Jessie J once said in her famous song Price Tag, “ It’s not about the money, money, money…”
Sincerest apologies Jessie J, but I will be going against your word today.
This article will be all about money, money, money, or more specifically — the cryptocurrencies.
Cryptocurrencies have taken the world by storm. It started in 2009 when Bitcoin was first released. You see, cryptocurrencies are not like the money you are used to. It’s not the cash you store in your wallet or bank cards that you also store in your wallet. In fact, you can’t store cryptocurrencies in your wallet at all.
Cryptocurrencies are digital currencies that are secured using cryptography — a technique to secure and verify the transactions. Try storing THAT in your wallet.
If you’ve heard of cryptocurrency, you definitely must have heard of Bitcoin. Bitcoin is one of the most well-known forms of cryptocurrency today. Despite the existence of cryptocurrencies before Bitcoin, what set Bitcoin apart was the fact that is was distributed and decentralized.
What does that mean?
When a cryptocurrency is distributed, it means that its database is consensually shared across multiple servers so that the public can witness all transactions. This sounds quite intimidating.
Why would I want someone to see my transactions?
As strange as it seems, allowing the public to witness the transactions allows for more security. If anyone tries to make a cyberattack, it is much harder as there are so many more people who have access to the information.
Because Bitcoin is distributed, it also means that it is decentralized. With no institution standing behind blockchain, there are no rules from the financial system that exists. All of them exist only within the computer network, which is why it is important for it to be distributed. So everyone can hold each other accountable for what they do on the network.
Wow! That’s so cool! How does it work?
Well, the secret to this wonderful technology is Blockchain. Remember when we said that Bitcoin is distributed and decentralized? Blockchain was behind that. Blockchain is a public ledger in which we store digital information. It stores mainly these three pieces of information
- Date, time, and dollar amount
- Participants in the transactions
- Distinguishable information AKA a unique code called “hash”
For the Blockchain to work, these four things MUST happen:
- The transaction must occur.
- The transaction must be verified.
- The transaction must be stored in a block.
- Said block must be given a hash.
Any block added to the blockchain becomes available for anyone to view. So whenever someone makes a transaction, everyone can see it!
See Jessie J, you CAN make the world dance with money!
There are 2 ways you can categorize cryptocurrencies:
Altcoins or “coins” are alternatives to Bitcoin. Thus, the name Altcoin. They are made through editing Bitcoin’s open-source code, making a completely new coin with new features. These are done through hard forking, the process of splitting the blockchain into two sections. One that follows the old rules and the new one that follows the new rules. Some examples of altcoins are Litecoin, Dogecoin, Ethereum, and Ripple.
Compared to Altcoins, tokens are much easier to create. Tokens usually reside on another blockchain, and can basically represent any assets that are fungible or tangible. As it is simply a representation of an asset, all you really need to do is follow the standard procedure.
As said above, Bitcoin was the first decentralized and distributed cryptocurrency but what are the other features of Bitcoin?
First, it is irreversible. No matter what you do, or how hard you try, there is no way you can reverse a transaction. This means there is no safety net. So, you have to be extremely careful who you send your bitcoin to. It must only be institutions and people you trust.
Secondly, none of your transactions are connected to your real-world identity. You are assigned numbers, AKA your “hash”, and that is how you receive your bitcoins.
Thirdly, it is fast and global. It was mentioned that bitcoin is distributed. That means anyone has access to it and all transactions are done fast.
Fourth, it is secure. Protected by a cryptography system, it is hard for anyone to steal your bitcoin. Everyone has a public and private key. Your public key is accessible by everyone in the blockchain whereas your private key, you must keep to yourself. The private keys used for individuals gives digital signatures a quality of repudiation. Multi-signatures require more than one signee to approve of a transaction which divides the ability to make decisions, making it safer. Every public key is connected to one private key. You can obtain a new public key (if you lose it) through your private key but not vice versa.
Last but not least, it is permissionless. This is pretty self-explanatory. You don’t need anyone else’s permission to use bitcoin. All you need to do is download it. Pretty straightforward
Despite Bitcoin’s popularity, its success has been dying down in recent years. One of the biggest contenders is Ethereum.
While everyone was paying attention to Bitcoin because it nearly tripled its value in a year, Ethereum’s value had a 4000% increase year-to-date. Ethereum and Bitcoin are similar. They are both made with blockchain technology, they are both distributed and they are both decentralized. However, a lot of people believe that Ethereum’s technology is way better.
Unlike Bitcoin’s blockchain, Ethereum’s has a smart contract technology. This allows the blockchain to not only track transactions but also program them! Running the blockchain on this smart contract is basically like having your money invest, spend and save on its own! They do all this without any interference.
While these two cryptocurrencies are at the top of the game right now, there are still many cryptocurrencies that are interesting!
Here are some of them:
- SolarCoins encourages users to switch to solar energy by using coins as an incentive!
- Ripple enables banks, payment providers, digital asset exchanges and corporates to send money globally using advanced blockchain technology.
Cryptocurrencies are bringing the world closer together with its new technology. They are revolutionizing the way we make our transactions and soon enough, we might live in a world where we do not need financial institutions anymore.
So, Jessie J …
I guess it IS all about the money, money, money, huh?
Thank you for reading my article. If you like it, feel free to clap as much as you would like. If you want to know more about what I do, you can connect to me on my LinkedIn. Thank you so much for your support and do look out for more articles by me!