The global economy is undergoing massive changes as digital cryptocurrencies overcome all the limitations and hurdles faced by government-issued fiat currencies. The new cryptocurrency revolution is ready to bring economic fairness to all, along with total access to financial tools that are currently reserved for investment bankers and their wealthy clients. The new crypto world was born in a computer science environment, with algorithms and data structures complicated enough to amaze all but advanced software engineers. However, today, everything has changed and cryptocurrency is available to everyone.
What is cryptocurrency?
What are cryptocurrencies? It depends on who you ask. Ask a software engineer to define a cryptocurrency, and you’ll hear a lecture about algorithms and data structures. Ask the same question – “what are crypto?” – to bankers and government regulators, and they will describe a populist movement that requires a cautious response. However, for millions of investors, the answer to the question “what is cryptocurrency?” is simple: an opportunity to secure their own and their family’s future.
What is cryptocurrency? It’s a technology, an investment opportunity, and a whole new way of looking at money. When people say “crypto,” the meaning depends on who they are and what they think about it.
Any definition of cryptocurrency must include a bit of history, an overview of the technology, and the study of market opportunities. It is precisely these aspects that we provide in this article: cryptocurrency for beginners, or an overview of today’s crypto world and the future it promises us.
How does cryptocurrency work?
The “crypto” part of the word “cryptocurrency” refers to the encryption that is provided in all modern digital currencies. Cryptocurrencies like Bitcoin and Dogecoin have their value because people pay to buy them. Then, the acquired cryptocurrency can be exchanged for goods, services, or government-issued currencies like the euro.
Most people acquire cryptocurrencies by buying coins and tokens online on exchanges or by selling some goods and accepting cryptocurrency as a form of payment. Some earn coins by using their computers to validate transactions on the blockchain. Performing validation calculations is rewarded with newly minted coins in a process called crypto mining. When Satoshi Nakamoto created Bitcoin, the source code set a final limit on the total number of Bitcoins that could be minted – about 21 million. At the beginning of 2021, there are only 2.4 million Bitcoins left that have not yet been created and put into circulation.
Introduction to cryptocurrencies always includes the word “blockchain”. Blockchain is nothing more than a distributed database that keeps track of cryptocurrency transactions. Although blockchains and cryptocurrencies have been linked since their inception, they are still very different from each other. Blockchain architecture can be used for many purposes outside of virtual currency, and digital currencies do not need to be deployed on the blockchain. However, nowadays, the world’s current cryptocurrencies are based on blockchains, as blockchain architecture offers unique technical advantages. Any digital currency that is currently traded is a blockchain cryptocurrency.
Coins and tokens
We tend to use the terms “coin” and “token” interchangeably when referring to units of cryptocurrency, but they are quite different. The coin is the native currency of the blockchain. For example, Ether is the coin of the Ethereum blockchain. Crypto coins include Bitcoin, Ripple, Ethereum, Dogecoin, NEO, and Litecoin. Tokens, on the other hand, are coins that are built on a different blockchain. Dozens of tokens have been built on the Ethereum blockchain, for example, Enjin Coin, SAND, Radix, and Lotto.
One significant difference between coins and tokens is that gas – or “tax” on cryptocurrency transactions – must be paid using the blockchain’s native currency. Therefore, if you are using SAND, Radix, or Lotto, your transaction fees will be made in Ether. Conversion and payment can happen automatically in the background, or you may need to keep a few Ether in your wallet, depending on the token you are using and the app you are working with.
The future of cryptocurrencies
Cryptocurrency has the potential to become a populist alternative to the banking system’s monopoly in both financial markets and investing. It can bring more than a million unbanked people into the global economy, enabling everyone to benefit from their contributions.
Currently, governments, banks and investment houses are experimenting in response to the growing interest in cryptocurrencies. Some treat cryptocurrencies as a threat, while others see them as a technology that can coexist alongside conventional financial tools. Some countries encourage the use of cryptocurrencies, while others strongly advise against it. Regulations change frequently – and you, as an investor, should take such changes into account in your calculations.