they do not depend on conventional financial institutions. A small catch is, you can transact only when both parties accept transactions in mutually agreeable cryptocurrencies.
For the time being, the most popular way of dabbling with cryptocurrency is an investment. People purchase cryptocurrencies like they purchase stocks and then wait for their prices to go up. Then they can sell their cryptocurrencies at a profit or keep them as valuable assets.
Cryptocurrencies can be used to make micro-payments. Online publishing platforms like Time.com are already accepting bitcoin payments. Businesses with digital wallets accommodating cryptocurrencies accept payments. Cryptocurrency-based collateral can be used to raise funds. Fintech companies are using cryptocurrencies to fund projects or give loans.
Micro-transactions that are difficult or less cost-effective using conventional currencies, can be facilitated using cryptocurrencies.
Every new block not just has its own hash value, it also has the hash value of the previous block and that is how it gets connected to the previous block.
Every computer connected to the block has a copy of every block – hence, distributed ledger.
Whenever a change is affected, it is reflected throughout the blockchain and every change is then again stored on the individual computer. Therefore, these blocks are immutable. They cannot be changed or altered without the involvement of thousands of people validating the block.
More than 50% of people must agree to the validation conditions of the connected blocks. When they agree, this is called a “consensus” or a “general agreement”.
Once all the blocks have been validated in a transaction, it is considered to be a valid cryptocurrency. After that, it is practically impossible to alter it.