Cryptocurrencies are a disruptive innovation that is changing the way we send and receive money and pay for goods and services online. The recent development in the crypto world shows this new form of digital currencies can be a viable tool to provide other forms of financial services.
If you are new to the concept of cryptocurrency, or you are wondering what it’s all about. Search no further. This is a straightforward guide that will introduce you to the concept of cryptocurrencies, without all those technical words. Let’s get started.
What is cryptocurrency
Cryptocurrencies are digital currencies that can facilitate the exchange of value between person-to-person on the internet in a secure and decentralised way that doesn’t require the involvement of a third party like a bank.
Crypto coins are a medium through which we can buy and pay for goods and services on the internet. You may ask, what so special about cryptocurrencies? Since we have other means of payment and exchanges like Paypal online.
What makes cryptocurrency important
- First off, cryptocurrencies transactions take place between peer-to-peer networks (between two parties).
- Second, the transactions with cryptocurrencies track and immutably recorded on top of a cryptographically created ledger known as the blockchain.
- Third, it secures the sender and receiver identity with cryptographic encryption.
Also, transactions involving cryptocurrencies are fast, cheap and easy. Consider this; 112,027.29942359 bitcoin (millions of dollars’ worth) transferred in a single transaction for a transaction fee of 0.00046743 BTC ($3.84 as at then).
How much do you think the fee will cost if the transaction happens in a bank?
Blockchain – The Underlying Technology that powers cryptocurrencies
What makes cryptocurrencies unique is the technology behind it. Blockchain has been around for a long time, but its first practical application was bitcoin; the most dominant cryptocurrency in the market. Let’s take a brief look at blockchain, the features and how it used to power cryptocurrencies.
We can describe blockchain as a digital, distributed public ledger that records and secure valuable information.
With cryptocurrencies, the blockchain ledger stores and protects the transaction that takes place.
Blockchain features in cryptocurrency
Cryptocurrency possesses certain unique features, which we can trace back to its underlying blockchain technology. Let’s look at the key ones.
- Cryptocurrency transactions are decentralised. Blockchain does not operate on a single (central) server, but a network of millions of computers connected globally across the world.
- The transactions are immutable. Every computer connected to the network, have equal access to the transaction history. Each block on the network links to the other in the form of a chain. So, altering the information stored on chain becomes nearly impossible.
- Cryptocurrency transactions are transparent. The blockchain that powers cryptocurrency, is permissionless and open to the public. Everyone can access the details of the transaction on the network.
A brief history of cryptocurrencies
Before cryptocurrencies, they were other forms of digital currencies (Digi Cash) that existed. However, they were short-lived because of various reasons. First, the currencies were created by third-party systems and managed on a single server vulnerable to hacks. But a notable reason attributed to their failure was their inability to prevent the double-spending problem; how to prevent the spend of the same amount twice.
An unknown person or group by the alias ‘Satoshi Nakamoto’ published a white paper in late 2008, detailing how he solves all of this problem with a new digital currency invented. And that was bitcoin. In January 2009, Satoshi Nakamoto (the anonymous inventor of bitcoin) released the bitcoin software and mined the first bitcoin block. The success of bitcoin paved the way for the invention of new cryptocurrencies. Today, there are over a thousand cryptocurrencies created with varying use cases. Below is a list of some crypto coins in the market.