A comprehensive guide to cryptocurrency
Cryptocurrency, bitcoin, blockchains…all of these terms may feel overwhelming. They may even feel scary. But cryptocurrency goes beyond cryptocurrency (I know, it seems like a paradox). Cryptocurrency is not limited to just a single topic. It can integrate with old systems and create new designs, revolutionizing society's functions. One thing cryptocurrency can give us is freedom from centralized banking systems that control the world's economy.
What is cryptocurrency?
Cryptocurrencies are digital currencies that traders can use to buy goods and services. They use an online ledger with solid cryptography to secure online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward.
Unlike fiat money (currencies declared by a government to be legal tender), cryptocurrencies are not controlled by a central authority and exist only as data on a distributed ledger. Early cryptocurrencies such as Bitcoin were created through a process called mining.
Mining involves creating blocks of data or groups of transactions that cannot be altered or deleted once added to the blockchain public ledger. Miners receive Bitcoin for solving these complex equations and recording these transactions onto their rosters.
Because the number of Bitcoin is limited, it's impossible to produce more than 21 million coins through mining — the total number available. Thus, Bitcoin's value increases as demand grows.
Cryptocurrency vs. blockchain
A cryptocurrency is a digital asset used to perform financial transactions. Think of it as money. But instead of carrying around a greenback, you carry a little code stored on your phone or in the cloud somewhere.
Although cryptocurrencies are a subset of digital currencies, not all digital currencies are cryptocurrencies. A digital currency is any currency you can use to buy and sell goods electronically (as opposed to using physical bills).
Virtual currency like World of Warcraft gold may fall under this definition. Still, it isn't considered a cryptocurrency because it doesn't have its blockchain — the technology that underpins most cryptocurrencies — and therefore isn't decentralized.
Classification of cryptocurrency
Cryptocurrencies have become so popular in recent years that it's hard to keep track of everything happening. The complexity of this new world can be overwhelming for new users, but you don't have to know everything about how to invest.
Researching cryptocurrency is easy, though. All you need to do is browse the market, talk to people and read up on any related topics that are trending online. You can start looking into these topics without even touching your computer screen.
Cryptocurrencies like Bitcoin and Ethereum have grown in popularity, but they're not the only coins in the industry. You can find many other altcoins (alternative coins), too, with their perks and challenges.
Binance coin (BNB)
The Binance Coin (BNB) is an ERC-20 token created by the largest cryptocurrency exchange, Binance. It was initially issued on the Ethereum blockchain and is commonly used to pay for trading fees on the Binance exchange. Holders of BNB can expect discounts on their trading fees, which will be cut from 50% to 6.75% over time.
As the second largest cryptocurrency by market capitalization, BNB has exceeded expectations, with a growth rate many times that of its parent company. It's earned a reputation as a "growth engine," having fueled much of Binance's success as it continues to expand its operations into different parts of the world.
By far one of the most popular coins on CMC Markets and other global crypto exchanges, don't be surprised if this coin keeps making strides in popularity and value in 2022 and beyond.
Dogecoin
Dogecoin is a cryptocurrency created as a joke by Jackson Palmer, an Australian marketer for Adobe Systems, back in 2013. Dogecoin was built on Luckycoin, which uses the Scrypt algorithm (like Litecoin).
After it gained popularity, people began to use dogecoin to tip other users on the internet for content. The Dogecoin hype has since died down and is no longer used as much as before. However, the dogecoin community still operates and uses cryptocurrency to buy products and services.
It's an open-source, peer-to-peer digital currency that lets you easily send money online. Unlike many other cryptocurrencies, Dogecoin has a fixed supply of coins — 100 billion. As of May 2020, over 128 billion doge coins had been mined and were circulating worldwide.
Ethereum (ETH)
Ethereum is a blockchain-based platform created to build decentralized applications (dapps) and provide a decentralized platform for smart contracts. It was launched in 2015 by Vitalik Buterin, a young programmer born in Russia and raised in Canada.
Ethereum's goal is to be an alternative to the traditional internet, which means that it aims to replace payment systems and things like domains, user data storage, and content distribution.
The native cryptocurrency of the Ethereum network is called Ether (ETH). Regarding market cap, ETH is the second-largest cryptocurrency after Bitcoin, with a current market cap of around $32 billion at press time (BTC has a market cap of approximately $67 billion at press time). This number frequently changes as traders buy and sell ETH on exchanges worldwide.
Filecoin (FIL)
- Filecoin (FIL) is a decentralized storage network that aims to provide the same storage services as centralized cloud storage providers but in a completely decentralized way.
- As you would expect from a decentralized storage network, Filecoin allows users to rent out unused hard drive space. The reward for doing so is paid in FIL tokens.
- At its core, Filecoin's protocol is built on the IPFS protocol and uses many of its features.
Bitcoin cash (BCH)
Bitcoin Cash (BCH) is a fork from Bitcoin (BTC). It is a peer-to-peer cryptocurrency with faster transaction times and lower fees than the original bitcoin.
The cryptocurrency's creation followed an ideological split between two camps within the bitcoin community: those who felt increasing block sizes would make bitcoin too "corporate" and those who felt that larger blocks were necessary to grow bitcoin's user base. The dispute led to a hard fork of bitcoin, resulting in the creation of two blockchain networks — and two distinct cryptocurrencies — on August 1, 2017.
Bitcoin Cash operates on its blockchain network and has its price history and market capitalization. No government or central bank backs Bitcoin cash, but it can be bought, sold, and traded just like any other cryptocurrency.
Polkadot (DOT)
Polkadot (DOT) is the native cryptocurrency of the Polkadot network. It serves two primary purposes:
- Governance. The DOT token is used for governance and staking on the Polkadot network. Any user holding a certain number of DOT tokens can become a validator, vote on proposals within the Polkadot ecosystem, and decide what direction to take with development in general. Unlike other cryptocurrencies, this is a crucial aspect of DOT because it encourages active participation from its users and makes them invested in the future of the network.
- Interchain transactions. As mentioned before, one of Polkadot's main goals is to connect blockchains to enable easier transactions between them. This means that different networks can exchange data and value with each other without having to use another chain as an intermediary or launch their chain to do so. The DOT token is used for these interchain transactions and will allow users to exchange tickets between any connected blockchain using a relay chain from Polkadot itself.
Litecoin (LTC)
Litecoin (LTC) was one of the earliest altcoins. Charlie Lee invented it. It uses the Scrypt algorithm, a Proof-of-Work consensus mechanism, and is soon switching to Proof-of-Stake. It's also capable of atomic swaps and will continue to be upgraded with new technologies such as the Lightning Network (LN).
The coin was designed to be the silver to Bitcoin's gold. Litecoin has a faster block time of 2.5 minutes, four times as many coins (84 million), and it uses slightly different hashing mining algorithms than Bitcoin.
The first miners used CPUs, but now because mining has become so popular, GPUs are being used instead due to their greater hashing power. The increased Litecoin mining difficulty in recent years means that only large-scale operations can still mine profitably.
Chainlink (LINK)
Chainlink (LINK) is the native token of the decentralized oracle network, Chainlink. Chainlink provides smart contracts with access to external resources and off-chain data feeds, such as market prices, weather data, and other APIs.
An oracle is a third party that acts as a middleman between blockchains and other web APIs. They are necessary because blockchains have no way of connecting with real-world applications by themselves. If you want to store factual world information on a blockchain — like stock prices, weather forecasts, and flight schedules — then you need an oracle to supply this information.
Cryptocurrency is a digital asset that serves as an exchange medium for financial transactions.
Cryptocurrencies are a relatively new phenomenon. But, they are increasing in popularity quickly, with some countries like Japan and Venezuela accepting and promoting their use. Cryptocurrencies are also getting more popular on the international market.
If you're looking for a way to jump into the cryptocurrency game, it's worth considering how to invest in cryptocurrency.
