What Is Cryptocurrency? And Why You Need To Start Caring
A cryptocurrency, or simply crypto, is a digital currency protected by a mathematical technique called cryptography. The word cryptography comes from Greek, meaning “secret writing.” It is the tool used to secure transactions on a blockchain network.
Transactions are stored in a digital file called a block. Each block has a block hash which acts as a validation for the transactions in it. The chronological ordering which blocks have, forms a chain of blocks, hence the name blockchain, for the technology which these currencies use. Therefore, a blockchain is a cryptocurrency’s public ledger.
If you wish to see that your transaction has been included in the blockchain, you can check your cryptocurrency’s block explorer page. For Bitcoin, you can find it here.
Blockchain is the biggest reason as to why everyone is talking about cryptocurrency. The technology represents more than just a way to transfer money, but an idea of distributed organization. It has led to developments such as smart contracts, DeFi (Decentralized Finance) apps and real-time IoT(Internet of Things) operating systems. If you are into finance or software engineering, then you should consider doing more research about these areas.
The numerous applications of blockchain are the reason as to why there are so many different cryptocurrencies. Bitcoin is monumental & that’s why it overshadows other cryptocurrencies. It was the world’s first cryptocurrency launched on 3rd January, 2009, by Satoshi Nakamoto( pseudonym). At the time of this writing, the mysterious inventor of Bitcoin ranks among the world’s top 50 richest people with a worth of over $50 billion solely from crypto.
There are arguably “better” cryptocurrencies that have more to offer. Take the ones below for example.
- Ethereum ( has provision for smart contacts)
- Monero( a privacy based currency)
- Dai ( pegged to the US Dollar to avoid the dramatic price swings that the crypto market is known for)
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To own a cryptocurrency, you need a wallet. A wallet is used to store long alphanumeric characters called public and private keys. A private key is used to digitally sign each transaction, while a public key is used in conjunction with the signature to prove that the sender indeed owns those keys.
Wallets are not used to store your crypto assets, but the proof (public & private keys) that you are indeed the owner of the funds at a certain address. An address is a string of alphanumeric characters, derived from your public key, to which funds are sent. If we are to look at keys and addresses in the context of banking, then your crypto address is the account number and your private key is the PIN code.
You can get a free crypto account from Binance, the world’s largest cryptocurrency exchange platform. The account comes with over 100 crypto options.
A key concept of blockchain is decentralization. Decentralization means that the participating nodes(computers) are in a peer-to-peer( P2P) network, meaning that there’s no central authority. Take the traditional or fiat currency we use for example. The money is controlled by the issuing central bank meaning that it’s price, lending rate and amount in circulation is within its control. With crypto, it’s a different story. The liquidity, price and circulation are solely in the hands of the crypto community.
The power to determine how far bitcoin goes is in the users’ hands. In fact, if the bitcoin community stopped using it for whatever reasons, such as low volume or liquidity, it would become listed as a dead coin. This power extends to the consensus algorithm which bitcoin uses that allows each miner( block validator) to vote for which block to be added in the blockchain.
Mining is the process by which new coins are added to the network. It is the mechanical equivalent of churning through tonnes of dirt to find gold. It involves a computer solving an advanced math problem to get a hash that is less than a predetermined target value.
For bitcoin, the process is done by ASCII devices (specialized hardware) which make 100s of billions of guesses per second until the required value is obtained. It is also possible to use your home desktop to mine bitcoins but the process would be highly inefficient, so the use of specialized equipment is mandatory. However, there are other cryptocurrencies such as Monero which are efficiently mined by CPUs and not ASCII devices.
Mining is normally carried out in mining pools to increase the chances of getting the target value. Each participant in the pool contributes their guess and if one person gets the value, the reward is shared. Another advantage with a mining pool is that you keep on getting rewarded for “near guesses,” so you’ll literally be earning some crypto every few seconds.
If you wish to mine crypto ( not just Bitcoin), you can open up an account with the Binance pool.
Mining is incentivized by the newly minted coins and the transaction fees in a block as the reward. For bitcoin, the process is designed to take about 10 minutes before a block is mined.
Mining is not the only way you can get hold of crypto assets. You can purchase them from a crypto exchange like Binance, or ask a friend to send you some. The platform has multiple payment and withdraw options to support customers from the 180+ countries and regions in which it’s present.
In 2020, SpaceX CEO Elon Musk tweeted that a “Mars economy will run on crypto.” The future for cryptocurrency is surely bright with bitcoin( the most expensive crypto) soaring at $57,000 at the time of this writing.
Elon Musk has been boosting the crypto markets with his tweets. His tweets have seen bitcoin make gains of as much as 20% in a single day and up to 50% for Dogecoin. For an investor, the crypto market surely presents itself as a potent investment option. However, it is worth noting that as with all financial instruments, investing in cryptocurrency also carries significant risk.
Early this year, Tesla also bought $1.5 billion worth of Bitcoin and also announced that it would begin accepting bitcoin as a payment. The move comes as the global community is learning to embrace crypto.
There are still a lot of legal challenges for cryptocurrencies to be openly accepted by countries. But the future is bright. Countries like Japan, the US and Australia have already welcomed crypto. In 2020, The US Federal Reserve even went ahead to express their intent to develop a digital dollar. Crypto is the future, and it is here to stay.