Introduction to cryptocurrency
By Nerly Shammah Jul 28, 2022
A cryptocurrency is a virtual or digital asset that operates on a distributed ledger technology(DLT), notably, the blockchain, thus lacking any central authority, as opposed to fiat currencies. Cryptocurrencies are designed to enhance the financial sector with power-packed features including security, low cost, and speed.
As a primary basis, most cryptocurrencies are built with these functions, however, there are other notable attributes to cryptocurrencies and that’s decentralization. Many believe in free money, collectively operated by everyone. Although not all, most cryptocurrencies are built on decentralized structures, this has been fast-paced in terms of development as we currently have great infrastructures built upon this idea, one of many is a “DAO”, a structural framework built to enhance governance and the general decentralization of cryptocurrencies and all associated products.
The Idea Behind Cryptocurrency
Many people view crypto to be just a virtual currency aimed to replace the popularly used fiat currencies, While the assertions are true to some extent, a lot about the creation of cryptocurrency is kept out. Many things come into the picture when talking about cryptocurrencies, this includes data encryption, which is primarily the structure upon which cryptography operates.
Cryptocurrencies are built on the idea of data integrity, confidentiality, and authenticity. When we look at modern cryptography, we see all the pieces displayed in the first-ever successful cryptocurrency, bitcoin. Cryptographic algorithms are designed with computational complexity, a hardness assumption, systems built upon these algorithms are considered computationally secured as they inhabit the power of cryptography.
Where It All Begun
As far back as 1983, American cryptographer, David Chaum notably birthed the idea of an anonymous cryptographic electronic money called ecash. Later in 1995, reports have it that he implemented it through Digicash, an early form of cryptographic electronic payments founded by him. Digicash required user software in order to withdraw notes from a bank and designate specific encrypted keys before they can be sent to a recipient. This allowed the digital currency to be untraceable by the issuing bank, the government, or any third party.
Fast-paced to 2009 with many stories in-between, Bitcoin was created by Satoshi Nakamoto with the idea of decentralizing money, giving it a seamless integration for global adoption. Notably, it is the first successful cryptocurrency as it is known today that more than 83 million bitcoin addresses have been created.
What Are The Advantages Of Cryptocurrency?
By design, cryptocurrency is an ever-evolving technology, thus, has its limits to none as its use cases expand on a daily basis. That said, as of today, there have been many notable events that promote crypto to the open world as an asset with utility. One of many more is the move made by El Salvador to adopt bitcoin as a legal tender, acknowledging the importance of the asset to its country's economy, people, and the world at large.
Additionally, cryptocurrencies draw their breath from the following;
Decentralization: as aforementioned, the idea and entire structures of cryptocurrencies are based on this. Lacking the interference of third-party services, or government control, cryptocurrencies are decentralized money built on immutable frameworks, and governed by everybody, therein abolishing the triangular system of governance.
Low Cost: Cryptocurrencies offer the cheapest transfer rates in the markets, which currently sums up to zero charges with networks like Hive leading the way.
Speed: Using hive as yet another reference, one of the advantages of transacting via cryptocurrencies is near zero second transaction time, transactions are almost instant and as aforementioned, cost 0 dollars.
Investment profits: While the world doesn't treat all currencies as an investment but as a store of value, cryptocurrencies are a bit different and are primarily seen as an investment. Since the inception of bitcoin, the cryptocurrency market capitalization has grown from $0 to trillions of dollars. Thus, outside being a currency, crypto can be an investment that yields profits over time.
Privacy: Considering the framework that cryptocurrencies are built on, privacy is one of its many benefits. Although most crypto transactions are traceable, privacy coins are designed to give their users anonymity.
What Are The Disadvantages Of Cryptocurrencies?
A system is without a flaw, regardless of its ever-expanding utilities and benefits, cryptocurrencies come with some amount of risks
Volatility: Being an asset with a free market, free and open to everyone 24/7, cryptocurrencies are by far the most volatile assets in the markets. Market movements are extremely difficult to predict, cryptocurrencies can gain crazy value in a short time span and equally lose as much. While many people believe this to be the beauty of cryptocurrency, it’s always important for one to be careful trading this asset class.
Unregulated: As you may already know by now, cryptocurrencies are not controlled or issued by any governing bank. As privately issued assets that exist and operate via the blockchain that it’s built on, cryptocurrencies are not regulated by the government. While there have been conversations amongst governments of the world to regulate cryptocurrencies, it’s still at the time, an unregulated asset class.
Security: The blockchain is a highly secure setup, however, crypto usage requires a lot of caution as wallets are vulnerable to attacks if not individually managed well. It’s an advantage and a disadvantage that crypto wallets are inaccessible by anyone, but are vulnerable if the private keys, mnemonic phrases, and other security tools are not well managed.
Fraud: Where there’s money, there’s bound to be a number of bad players, and so, with crypto, it isn’t any different. Crypto has suffered a number of attacks with projects engineered to defraud the community. Additionally, crypto has been a tool for criminals to launder away dirty money. However, considering the traceability of most crypto transactions with the help of the blockchain, it is expected that crypto will be a powerful tool to fight cybercrimes in the coming years.
How Can I Get Cryptocurrencies?
Cryptocurrencies can be obtained in many ways, but the three go-to options are mining, yield farming, or buying from exchanges. Mining crypto could be done with merely a computer and an internet connection, however, using bitcoin as a case study, mining isn’t really cost-efficient and so, it is mostly dominated by big pocket firms.
That said, one can obtain cryptocurrencies through yield farming, which in theory is staking some other crypto asset to earn more of the same asset or another. Yield payments are usually obtained from transaction fees accumulated by the network. The last of the three would be buying crypto from exchanges. While there are numerous ways to earn passive income and accumulate crypto assets, the fastest way to obtain crypto is by buying.
One can buy crypto easily through centralized exchanges around the world. Three top picks include Binance which is the top exchange in the world. There’s also Kucoin, the one crypto exchange with the most listed altcoins. Okex is yet another reputable exchange to buy cryptocurrency from.
What Are The Most Popular Cryptocurrencies?
Bitcoin and Ethereum are the most popular cryptocurrencies, with the largest market capitalization respectively.
Is cryptocurrency a good investment?
That’s up to one’s personal decision, which we recommend thorough research. Cryptocurrency comes with its benefits and applicable risks.