When asking What are Cryptocurrencies? As we will explore, first one must understand Blockchain and how it’s used to facilitate Cryptocurrency.
Your capital is at risk. Other fees apply.
What are Cryptocurrencies?
Unless you have been living under a rock for the past decade or so, you have definitely heard of Cryptocurrency and the big names like Bitcoin. As with many people, this buzz-word probably only serves to create more questions.
What is a Token? What is a Coin? What are Cryptoassets and how to they differ from Cryptocurrencies? All these questions and more are answered here.
What are Cryptocurrencies Anyway?
To answer this question, it is actually more important to ask, what is Blockchain? As it is the underlying technology that lends itself to the development of Cryptoassets in the first place.
Your capital is at risk. Other fees apply.
What is Blockchain and Where Did it Come From?
Step one when investing the question What are Cryptocurrencies? is to understand Blockchain. Here is the history lesson.
Contrary to common belief, the idea of blockchain actually existed long before Satoshi Nakamoto’s Bitcoin whitepaper in 2008. In fact, in 1991 two men, Stuart Haber and W. Scott Stornetta, effectively invented blockchain and published their idea in an academic paper How to time-stamp a digital document that year.
What they described was an idea that detailed how to timestamp documents by storing hash values in a timestamped block on the blockchain. By doing this someone can prove that a document existed at a certain time in a certain version.
It is this application that is of such interest to businesses and the crypto-community today as it has so many potential uses, such as notarising documents, registering intellectual property rights and even contract arbitration.
In essence, blockchain is a linkage of several blocks of information. In this chain, each block is generating code which is saved in the subsequent blocks.
Satoshi Nakamoto referred to this earlier work in the Bitcoin whitepaper of 2008.
Your capital is at risk. Other fees apply.
How Does Cryptocurrency use Blockchain?
Ok, so the next thing to understand in the quest to answer the question What are Cryptocurrencies? is how Blockchain becomes a Cryptoasset.
The first Cryptocurrency, Bitcoin, takes the pre-existing idea of Blockchain and adds an all-important incentive and proof of work consensus element to the blockchain data-structure. These simple additions have made the blockchain genuinely decentralized giving rise to cryptocurrency.
Cryptocurrencies are all based on a distribution system. They can also be referred to as distributed ledgers. The information is not centralised in one single place – but is distributed across millions of computers in the network without going through any intermediary such as a payment provide or a bank. Each user will save a varying degree of the ‘Blockchain’.
Mining
Mining is the process of authenticating the payments or other actions that the blockchain performs.
The people or groups who perform this function are remunerated in kind with that currency.
What Kinds of Blockchain’s are There?
Public Blockchain
Public blockchain is the most common form of blockchain. Every one has access to it and can interact with it. This pervasiveness also means that it is the slowest blockchain. Users in this form can appear anonymous but are traceable.
Consortium blockchain is the second option of blockchain. This form of blockchain uses specific crossover points for validation and only the participants of the consortium have access to it. Because of this the system is faster. Users can choose to be public or anonymous.
Private Blockchain
This is the third type of blockchain. It is for private only users. In this form, transactions need to be validated by numerous users or validators.
Your capital is at risk. Other fees apply.
How is Blockchain a Currency?
When asking the question What are Cryptocurrencies? it is first essential to understand Blockchain.
Cryptocurrencies are based on blockchain technology. This technology has four main characteristics: distributed, cryptocraphig, immutable, and offers proof of work. In addition, blockchain in currency is also:
Decentralisation
The information is not saved in one centralised location, but instead it is saved across a vast network of computes simultaneously. This means that it is almost impossible to edit or change saved data.
Consensus
The philosophy of cryptocurrencies is that the community as to agree on what happens and what doesn’t. Consensus can be reached through ‘mining’, among other methods.
Contrary to common belief, most Cryptocurrencies can be tracked.
Transfer of Values
Unlike in traditional banking, because coins can be moved without the use of an intermediary, the transaction time is much faster and because there is no commissions charged, there is no loss of value of the asset.
The Latest DefensiveTrading.com
- How to Invest in Cryptocurrency: A Step by Step GuideInterest in how to invest in cryptoassets like Bitcoin, Ethereum, and XRP has grown by leaps and bounds in the past few years.
- ⚡Breaking: Banking Crisis 2023If you want to see an unprecedented flocking into the crypto space, let’s just wait and see how deep this banking crisis in 2023 extends.
- Investing Module 1: Why Should You Invest in the First Place?‘Why Should You Invest?’ is the topic of our first session today. […]
How Can You Access a Blockchain?
Creating an account: Login with email and select a username that hasn’t already been taken and a password.
Private Key: By creating blockchain access, the private key is a randomly created passcode made up of many numbers and letters. This is what is required to access the allocation of coins.
Once the private key has been created, the public address will appear and is based on your private key.
Though this may seem like a high-risk method, it isn’t because the automatic function of the address being based on the private key can only be performed one way. The mathematics that underpins this process is virtually impossible to predict.
Your capital is at risk. Other fees apply.
What is a Token and What is a Coin?
When answering the question What are Cryptocurrencies? we must also make a distinction between Tokens and Coins.
Coins are the most common type of Cryptocurrency. This usually requires the coin having its own technology in the blockchain. This is the key difference between the two, a Coin has its own source code and it not built on top of another blockchain. This included Cryptocurrencies such as Bitcoin and Litecoin.
Tokens conversely, are built on top of another Cryptocurrency, for example, Ethereum. Tokens are used to remunerate the underlying technology for the services which can include the mining required to approve transactions.
What are Cryptocurrencies and What are Cryptoassets?
After reading all this information it is actually apparent that there are actually a wide variety of assets which are all grouped together as Cryptocurrencies. For this reason, it is actually more accurate to refer to this asset class as Cryptoassets.
Cryptoassets is a more comprehensive term to describe the variety of assets and it includes cryptocurrencies, utility tokens, platform tokens, and tokenised securities. Cryptoassets are tokenized and issued in a public ledger, that doesn’t necessarily need to derive its value from the chain and whose application isn’t necessarily payments.
The most well known Cryptoassets is definitely Ethereum. For more on Ethereum don’t miss out post on Everything You Need to Know About Ethereum (ETH).
