Just a year ago, Bitcoin was worth about $9K. Today, for one coin, the owner can already earn $36K+. At the time when cryptocurrencies are a hype topic, many people especially want to dive into it. Suddenly I won’t have time, right?
Cryptocurrency, popularly, crypto – is a new form of money, i.e. digital money. Anyone with Internet access can transfer money without the participation of third parties thanks to crypto.
You may be asking how such a system differs from PayPal or the digital banking application installed on the phone. At the first sight, they all do serve the same purpose – transferring money to friends, internet purchasing – but in terms of internal structure, there are cardinal differences.
What is the uniqueness of crypto?
Cryptocurrency has many unique features. However, its main function is to act as an electronic money system that does not belong to any of the counterparties.
A real cryptocurrency must be decentralized. There is no central bank or user group that could change the current rules for transactions with cryptocurrency without the consensus of the parties. Network participants (nodes) run software that connects them with other participants to exchange information.
In the case of cryptocurrency, each node keeps copies of the database and can be used as its own server. If some nodes go offline, other nodes on the network can still receive information from the remaining nodes and keep proceeding operations.
You can operate with crypto 24 hours, 365 days a year, without holidays and weekends. Cryptocurrency allows the transfer of value anywhere globally and without intermediaries.
Why is it named “cryptocurrency”?
The term “cryptocurrency” combines cryptography and currency. This is because cryptocurrency makes heavy use of cryptographic techniques to secure transactions between users.
What is public key cryptography?
Public key cryptography underlying all cryptocurrency networks. Thanks to cryptography users can fully and transparently send and receive money.
In a public key encryption scheme, you have public and private keys. A private key is either a huge number that no one can pick up, or a sequence of random words.
With the most modern computers, you will not crack anyone’s private key until the very heat death of the universe. As the name suggests, the private key should not be shared with anyone. The private key can be used to generate a public key. Here it can be safely transferred to anyone. No one has any way to crack your public key in order to get a private one.
Who Invented Cryptocurrency?
Over the years, there have been many attempts to create a digital money system, however, the first cryptocurrency was Bitcoin, released in 2009. It was invented by a person or group of people using the pseudonym ‘Satoshi Nakamoto’. To this day, it remains unknown who actually stands behind the identity of the inventor, but manu rumors exist. Dive into this theme in the next article.
Thanks to Bitcoin a huge number of cryptocurrencies were spreaded – some are trying to compete with the King, while others are looking to integrate features not available in the Bitcoin blockchain. Nowadays, there are many blockchains that allow users to not only send and receive funds, but also run DApps using smart contracts. The most popular examples of such networks are Ethereum and Binance Smart Chain.
Is there any difference between crypto and tokens?
From a first look, cryptocurrencies and tokens seem to be the same. Both are traded on and can be transferred between blockchain wallets.
Cryptocurrencies are considered straightly as money, whether as a medium of exchange, store of value, or both. All coins are functionally interfungible, which means that one Ethereum coin is worth the same as another Ethereum coin (actual price is $2250 for one coin).
Bitcoin and other early cryptocurrencies were developed as currencies, however later blockchains aim even further. For example, Ethereum allows developers to run smart contract codes on a distributed network and create tokens for various decentralized applications.
Tokens can be used like cryptocurrencies, but they are more flexible. They can be represented as a share in a project or cashback rewards for using some products.
In blockchains, the core currency is used to pay «gas» for proceeding the on-chain operations. In Ethereum, for example, the native currency is ETH, it is used to create and transfer ERC-20 or ERC-721 tokens on the Ethereum network. Binance Smart Chain, a newer blockchain, circulates BEP-20 or BEP-721 tokens, and the native currency is BNB, which is used to pay for on-chain actions.