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An introduction to cryptocurrencies

Bitcoin is not a lonely Woolf

Whenever someone mentions the term cryptocurrency, many people associate it with financial freedom and investment opportunity. The crypto market has gone rapidly in the past five years, and new cryptocurrencies were introduced every single day. Maybe, for this reason, it becomes quite challenging to make sense of the crypto world.

Despite volatility, decentralisation and the potential of money laundering, cryptocurrencies have been a growing trend in the last 11 years.

Although many institutions, governments, and organisations ‘banned’ the use of the digital currency, its fast growth and mass adoption by leading global firms resulted in its rise in the current fiscal society. Facebook, JPMorgan, Microsoft, Shopify, and Tesla are all making advances in the industry, just to mention a couple.

The official definition

A cryptocurrency is a digital asset designed to work as a medium of exchange. The ownership of a coin is recorded and stored in a ledger and existing in the form of a computerised database using cryptography to secure transaction records, to control the creation of new coins, and to verify the transfer of the ownership of a coin.

So defining it a little bit more informal, I would say that a cryptocurrency is a digital form of cash.

Cryptocurrency does not exist in physical form and one of the most important features of it that it is not issued by a central authority.

The roots

The name of cryptocurrency is a combination of cryptography and currency. With cryptography, advanced math is used to secure the funds, and making sure that no one has access to it.

Basically, to use cryptocurrency, you don’t need to sign up for a website with your email address and password. You can just easily download certain mobile apps to your smartphone, and you can begin to send and/or receive within a matter of minutes.

In other words, making a transaction with it, you don’t need a middleman to be asked to execute your order.

Many people – including you – might be wondering why should they be bothered?

Firstly it is permissionless. This means that no one ever can stop you from using or interacting with a cryptocurrency as it is decentralised. Centralised payment services (like banks or financial institutions), however, can freeze your account and have control in general over your account.

Secondly, it is censorship-resistant. Hackers or other attackers can’t shut down the system because of the way the network is designed.

Thirdly it is a cheap and fast payment method. Your money can be on the other side of the world within seconds, at a fraction of the cost of an international wire transfer.

According to CoinMarketCap, the total number of different cryptocurrencies is 6955. Their total market cap is $324.716 billion as of 9th of September 2020.

Types of Cryptocurrencies

Undoubtedly the king of all is Bitcoin.

Bitcoin was the first blockchain ever created in 2008, by a person calling himself Satoshi Nakamoto. However, the true identity of the father of Bitcoin is unknown. Actually, it equally can be a mother, or a group of programmers, a time-travelling alien or a secret government team. I leave this one for your fantasy.

Satoshi published a 9-page White paper in 2008, describing how the system worked, and then a couple of months later, in 2009, the software itself was released.

I’m sure many of you are familiar with Bitcoin. It is essential to mention because Bitcoin provided the foundation for many other cryptocurrencies.

After the first blockchain, many others were developed. These Bitcoin alternatives called Altcoins

Altcoin is an abbreviation of alternative coins, and the reason they exist is that Bitcoin is not perfect. Usually, Altcoins try to create a better version of Bitcoin.

For example, Monero or Dash transactions are impossible to trace, so these altcoins are focusing on the privacy aspect, while Litecoin transactions are faster than Bitcoin.

Let’s have a closer look.

Litecoin

Litecoin is very similar to Bitcoin. It is peer to peer and open source. The initial release of it happened nine years ago in October 2011, and it’s still one of the five most important virtual currencies other than Bitcoin.

Like all the other cryptocurrencies Litecoin is generated through mining, which consist of processing a list of transactions.There will ultimately be 84 million Litecoins in circulation. Every 2.5 minutes, the network generates a block. The block is verified by a mining software and then enters the chain.

While Litecoin doesn’t bring a lot of technological innovation its adoption and security are well suited to serve as a Bitcoin alternative.

Today (10/30/2020) 1 Litecoin equals $53.72.

Monero

This cryptocurrency was launched in 2014, and its original name was Bitmonero. This name was eventually shortened to Monero; Monero means coin in Esperanto.

Monero’s main focus is on privacy; using a technology called CryptoNote. This technology enables complete anonymity as by combining several keys in a single translation, it’s impossible to identify who sent it to whom, and what was the amount. It’s called ring signatures.

As no one can link you to a Monero transaction, this makes it a popular currency for those people who are concerned with privacy for various reasons. 

In other words, with Bitcoin, for instance, although it is anonym, you can track the transaction from one address to another. With Monero, this is impossible. However, you can still give a private view key for an auditor, for instance; hence Monero is auditable.

Monero is not for beginners tho, which makes it’s adoption not so vast.

Today (10/30/2020) 1 Monero equals $121.45.

Dash

Dash’s initial release was in January 2014, as an open-source cryptocurrency. It is a decentralised autonomous organisation run by the subset of its users, which are called the “masternodes”. Dash transactions are also untraceable.

An interesting fact that as of January 2020 Dash wallets in Venezuela saw a 562% increase among Android users. Currently, more than 2500 merchants in the country accept Dash payments, including small cafes and grocery shops, besides international brands such as Calvin Klein, and Burger King.

Dash Text is an alternative for people, who don’t have smartphones, to send and receive the cryptocurrency by SMS. Cell phone penetration is exceptionally high in Venezuela, with around 85% of the population owning a mobile phone.

Today (10/30/2020) 1 Dash equals $67.44.

As in one single article, it is impossible to unfold the topic of cryptocurrencies in my coming posts I intend to continue. This was just the warm up 🙂

Because you know, Information is Power

2 thoughts on “An introduction to cryptocurrencies”

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