There is a lot of confusion revolving around the digital currency world especially when it comes to Bitcoin, Blockchain, cryptocurrencies, and the concepts behind it. This article will help you guide your way to understanding each of these and help decide whether to invest, what the future of digital currency looks like, the basics of cryptocurrency, the technical terms used in this world, and much more.
Cryptocurrency
Cryptocurrency is digital money that can used for transactions and does not require third parties or any other financial institutions to verify the payments made. The records of each transaction are saved on a blockchain. Unlike traditional money, several companies now support this digital form of payment in exchange for their products or resources.
The value of the cryptocurrency remains the same when sold, bought, or even traded. However, this isn’t the same as NFTs or Non-Fungible Tokens. NFTs are crypto assets with a unique identifier. These are powered by the blockchain. The main difference between both is that cryptocurrencies from the same blockchain are interchangeable but NFTs are not.
Cryptocurrencies are very secure and different from traditional investments mainly due to their accessibility and low transaction costs. The transaction speed is also very high in this method. As these payments are on public records, anyone can look up transaction information and see the contents of a crypto wallet. Cryptocurrency consists of multiple types of digital assets like coins, altcoins, and tokens.
When an investor is investing in coins, they are investing in financial assets created through their blockchain. This could be exchanged for business purposes or stored for value.
Altcoins are literally an alternative to coins. They are used to refer to a group of coins and they can be used for alternate uses as well. Tokens work like digital ledgers storing information like keys. They usually work on an existing blockchain network.
Cryptocurrencies are rewarded by mining. One simple way of explaining this is- consider you are playing a game in the hard level and you win and get rewards for it. Here, the hard-level game is called mining and the rewards you get off of it are the cryptocurrencies.
One of the main advantages of cryptocurrencies is that there will be no identity theft as you don’t have to sign up for it. This currency is also global, meaning you can directly make payments from any part of the world to any place without needing to change the currency. There are also no withdrawal limits when it comes to currencies like these.
The first cryptocurrency in existence is Bitcoin. Then came currencies like Ethereum(the second most valuable currency after Bitcoin), Solana, Dogecoin, XRP, etc. There are also many other cryptocurrencies emerging. The latest news said that Trump, now President of the United States, is planning to launch a cryptocurrency, with his sons.
Bitcoin
Bitcoin is the most cryptocurrency out there. It is a virtual currency that is used as a method of payment, without the involvement of a trusted third party in financial transactions. Each of these transactions will also be recorded in blocks, as mentioned above.
Presently, Bitcoin is one of the most well-known and high-priced cryptocurrencies and this also brought forward many other forms of cryptocurrency later on. Bitcoin uses the SHA-256 hashing problem to encrypt the data stored in the blocks of the blockchain.
The creation of Bitcoin was the result of a group of people called Satoshi Nakamoto, first introduced in 2008 and got attention in 2009 when it was fully functional. This relatively new currency gained a lot of attention due to its algorithm which progressively got harder after each level. Bitcoin was initially treated as a reward for solving complex problems.
Later on, as more miners found this platform, the problems started being complex and required huge amounts of energy. This, in turn, required more resources. As this became more expensive, investors were introduced to this platform and started investing in the coins that were earned as rewards, and trading these coins began. Hence, now Bitcoin can be used by speculators for viewing the market trends, consumers for making purchases or even value exchanges, and investors for investing.
As the market is very volatile, there are many risks involved in investing and trading in Bitcoin. There were cases of theft and even fraud as many people were starting out on this platform. The first block in Bitcoin was mined on January 3, 2009, and this block was called the Genesis block.
The first reward given was 50 bitcoins. Every estimated four years, the rewards were halved and as of May 2020, the mining rewards halved to 3.125 bitcoins.
Blockchain
Blockchain is a ledger where each transaction a user makes using digital currencies is saved. This means that the technology records and confirms the cryptocurrency trades and transactions like a digital diary. It records assets as well. This information is stored without any third party like banks controlling it.
Blockchain technology stores each and every piece of information as a block. It is designed to secure the information so that each block is not changeable and viewed by everyone.
There are certain terms that users have to know when using cryptocurrencies.
- Nodes: a node in the blockchain is used to refer to a computer that runs the blockchain software. This will have access to the blockchain. Each node updates itself with the latest version of the blockchain.
- Blocks: a single part of the blockchain is called a block. This block has a cryptographic hash that links itself to the next block. Whenever a new transaction comes, a new block is created. These blocks are attached in chronological order and can record transactions worldwide. This, in turn, ensures accurate and permanent records.
- Hash: Hash is when a new block is created and makes the blockchain transparent and easy to restore. If the blockchain is tried to be manipulated, the hash value/number changes. The hash value increases the traceability of transactions within the blockchain.
- Merkle root: a single hash that contains all hashed information from previous transactions.
- Nounce: this is short for ‘number used once’. This is used to solve the mining problem and open the block.
- Magic Number: refers to the current version that is running in the blockchain.
Future of Cryptocurrency
With the evolution of more cryptocurrencies other than Bitcoin and the volatility of the current market, the future of the digital currency world looks bright. Dogecoin, being the second most ranked cryptocurrency, with different dynamics and approaches, investors are constantly in search of altcoins looking hungry for an uptrend.
One of the largest benefits of this area is also its versatility, investors and traders are able to trade from anywhere, anytime. There are also a large number of applications that have customer support provided 24/7 to take you through the entire process of buying and selling cryptocurrencies.
In this digital era, you can find more content creators who have great knowledge about digital currencies and are sharing content about each day’s market and predictions of tomorrow. With this amount of information in hand, it is totally up to you whether you want to invest, mine, or trade with cryptocurrencies. Good Luck!