Today, cryptocurrencies have become a global phenomenon that is known to most people. Although until now most people, banks, governments, and many companies do not realize its importance. Nowadays, it would be hard to find a big bank, a big accounting firm, an IT company, or a government that hasn’t explored cryptocurrencies yet, and published an article about it, or started a so-called blockchain project.
What is a cryptocurrency and what is it based on, we will tell you below.
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What is a cryptocurrency?
In simple words, a cryptocurrency is a digital or virtual currency that uses cryptography for security and is mined by solving computational problems. Cryptocurrency is difficult to imitate due to its security feature. The defining feature of a cryptocurrency, and perhaps its most precious appeal, is its organic nature; it is not created by any central authority, which makes it immune to theoretical government interference or manipulation.
The first cryptocurrency to capture the public imagination was Bitcoin, which was launched in 2009 by a group known by the pseudonym Satoshi Nakamoto. The success of Bitcoin has generated a number of competing cryptocurrencies such as Litecoin, Namecoin, PPCoin, Kykke, and others.
To get Bitcoin, you need to mine it. Mining is the solution to complex mathematical problems on computers. In return for decisions, computer owners receive coins that are stored as records on the blockchain. Blockchain is like a digital ledger that is stored on the computers of all users at the same time.
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Types of cryptocurrencies
All cryptocurrency assets can be divided into different categories. Bitcoin is the first cryptocurrency, so it has the status of a separate asset outside the categories. The remaining blockchain projects can be divided into several types.
Altcoins
These are alternative coins – any cryptocurrencies with their own blockchain (except bitcoin). Some of them are similar to bitcoin. Others are focused on the introduction and use of new tools, as well as expanding capabilities.
By changing the open-source BTC code, altcoin developers can speed up transactions, optimize the mining process, create various automated contracts, form the basis for working with crypto applications, etc.
Examples of altcoins are Litecoin, Ethereum, IOTA, etc.
Tokens
They perform the function of digital assets but do not have their own blockchain, like a standard cryptocurrency. Instead of mining, tokens are immediately issued in full emission.
These assets are created by various companies in order to raise funds for the development of their projects or ensure the performance of products. Investors, in turn, receive guarantees that the company will fulfill its obligations to them.
Among the top tokens by market capitalization are Tether, UNUS SED LEO, Chainlink, Huobi Token, and Maker. All of them, except for the leader Tether, are deployed on the Ethereum blockchain.
Stablecoins
Digital coins, the price of which is tied to real assets – the dollar, gold, oil, etc.
The rate of bitcoin and other similar cryptocurrencies changes during the day, week, and month. The cost of stablecoins, on the contrary, is extremely stable. Price fluctuations, of course, can be, but they are much smaller than those of cryptocurrencies. Stablecoins are suitable for those who intend to transfer their savings into digital assets with minimal risk.
Top stablecoins include Tether, Dai, USD Coin, and Paxos.
What technologies are behind cryptocurrencies?
Cryptocurrencies are based on blockchain technology. It is a database that is distributed among tens of thousands of computers. Fully replicated and protected from the introduction of false information.
Imagine a database on wallets and money movement, which is stored not on one server or even in the cloud, but on all computers connected to the network at once. It is impossible to make a record in the database bypassing the algorithm – other copies of the database will indicate a discrepancy. The blockchain has constantly updated sequences of data blocks with timestamps. Proof of Work (PoW) and Proof of Stake (PoS) technologies protect against fakes. Cryptocurrencies are far from the only area of their application. Visa, Mastercard, SWIFT, and UnionPay announced plans to use the blockchain. Sweden and the UAE are going to transfer their land and real estate markets to the blockchain. The Brazilian government has launched a blockchain-based identity project. This technology is needed wherever security and reliability are required.
Conclusion
Cryptocurrency is the currency of the future, which may replace all other currencies. Therefore, figuring out what it is, how to use it, and how to get it is worth it today. The technologies that are at the heart of cryptocurrencies have shown their stability since their beginning and proved that they can and should be trusted. Therefore, it is definitely worth at least a little investment in this currency. The next step is up to you.
