What is a cryptocurrency
A cryptocurrency (or crypto) is a record of ownership of a digital asset, that enables people to transmit digital value that only exists on a digital ledger known as a blockchain. It is built on a system that isn’t owned by one party, but instead maintained by a network of computers. In short, it’s digital “electronic cash” that is secured by blockchain technology.
Cryptography
Did you know the word “crypto” in “cryptocurrency” means “secret” in Greek? Which gives you an idea what cryptography is all about. Cryptocurrencies use cryptography to allow transactions to be anonymous, secure and trustless. Which means you can transact safely without revealing your personal information or the need of a centralized third party, such as a bank. Without cryptography, it would be impossible to let people transmit information in a secure and private way.
Cryptocurrency components
Cryptocurrency has been a taboo for a long time, but its popularity has been spiking in recent years. What was formerly known as an alternative “risky” investment, is now being discussed as the technology that will replace the established banking system. Crypto is becoming more known by the mainstream, but what makes it unique compared to traditional means of payment?
Permissionless
You don’t have to ask for permission to create a digital wallet and own crypto. Only you have access to your crypto.
Pseudonymous
You don’t have to reveal your personal information when you are interacting with cryptocurrencies.
Borderless
You can send and receive cryptocurrencies from all over the world, within minutes.
Irreversible
Once a transaction is added to the digital ledger, it cannot be reversed. Nor can the user spend the unit twice.
Durable
Cryptocurrencies only exist in the digital world, so there is no degradation possible.
Different types of cryptocurrencies
Cryptocurrencies come in all shapes and sizes. Bitcoin has set the standard in the cryptocurrency market, by being the first. And it’s still leading the pack in terms of market capitalization and popularity. But it’s not the only cryptocurrency available. On the contrary, there are more than thousand crypto projects, each with their unique features.
Bitcoin
Bitcoin is the market leader and can be seen as the standard of cryptocurrency. A digital money that is created for transmitting value across a decentralized network.
Altcoins
An altcoin is an alternative digital currency to Bitcoin. Although some of the altcoins have the same intent as Bitcoin. In most cases altcoins are blockchain-based tokens that are meant to serve a different purpose from that of money. They can be seen as a utility token.
Example of different (utility tokens)
- A token which allows people to share files
- A token that provides users with decentralized internet addresses (DNS)
- A token that is pegged to real world assets, art (NFT) or linked to the value of a company.
Ethereum (biggest altcoin platform)
The biggest Bitcoin alternative blockchain protocol is Ethereum. In 2015 Vitalik Buterin in conjunction with other developers launched the first version of the Ethereum network after becoming frustrated with the limitations of Bitcoin. Ethereum was developed with the goal of creating a global operating system for trusted computing to extend the use of blockchain. It allows you to create programmable “smart contracts” that run on a global computer and are stored in a permanent, immutable way. The network is fueled by its own cryptocurrency called Ether (ETH), which is used to pay for transactions and execute smart contracts.
Creating your own token
Developers, projects or users can deploy their own token on top of Ethereum. The two most popular token standards used by developers:
- Fungible token (ERC20) – Tokens that are divisible and non-unique
- Non-Fungible Token (NFT) – Token that is unique and non-divisible, true ownership.
Stablecoins
A stablecoin is a token that is “pegged” to a stable reserve asset like the dollar or gold. They are designed to reduce volatility relative to other crypto assets such as Bitcoin. Stablecoins are tokenized, meaning you can store them in your crypto wallet.
Memecoins
Tokens that are (often) based on internet jokes. These tokens are high-risk assets. Dogecoin for example got mainstream attention from one celebrity and the price exploded overnight.
