A Beginner’s Pocket Guide to Understanding Cryptocurrencies
Understanding What The Fuzz Is All About Cryptocurrencies
There are 1629 cryptocurrencies listed on exchanges as at the time of writing this article, with a current total market cap of $281,301,978,002 according to coinmarketcap.com. The fact that new cryptocurrencies are constantly being added to cryptocurrency exchanges shows how fast the cryptocurrency market cap has grown from 6 years ago when bitcoin was just $7.38.
But who’s Satoshi and what’s the deal with Bitcoin and cryptocurrencies?
This is a question among many others on the mind of every person who’s just beginning to learn about cryptocurrencies. The questions come with the thrill of learning something new, something foreign, and with the thought of finally discovering a new way of making clean cash. Of all the questions that I’ve been asked, one that I’m asked often is “what’s the profit?” and “how will it benefit me?” But there’s a history to this ‘magic money’, you see, and it all started with a person who prefers to be called, Satoshi Nakamoto.
Who is Satoshi Nakamoto?
Satoshi Nakamoto is the name of the person who invented Bitcoin. In 2008, “Satoshi Nakamoto” announced his invention of Bitcoin in a document that details everything about his project(this document is called a whitepaper). According to him what we need is an electronic payment system based on cryptography.
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
Satoshi is saying that there is a problem with our financial model which is based on trusting third parties like the banks to handle our electronic transactions. Going through a third party is often not always reliable because third parties can disappoint. It is cheaper and safer for us to not have to trust someone or our financial institution before we can make transactions. In his whitepaper, he said he’d invented something that would solve the problem of double spending with cryptography. With his invention, there would be no need for a central server or anybody in the middle to secure our transactions. We would make transactions from one party to the other party without worrying about the other party disappointing. This ‘something’ he’d invented is what we call the Blockchain.
Bitcoin, with a capital (B), is the Blockchain which is what Satoshi referred to in his whitepaper, while bitcoin with a small letter (b) refers to the currency that is used on the blockchain network. bitcoin (cryptocurrency) nevertheless, emerged as a secondary product of blockchain. Without Satoshi’s invention, we probably would not have over a thousand cryptocurrencies right now.
What are cryptocurrencies?
Cryptocurrencies are also known as digital currencies or virtual currencies. When we talk about cryptocurrencies, we talk about money that does not exist in the physical form. This money has been created and is stored digitally through the means of cryptography. Cryptography takes written texts and converts them into codes that cannot be read. Hence, cryptocurrency is a digital asset that is used as a medium of exchange and is backed by cryptography in the blockchain, which is what makes cryptocurrencies safe and secure. Some examples of cryptocurrencies are bitcoin, ethereum, ripple, litecoin, iota, dash, cardano, EOS, etc.
How are Cryptocurrencies different from Fiat Currencies?
Cryptocurrencies are different from our fiat currencies in the sense that they do not exist in the physical form. Fiat currencies are traditional currencies like Naira, USD, and Euro. We know fiat currencies exist because we can see them in the physical form, and we can use them to make transactions. Fiat currencies also have a central authority which is the Central Bank. The Central Bank oversees and controls the supply of money in a country. Cryptocurrencies, however, are digital currencies that do not have a central authority. Instead, they are backed by the blockchain.
Are Cryptocurrencies the same as E-Payment Systems?
No. Cryptocurrencies are not the same as e-payment systems. Electronic payment systems are purely tools for making payments online in fiat currencies, and they have been around for quite a while now. Satoshi was not the inventor of digital currencies, but he was the person who succeeded at creating something that went beyond having money in a digital form. He succeeded at creating the first decentralized currency. Cryptocurrencies, however, are money in digital form which is not represented in fiat currencies.
What is Cryptocurrency Transaction?
In the traditional system of transaction, we go to the bank to make payments and the bank has to make sure that we have enough money in our accounts before the transaction is authorised. If there is not enough money, the transaction won’t go through. In the case of cryptocurrencies, cryptocurrency transaction is done on an open ledger. This is how it works. Before cryptocurrency transaction can take place, cryptocurrency users must first have a cryptocurrency wallet. A cryptocurrency wallet is a digital wallet that is secured on the blockchain, and which allows users to safely send and receive cryptocurrency. A transaction is the transfer of coins from one cryptocurrency wallet to another cryptocurrency wallet.
Who is a Cryptocurrency Owner?
A cryptocurrency owner is one who has cryptocurrencies in his or her digital wallet. This person is someone who has purchased cryptocurrencies through an exchange platform or directly from a seller. A person can also have cryptocurrencies by having cryptocurrencies sent to them through a transfer.
Anyone can own a cryptocurrency. You don’t need to understand the science behind the blockchain before you become a cryptocurrency owner.
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