What Is Cryptocurrency?
Many people have at least heard of Bitcoin by now, as the first and most prominent cryptocurrency—however, few really understand what cryptocurrency is all about (hint: it’s not all about Bitcoin). In this article, we’ll break down a few of the most important things to know about cryptocurrency at a high level.
Cryptocurrencies are digital payment, created and stored in a blockchain, that enable transactions and projects in ways that traditional banking and monetary mediums have failed.
The core benefit of cryptocurrency is that it is completely independent of traditional governing bodies that determine value for other forms of currency. Simply put, the value is determined and agreed upon by a peer-to-peer market.
The sales of coins, or tokens, have democratized funding for unique projects that likely wouldn’t qualify for bank loans or other types of investment. Everything from athlete sponsorships to forecasting tools now have markets driven by the exchange of cryptocurrency.
What Cryptocurrency Does
By removing the middleman, cryptocurrencies have established an easier and faster payment protocol. The key role of a cryptocurrency in the ICO is:
- Control the transmission of virtual monetary value Cryptocurrencies have no intrinsic value; their value is based on consensus. With cryptocurrency, rules for payments are established that govern the creation, storage, and exchange of virtual funds that can then be traded or sold for a process, product, or service.
- Verify transactions in a digital marketplace Cryptocurrencies are the catalyst for ensuring historical transactions on a blockchain are accurate and immutable. Once a miner has confirmed a transaction, a unit of cryptocurrency is exchanged.
Economics of Cryptocurrency
The common thing about any cryptocurrency is, of course, that it is secured and built on cryptography. Math and algorithms are at the core of what makes cryptocurrencies work (not humans). Cryptocurrencies are also:
- Secure: Only the owner of a private key can permit funds to be sent.
- Unchangeable: Once a transaction is confirmed, it’s final and irreversible.
- Pseudonymous: Users of cryptocurrencies are assigned crypto addresses, instead of using their “real world” names.
- Real-time: Cryptocurrency transactions are visible almost immediately around an entire network, regardless of origin.
- Democratic: Anyone can take place in a cryptocurrency marketplace, and there is no single governing authority.
- Limited: Although they are not controlled by anyone, cryptocurrency tokens are created in limited supply. The availability may increase over time, based on a predetermined, unchangeable schedule that is written in the code.
- Blockchain: A decentralized way of tracking historical data about cryptocurrency transactions
- Ether: The intrinsic token of Ethereum blockchain technology
- Gas: The internal pricing for running a transaction (more info can be found on MyEtherWallet)
- Oracle: A trusted third-party outside of a blockchain that validates conditions of a transaction have been met
- Smart contract: Stores, manages, and executes agreements (more info on CoinDesk)
Ready to go? Learn about how to use an Ethereum wallet.
This is meant to be a high-level overview of cryptocurrency technology, and is by no means comprehensive. We would recommend checking out Blockgeeks or Cryptocompare to get a more in-depth look at what cryptocurrency is all about.