What is Cryptocurrency?
Throughout the many centuries of mankind’s existence, people recognized the importance of trading with one another in order to obtain different goods and commodities. In the modern world, digital currency is becoming prevalent, and it brings with it many advantages. Cryptocurrency, also referred to as ‘crypto’ in short, is designed on blockchain technology, whereby with this technology, the information is recorded in a system which essentially makes it almost impossible to be modified. With the use of cryptography, the information is stored in a protected manner, putting people’s mind to rest when making transfers via cryptocurrency.
Altcoin, as the name implies, is any alternative coin to Bitcoin. Altcoins include the likes of Cardano, Ethereum, and XRP, amongst thousands of other coins used on the crypto market.
Bitcoin (BTC), to this day remains the largest and most popular cryptocurrency, and it was also the authentic cryptocurrency which paved the way for the evolution of this industry into the one it is today. Being a decentralised digital currency, individuals are able to buy, sell and even exchange it directly, without an intermediary like a bank, or other financial institutions.
Moreover, bitcoin does not require one to input his or her personal details, such as personal names, tax identification, social security numbers, or home addresses, therefore the owners would remain completely anonymous. Instead, what happens is that buyers and sellers are connected via encryption keys, and bitcoin can be ‘mined’ via powerful computers, which run a particular program that records the transaction, in multiple blocks, to create the blockchain concept explained earlier above.
Cardano (ADA) emerged at a later stage, in 2017, and is also a blockchain platform, which highly focuses on academic research, and frequently refers to itself as being a third generation blockchain platform. In contrast to bitcoin, it is more environmentally friendly, in the sense that it does not require the concept of mining, thus removing the need to have a high electricity supply. Cardano has been frequently praised for its use of ‘Proof of Stake’ (PoS), rather than ‘Proof of Work’ (PoW) mining.
In the traditional cryptocurrencies, such as Bitcoin, participants compete with one another to figure out mathematical sequences, in which the disadvantage with this is that the participant who is not selected, ends up not getting rewarded, wasting a significant amount of energy in the process. On the other hand, with Cardano’s PoS mechanism, namely Ouroboros, these participants are chosen at random, rather than on a competition basis, therefore, there is less room for energy to be wasted, whilst being more resource-efficient.
Ethereum (ETH) is now the second largest blockchain project, after Bitcoin, but albeit that it functions in the same manner as a blockchain does, it has different features, specifications and also uses different technology. However, whilst Bitcoin solely focuses on being a form of digital currency, Ethereum is considered to be a ledger technology used by firms worldwide, in order to establish new programs, creating space for more innovation to take place. This is best exemplified by the presence of numerous Ethereum developers communities, of whom focus on bolstering the network, and creating new programs.
Additionally, Ethereum is also working on introducing Ethereum 2.0, which would be an upgrade that would shift from the PoW mechanism, to a PoS mechanism, which would entail it to work in a similar way to that of Cardano, and prioritising more the environment. According to Forbes, with this upgrade, it is predicted that Ethereum 2.0 will decrease the overall crypto’s carbon footprint by at least 99.95%.
Fiat currencies in relation to crypto, are known as the traditional currencies which are regulated and backed by the country. Examples include the U.S. dollar, the British Pound as well as the Euro.
Non-Fungible Tokens (NFTs) also form part of the cryptocurrency world, however, the difference between NFTs, and the cryptocurrency coins detailed above is a matter of fungibility. This is because cryptocurrencies like Bitcoin, can be traded between different persons, and they would be getting the same exact asset that they possessed before. However, as NFTs are non-fungible, each NFT is unique in its own way, and therefore cannot be replicated. Oftenly depicted by a digital piece of art, such as an image, NFTs are often traded for thousands, if not for millions, depending on the person’s personal preferences, and are slowly becoming the future of digital investing.
Stablecoins are cryptocurrencies in which their values are fixed to other assets, often to currencies such as the fiat currencies. As opposed to the majority of cryptocurrencies, such as Ethereum and Bitcoin, stablecoins are backed by hard assets, making its value to be more stable over time, and less volatile than the typical cryptocurrencies. Therefore, stablecoins remove the ‘mining’ concept, and acquire its price from the value of another asset. Moreover, rather than having to buy bitcoin directly by means of fiat currency, like the US dollar, traders generally trade fiat for a stablecoin, resulting in the trade with the stablecoin to be executed for another cryptocurrency like Bitcoin or Ether. Some of the most popular stable coins include Tether (USDT), USD Coin (USDC), and Binance (BUSD).
In digital terms, a wallet is used as a digital storage device in order for an individual to keep his crypto assets in a secure form. Wallets can be categorised into two, either hot wallets, or cold wallets. The former would be connected to the internet, and users would need to access it by creating an account and setting a password, therefore it could be vulnerable to attacks by hackers, which could be significant to losing money. The latter is safer, in the sense that it is not connected to the internet all the time, and is more secure, since in order to access the wallet itself, the transaction would need to be signed or authorised by the hardware device storing the crypto.