You’ve definitely heard of “crypto” or “Bitcoin” from your colleagues at the office pantry, or from that distant relative you see once a year at your family gathering. As cryptocurrency gets more mainstream than ever, it’s probably a good time now to finally pay attention to it and know the importance of it. Don’t worry, we’ll go through it together, one jargon at a time.
Let’s start from the top: where did cryptocurrency come from? Created in 2009 anonymously under the pseudonym Satoshi Nakamoto, Bitcoin became the first cryptocurrency to ever exist then. It was known as a peer-to-peer version of electronic money. Bitcoin remained the only cryptocurrency until 2011 came around, the number of cryptocurrencies have skyrocketed since then and there are now more than 20,000 cryptocurrencies.
Simply put, cryptocurrency is a decentralised digital currency where it is a form of payment that can be exchanged online for goods and services. First we need to understand that the conventional payment networks that we know, like MasterCard or Paypal, are owned and operated by an organisation and are based on conventional currencies like the US dollar. What sets cryptocurrency apart from these traditional payment gateways is that cryptocurrency is fully decentralised, meaning that it functions without the need for a central authority like a bank or government. Instead, it operates through a distributed ledger technology, known as blockchain.
We can think of blockchain simply like a chequebook that’s shared widely across many computers all over the world. The transaction data are recorded in “blocks” and subsequently connected on a “chain” of previous cryptocurrency transactions, forming a “blockchain”. Being that data can only be added to the blockchain in time-ordered sequential order, this makes it so that once data is added to the blockchain, it is considered practically immutable. Next, each block is linked cryptographically to the previous block. In other words, each new block of data will consist of something like a digital fingerprint, called hash, of the previous block. The key concept is that if you change a block, the fingerprint will also change along with it. So if the hash of a block changes due to someone altering the data, then the next block will no longer have a matching hash with it and so every subsequent block after that one becomes invalid, kind of like a domino effect. Meaning, you can’t alter any information without everyone noticing the difference.
While many cryptocurrencies depend on blockchain infrastructure, they can also be further differentiated—due to distinct differences between them—into two categories: coins and tokens. “Coin” refers to a blockchain’s native cryptocurrency, whereas “token” refers to cryptocurrencies that are based on existing blockchains.
However, despite having this technical difference, they both broadly refer to the same thing: units of value stored on a blockchain.
Immediately after Bitcoin was launched, other cryptocurrencies began to pop up and these new coins are what we call “altcoin”. The word comes from “alternative” and “coin” , where it is used to refer to any cryptocurrency other than Bitcoin. Some main examples of altcoin include Stablecoins and utility tokens. Stablecoins have the purpose of reducing overall volatility of cryptocurrency trading by linking their value to a basket of goods like fiat currencies, precious metals, or other cryptocurrencies. In the event where the cryptocurrency were to fail or face any problems, the basket acts as a reserve to redeem holders. Notable stablecoins include Tether’s USDT and the USD Coin (USDC). On the other hand, utility tokens are designed to fund transactions and other costs within a particular application. Basically, they are used to provide services within a network. For example, Ether (ETH) is a utility token that is used for paying transaction fees to write something to the Ethereum blockchain.
So, we’ve covered pretty much the gist of what cryptocurrency is, but you might be wondering: what’s so great about all of it? Our answer is: The world of crypto has a lot to offer–if you know how to tap into it.
Because of their volatile nature, cryptocurrencies have a tendency to experience sudden spikes and drops in value, largely caused by the supply of coins from miners and the demand for them by purchasers. These supply-demand dynamics can result in high returns. Moreover, cryptocurrency is able to help resolve the issue of absolute power by distributing power among members of the network, effectively reducing corruption and building a more transparent financial system. Thanks to the blockchain infrastructure, every transaction, every entry can be tracked across multiple computers, making crypto inherently secure against any tampering. Not forgetting, crypto markets are always open, meaning crypto trades can be made around the clock. This is particularly suited for investors who are on the go 24/7 and would like to generate returns outside of normal working hours.
Congrats, you’ve reached the end of this guide on cryptocurrency! But this is only the beginning of your journey into the vast and exciting world of crypto. We hope that you leave here with a better understanding of cryptocurrency and a newfound sense of enthusiasm for it.
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