What Is Cryptocurrency: A Beginner’s Guide - Good1 Consulting

The term “cryptocurrency” has found itself on the lips of many people around the world. It has grown to become a hot topic on news channels and social media platforms globally. One can easily conclude that it is growing to be one of the recognized means of international payment among merchants of all grades; from the grocery store next door to a multinational company like Tesla.

What is cryptocurrency?

In 1989, a cryptographer known as David Chaum created a cryptographic system known as eCash. Over a decade later, this initial invention led to the creation of DigiCash that made sure economic transactions were confidential. The term cryptocurrency was coined in 1998 by Wei Dai, who began to conceptualize a cryptographic system that would be distinguished by its decentralization.1)

Cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.2) It is a digital asset that is distributed across several computers. 

Digitally secured by encryption and decentralized, this cryptocurrency is very much unlike fiat currency. Fiat currency is a government-issued currency that is not backed by a physical commodity such as gold or silver, but rather by the government that issued it.3)

In comparison, cryptocurrency lies totally outside the control of the government, and its transactions are backed and secured by the blockchain system. Blockchain is a distributed ledger technology that allows server data to be stored globally across thousands of servers, making it possible for everyone on the network to see every transaction in real-time as they happen.4)

It is based on this transactional transparency and decentralization that cryptocurrencies have thrived. 

Popular Coins and Altcoins

Over the years, a lot of cryptocurrencies have been developed around the world by individuals and their groups. Although the most popular of these cryptos is Bitcoin, there are a host of others. 

Bitcoin (BTC)

Bitcoin was the very first cryptocurrency and it was developed in 2009 by a man who goes by the pseudonym, Satoshi Nakamoto. He was driven to create this decentralized currency following the financial crisis of 2008 where millions of people were affected. He sought to create a currency that people could use globally, without influence by the government and their policies, and that could also be reliable.5)

While developing the coin, Nakamoto stipulated in the protocol that the supply of bitcoin tokens would be capped at 21 million.6) This means that a maximum of 21 million Bitcoins can be mined to exist. This is the protocol that ensures a scarcity of the coin, and that scarcity, in turn, increases its worth. 

Since its creation, Bitcoin has seen growth with success and popularity. However, something else we have seen is the expansion of crypto technology and the creation of several cryptocurrencies.

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These new emerging cryptocurrencies are referred to as altcoins, and you may see some traders refer to them condescendingly as shitcoins. Records put the number of cryptocurrencies that exist in the world to over 4000 as of January 2021. The following are some other popular cryptocurrencies in existence:

Ethereum (ETH)

Ethereum was launched in 2015, and it is currently the second to Bitcoin by market cap in the cryptocurrency market.

It is a blockchain-based, open-source and decentralized software platform that enables Distributed Applications and Smart Contracts to be built and run without any downtime, fraud, control, or interference from a third party.7) Asides from being a software platform, it runs on a cryptocurrency known as ether. It is with this cryptocurrency that developers on the Ethereum network move around and monetize work. 

Elrond eGold (EGLD)

Elrond is a blockchain platform that was designed to surpass existing limits in financial transactions. The platform boasts of the ability to manage 15,000 transactions per second. If you are looking for comparison, the Bitcoin network allows only a maximum of seven transactions per second.

On the platform, Elrond uses the eGold token to make transactions, pay for services and bestow rewards. The EGLD token came into existence in 2020, replacing Elrond’s former ERD token and representing more value by equaling 1 EGLD to 100 ERD.8) Many have suggested Elrond to be the current backbone of DeFi (Decentralized Finance) and DApps (Decentralized Apps), yet they also predict that its blockchain technology would be adapted on other fronts in the future.

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Dogecoin (DOGE)

It started as a joke on the internet, and at its launch in 2013, it was used by a Reddit community where people sent Dogecoins to each other. 

It is a fact that the coin is a copy of Bitcoin. Its co-creator, Billy Markus said it took only three hours to create Dogecoin.9) He searched the bitcoin code and replaced every instance of Bitcoin with Dogecoin. 

However, this simplicity of its creation does not in any way reduce its functionality. Dogecoin uses a proof-of-work consensus to keep the network secure. It was created to change general notions about cryptocurrency. And by maintaining a light-hearted stance around it—the Shiba Inu memes that it has been affiliated with—it has succeeded in garnering popularity that has even been approved by Tesla CEO, Elon Musk.

Several other cryptocurrencies exist like Litecoin (LTC), Polkadot (DOT), Ripple(XRP), etc. These cryptocurrencies are all developed on decentralized blockchain technologies and have all grown while attempting to improve on the level of security that Bitcoin has set. However, any coin that has surpassed Bitcoin is yet to be known.

Investing and Trading

The success of cryptocurrencies is because rather than just existing, they are being utilized. Daily, cryptocurrencies are being bought, sold, and used in several transactions globally. 

So many individuals earn with cryptocurrencies by either day-trading or by investing long-term. They engage in trading on platforms like Binance. As mentioned before, Binance is the largest cryptocurrency trading platform. And for context, only the US-based Binance platforms trade over $2 billion every day.10)

To trade on Binance, you need to first and foremost register on the platform by filling in all information that is requested. Subsequently, you would need to provide validation for your identity to satisfy KYC compliance.

The next thing would be funding your account on the platform which could be done using debit cards or other payment gateways. 

After depositing some funds in your Binance account, you can now convert your USD to any cryptocurrency that you want by selecting the trading pair (if you want to buy Bitcoin that would be USD/BTC), then selecting the amount you want to buy.

There are several other platforms for trading cryptocurrencies. A few of them are: Coinbase, Changelly, BitFlyer, Coinmama, Overbit, Poloniex, etc.

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The Present and the Future of Cryptocurrency

You should note that cryptocurrencies are not limited to trading alone. They are also being adapted as payment options while purchasing goods and services. In fact, due to the securities it provides, they are being preferred. 

Tesla CEO Elon Musk, who is a big fan of cryptocurrencies once expressed his belief in Bitcoin in a Clubhouse meeting. Putting his money where his mouth is, his company subsequently purchased $1.5 billion worth of bitcoin.11) The reason given by Tesla was that this purchase was an attempt to further diversify and maximize returns on their cash.

It was also announced that Tesla motors would very soon start accepting bitcoin payments for their products. It has been reported once these payments start happening, they would give Tesla liquidity in the cryptocurrency.

If these plans eventually come true, Tesla would be the first automaker to adopt cryptocurrency payments. However, other industries have long adopted cryptocurrency to their financial fabric.

Cryptocurrencies have been long used in the waste management industry to incentivize recyclers. They are also used effectively to crowdfund for projects. Even down to the food industry, cryptocurrency payments are accepted at Burger King!12)

Many people have declared cryptocurrency to be the future of financial transactions. And while so many people disagree, citing the risks to present economic policies and restraints, its eminence becomes more and more apparent. 

More cryptocurrencies emerge daily, for different purposes and platforms, and with different visions. Interestingly, while some governments are still skeptical about the use of cryptocurrencies in their countries, some countries like Ecuador, Tunisia, and Senegal have issued their cryptocurrencies to be used in buying, selling, and paying for services digitally.13)

References

References
1Davies. A short history of cryptocurrencies. https://www.daviescoin.io/blog/a-short-history-of-cryptocurrencies
2Jake Frankenfield. May 5 2020. Cyrptocurrency. Retrieved on March 4 2021. Investopedia. https://www.investopedia.com/terms/c/cryptocurrency.asp
3James Chen. February 18, 2021. Fiat Money. Retrieved on March 4 2020. Investopedia. https://www.investopedia.com/terms/f/fiatmoney.asp
4Lucas Mearian. January 29, 2019. What is blockchain? The complete guide. Retrieved on March 4 2020. ComputerWorld. https://www.computerworld.com/article/3191077/what-is-blockchain-the-complete-guide.html
5Davies. A short history of cryptocurrencies. Daviescoin. Retrieved on March 4 2021. https://www.daviescoin.io/blog/a-short-history-of-cryptocurrencies
6Luke Conway. January 19 2021. The 10 Most Important Cryptocurrencies Other Than Bitcoin. Investopedia. Retrieved on March 4 2021. https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/
7Jake Frankenfield. February 18 2021. Ethereum. Investopedia. Retrieved on March 4 2021. https://www.investopedia.com/terms/e/ethereum.asp
8Andrew Hayward. February 2 2021. What is Elrond? How to Buy EGLD. Decrypt. Retrieved on March 6 2021. https://decrypt.co/resources/what-is-elrond-egold-and-how-to-buy-egld
9David Hamilton. February 19 2021. Investing In Dogecoin – Everything You Need to Know. SecuritiesIO. Retrieved on March 5 2021. https://www.securities.io/investing-in-dogecoin-everything-you-need-to-know/
10David Hamilton. February 28 2021. Investing in Binance (BNB) – Everything You Need to Know. SecuritiesIO. Retrieved on March 5 2021. https://www.securities.io/investing-in-binance-bnb-everything-you-need-to-know/
11Steve Kovach. February 8 2021. Tesla buys $1.5 billion in bitcoin, plans to accept it as payment. CNBC. Retrieved on March 5 2021. https://www.cnbc.com/2021/02/08/tesla-buys-1point5-billion-in-bitcoin.html
12Ofir Beigel. January 7 2021. Who Accepts Bitcoin as Payment? 99Bitcoins. Retrieved on March 5 2021. https://99bitcoin.com/bitcoin/who-accepts/
13Amelia Heathman. September 27 2017. Move over bitcoin, these countires are creating their own digital currencies. Retrieved on March 5 2021. https://www.verdict.co.uk/bitcoin-countries-digital-currency/
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