Chances are you have a friend, colleague, or relative who is always talking about cryptocurrency and you can’t stop wondering why? Is cryptocurrency there new gold in town? Keep reading to find out. Before we delve into discussing different types of cryptocurrencies and what the future holds for cryptocurrency, you may want to know what cryptocurrency is.
What Is Cryptocurrency?
A cryptocurrency is a form of digital payment created as a means of electronic exchange performed through a computer network but without a central authority such as government bodies or a financial institution.
It uses decentralized control. Transactions are recorded on a public ledger called a blockchain. Cryptocurrency transactions are managed by a network of peer-to-peer computers commonly referred to as a node.
These transactions are secured by cryptography, this makes it almost impossible for any owner of bitcoin to double-spend (or counterfeit bitcoin by spending the same bitcoin more than once).
The information included on the public ledger includes details like transaction amount and addresses of those involved in the transaction. Different cryptocurrency trading platforms request different information about the senders and recipients.
Bitcoin is the most popular cryptocurrency in the world, but there are over 9,000 other digital currencies in the market. You can have access to cryptocurrency through traditional digital trading platforms like Coinbase. Once you have bought it using traditional currency, you can store it in a digital wallet or an external hard drive.
This being a digital currency, it can only be used through a digital device like a computer, smartphone, or tablet. Fortunately, you can now convert cryptocurrency into fiat currency through trading platforms or a cryptocurrency ATM.
People and governments around the world are embracing cryptocurrency, major stores and companies like Overstock, Microsoft, PayPal, etc. now accept crypto payments.
Cryptocurrencies are popular, but some sections of the population and governments are still reserved because of reasons like the high volatility nature of crypto and the risk of terrorists and criminals taking advantage of loopholes like the anonymous nature of transactions.
The other challenge is that crypto transactions can only be reversed when the recipient sends back the money. And if some hacks into your account or the exchange you deal with go out of business, you are at risk of losing your money, and the government is not obliged to help because it doesn’t control it.
What Are Coins And Tokens?
It is very common to hear people talking about coins and tokens where cryptocurrency is mentioned. Coins are created to act as traditional money while tokens are created for specialized purposes.
Coins such as bitcoin and lite coins are created on their blockchain while tokens such as Tether and dogecoin are created on top of an existing blockchain. There are several forms of tokens being utilized for various purposes like security, utility, etc.
Who Invented Cryptocurrency?
The first cryptocurrency called bitcoin was released as open-source software in 2009. It was created by someone who goes by the pseudonym, Satoshi Nakamoto.
When people hear about cryptocurrency, the first thing that comes to their minds is bitcoin. Since the blockchain technology that powers bitcoin and other cryptocurrencies are open-source software, any developer can alter the source code and make something new.
That explains why there are currently over 9,000 cryptocurrencies in the form of coins, tokens, and other digital assets. They are collectively referred to as altcoins (or alternative coins). They are alternatives to bitcoin.
Is Cryptocurrency Traceable?
One of the features that attracted most people to cryptocurrency is the possibility of making anonymous transactions.
However, it is very possible to identify cryptocurrency owners using the personal information collected by the sender. Some request information like shipping addresses, which makes it easy to identify the person behind the transaction.
How Is Cryptocurrency Different From Traditional Currency?
The first thing that differentiates cryptocurrency from traditional (fiat) currency is that it is not issued by the government or central bank.
Since it is not issued by the government, it is also not backed by the government. This is one of the reasons why it is highly volatile. The value changes very frequently depending on factors like public announcements and actions of owners who hold large amounts, media hype, forces of supply and demand, etc. The worth of cryptocurrency is often determined by how much people are willing to pay for it.
Crypto payments don’t come with legal protection. It is almost impossible to reverse crypto payments, the recipient has to send them back to you. Most cryptocurrencies are not backed by physical assets. However there is an emergence of coins that are backed by physical assets, they are commonly referred to as stablecoins.
Types Of Cryptocurrency
Although all cryptocurrencies are powered by blockchain technology, the original version was altered to create different types of coins and tokens.
They are all powered by blockchain technology, the original version was altered to create different coins and tokens.
Cryptocurrencies share block chain based structure, but some features distinguish them. They can be categorized into coins and tokens. A coin uses its blockchain while tokens are digital assets that can be bought and sold, and they use another blockchain infrastructure. There are over 9,000 cryptocurrencies on the market today and new ones are created each day. However, most of them have very little value.
Bitcoin was the first cryptocurrency in the world. It was created to aid cross-border transactions. Today, bitcoin has the largest market capitalization and it is synonymous with cryptocurrency.
The Ethereum network is the second-largest cryptocurrency by market capitalization. It is an open-source blockchain network, developers are allowed to create Apps and cryptocurrencies on their network. They have Ether as an alternative to bitcoin. XRP is also a popular cryptocurrency. It was created as a form of digital payment. There are several other coins that we can’t mention of them here.
These are stable coins created to help investors overcome the challenge of volatility, for which cryptocurrencies are known for. Their value is determined by the value of an external asset. Examples of stablecoins are Following
Tether is the first digital currency to peg its value to a fiat currency (specifically the US dollar. It is the largest stablecoin by market value. others include Dai, Binance, USD Coin, True USD, etc.
These are forms of cryptocurrencies created to solve special issues in different sectors. For example, the SIA coin was created to solve the problem of expensive cloud storage. Other examples include Terra (for e-commerce payments), Dogecoin, Zeros, Ripple, etc.
Meme or Joke coins
These are coins created for fun, however, some are now worth millions of dollars. They include Robin hood, Dogecoin, etc.
What The Future Holds For Cryptocurrency
Governments around the world are acting cautiously concerning cryptocurrency, however overwhelming public support and usage of the currency is pushing most governments to seek regulation and even legitimize it. In 2021 El Salvador became the first country in the world to accept cryptocurrency as legal tender. In the same year, China declared all crypto transactions illegal.
Some governments link some cryptocurrencies to terrorist-related activities and therefore call for strict regulations of the sector. One thing is clear, people all over the world have embraced cryptocurrency.
Digital currencies have become a part and parcel of our lives, new currencies are being created to solve different human needs and minimize risks associated with cryptocurrency. Governments around the world are aware of this fact, which is why they are increasingly calling for regulation and starting the process to make it legal.