So you have finally heard your colleagues speaking about crypto, or you saw it in an advertisement, or better yet, someone you know struck it big and credited their success to crypto. Now you are here, and you want to know all about it.
Look no further, this article is a simple yet comprehensive ‘get your feet wet’ guide for beginners in the crypto space.
Let’s get started.
What is Cryptocurrency?
Cryptocurrency is a digital asset. That is the short of it. It is not money, but it can be used to pay for goods and services wherever it is accepted as a mode of payment. Think of trading using cryptocurrency as a form of digital barter trade.
In the past, traders would exchange milk for honey, hide for cereal, gold for anything, etc and this comprised traditional barter trade.
Using cryptocurrency is just exchanging one asset for another over the internet.
Barter trades in the past involves one-on-one transactions, removing the risk of theft and scamming. However, in the digital era, this is not possible. Cryptocurrencies are a digital barter trade between people thousands of miles away and therefore, there is a need for a way to remove or reduce the risk of scams and conmanship. This is where blockchain technology comes in.
What is Blockchain Technology?
Cryptocurrency transactions are kept safe using an encryption technology that verifies the transactions. This encryption technology is also responsible for controlling the process of creation of the cryptocurrencies – in the same way that crop, gold, and animal hide were naturally controlled by the elements, hence becoming inherently valuable.
This encryption technology is what is called blockchain technology. The encryption leads to the creation of hundreds of records which are stored in blocks connected by a unique hash linearly.
The hash of one block references the preceding block from the most recent block to the initial one, hence connecting all the blocks in the network into one big chain of blocks.
In this way, altering the hash of one block, changes the hash of all the other blocks, rendering the entire network compromised. A compromised network automatically shuts down until the problem can be rectified.
Blockchains do not have central servers like banks do. Instead, they work through distributed computer networks across the globe, making them decentralized. By this mechanism, it is difficult to kill the blockchain, unless you initiate a co-ordinated global internet shutdown.
As long as even just one computer is online, the network will continue functioning as intended.
History of Cryptocurrencies
It is 2009, and a Japanese developer pseudonymously called Satoshi Nakamoto has finished coding the Bitcoin blockchain. He hit the go button and the Bitcoin network was birthed. His goal was to establish an independent and decentralized electronic system of payment that is based on mathematics and cryptography as opposed to mere trust.
His vision, 15 years later, has become massively successful since Bitcoin is trading at $45,000 per coin, and there are over 11,000 different cryptocurrencies all developed from his initial Bitcoin blueprint.
In subsequent articles, we shall delve deeper into the ins and outs of crypto. But up to there, you are caught up with what crypto and blockchain technology is.
Do you want to know how cryptocurrencies work? Stay tuned for the next article.