What is CryptoCurrency And How Does It Work
CryptoCurrency is in simple terms “a digital form of money” Created as an alternative to cash ( Fiat Currency)
Blockchain is The Database used to store Information in the Crypto world. It was built so that Information could not be destroyed or tampered with.
Bitcoin Is the Pioneer of other CryptoCurrencies and was created In January 2009. By A person or group of Persons who was/were Identified Pseudonymously as Satoshi Nakamoto.
In simple terms CryptoCurrency is an “Electronic or digital form of Money” that doesn’t exist physically. But are stored in Electronic Wallets on the Internet.
The essence of this Virtual Currency, Is so that it can be used as a mode of Exchange and payment for goods and services. By anyone from any part of the World.
What Makes CryptoCurrency Different From Other Currencies.
Well the main thing that differentiates CryptoCurrency from other currencies or means of Exchange is that unlike the USdollar, Japanese Yen, Nigerian Naira or the Great British Pound, CryptoCurrency doesn’t have a physical representation like the ones stated above. CryptoCurrency is “digital” and “Electronic”
Another distinct feature of Crypto Currency is that the Value isn’t Static and it’s highly Volatile. ( The only exception is Stable coins, which you will learn about if you stick around a little longer) The Price of CryptoCurrencies can change anytime.
Unlike Fiat Currencies, (Physical currencies like the US dollar$ or the GBP£ are referred to as Fiat) whereby Transactions and exchange of goods and services are verified and Regulated by a centralized authority called Banks, it’s the exact opposite in Crypto Currency. As Transactions are verified by a decentralized system using cryptography, ( A method of storing and processing data that allows Information to be read and accessed by only those it is meant for) rather than by a centralized authority.
CryptoCurrency offers you control over your Finances unlike the Banking system, where your account could be Freezed by the Banks.
In CryptoCurrency the Value of your assets Increase over certain periods of time. This is the exact opposite for the Fiat Currencies where 1 dollar is still 1 dollar after 10years and the value of the money would have reduced drastically over the period.
CryptoCurrencies can be obtained by mining,Airdrops or By buying Peer to peer Transactions or Via Exchanges.
What Is Blockchain
In a simple Illustration; When you go to a Bank and ask for A statement of account ( A report on your Bank Transactions over a period of time) A Server or computer database that is used by the Bank to store Information will provide your statement of Account.
Now in the CryptoCurrency world the Database that stores and Indexes Information is called Blockchain.
Blockchain is a database that keeps records of Transactions, between the Sender and the Receiver and stores the Transaction details. It is created in a way that doesn’t allow a 3rd party Interference and all parties involved have control collectively.
A Blockchain collates Data in Blocks which are filled with Transaction Information and are Chained to the Previous Data, and therefore become an Assembly of Blocks or the Blockchain.
Blockchain offers you Privacy, in the fact that you can Hold $1billion worth of Bitcoin. Without the knowledge of anyone except you reveal the Information to them Because the Blockchain makes your Information Impenetrable and Secure. Shields your Transaction Information from the prying eyes of Third parties or Financial Regulation Agencies working for the Government.
This is the reason why there was an assertion in the Early days of CryptoCurrency. That Bitcoin was used to verify Transactions by Hackers,Druglords and to Pay for Other Criminal activities in the Darkweb because of the feature of anonymity of Transactions that CryptoCurrency has adopted.
It is operated in a way that it can store Huge amounts of data. And the datas entered into it can be easily accessed and Evaluated by as many number of people that are Involved.
The Transaction Data are arranged in Chronological order, with the Genesis block ( The first transaction) coming first followed by the others. The Informations stored through other means may be reversed but Any Data entered into the Blockchain is Permanent and Irreversible.
We currently have 4 different types of Blockchains. Public Blockchains, Hybrid Blockchains, Private Blockchains and Consortium Blockchains. But we won’t be explaining them in this article so as not to confuse you.
Read more about Blockchain Technology here: What Is Blockchain Technology
Types Of CryptoCurrencies
- Bitcoin
A lot of people ask the question;
What is a Bitcoin and how does it work.
Bitcoin was created in January 2009 by Stoshi Nakamoto a Pseudonymous Person or group of People whose Identity or gender remains Unknown.
Bitcoin uses a consensus mechanism called Proof of Work ( PoW) used to verify Transactions and store Transaction details to the Blockchain.
It was created with the sole purpose of giving people the ability to send money over the Internet.
Bitcoin was the first digital currency and has gone through different phases of Thick and Thin, Ups and downs in it’s years of Existence and still remains an Illegal tender or mode of payment in most countries. Though some countries do not Ban it and El Salvador have Officially recognized it as a legal tender.
- Altcoins
Altcoins otherwise called Alternative coins are all other Coins apart from Bitcoin.
Created as alternative digital Currencies to Bitcoin. This Coins were created with some adjustments and improvements such as smartcontracts. That make Cheaper and faster Transactions available so as to appeal to Users to adopt them as an alternative mode of payment to Bitcoin.
Altcoins make up about Half of the CryptoCurrency Market Capitalization and most of them use a Consensus mechanism known as Proof of Stake ( PoS ). This Consensus mechanism unlike the Proof of Work system are more Energy Efficient.
Proof of Stake provides for a more scalable Blockchain but are very difficult to Secure than the PoW.
Altcoins also come in two features, 1. Coins and 2. Tokens. ( Note that Bitcoin is also a Coin) Coins are CryptoCurrencies that are native to their own Blockchain eg Ethereum which is built on the Ethereum Blockchain.
Tokens are CryptoCurrencies that are built on another Blockchain eg Uniswap.
In simple Illustration a coin is a Landlord or Landlady that has his/her own House while a token is a Tenant Living in someone’s house and is not Independent.
This are some Information to help you understand the simple concepts behind the greatest Innovation of this Century but CryptoCurrency is more complicated than what you can explain In one single article so I’ll advice you to stick around so that you can learn more and Increase your knowledge of CryptoCurrency.
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