As computers evolved along with network systems, we saw the digitalization of many aspects and technologies of our daily lives and how we use them. The same thing has happened to money: over 97 percent of the money in circulation today in the US is from checking deposits – dollars deposited online and converted into a string of digital codes by a commercial bank.
In 2009, Satoshi Nakamoto, presumably a pseudonymous developer, creates the first decentralized cryptocurrency, Bitcoin. He published a paper entitled “Bitcoin – A Peer-to-Peer Electronic Cash System”, which proposed a system for electronic transactions without relying on trust.
In this guide to cryptocurrency, we’ll give you a gentle introduction to crypto fundamentals and how cryptocurrency works.
This cryptocurrency for beginners guide includes the following:
What Is Cryptocurrency and How Does Cryptocurrency Work?
A cryptocurrency is a digital currency (or asset) that can be exchanged among people (or machines) through a computer network, usually through a decentralized, distributed, and public ledger (blockchain). A network user can send and receive digital currencies anywhere in the world, even to the international space station. By using digital wallets, a user can send to or receive money from other users, exchanges, or digital smart contracts. The user that wishes to send money inputs the other user’s address, and, depending on the cryptocurrency technology and network conditions, this can take from milliseconds to hours and cost from fractions of cents to hundreds of dollars.
The user can also use cryptocurrencies to pay and buy goods and services, just as regular money, or use them as a storage value, like gold or any other asset.
Cryptocurrencies like Bitcoin, Ethereum, and BNB are volatile, in the sense that their value fluctuates over fiat money, like gold and shares. Stable coins such as USDT and USDC peg to a fiat currency instead, in this case, the US Dollar.
Cryptocurrency for Beginners: What Is a Blockchain?
A blockchain is a special type of computer network that is the backbone of the vast majority of cryptocurrency projects. It is a secure, distributed, public and decentralized autonomous network made of various nodes that collaborate with one another to write transactions in a public ledger. Once written in the ledger, transactions are immutable.
The transactions are also encrypted, hence the name cryptocurrencies. The network exchanges encryption keys with users so only the ones that own a private key can access and transfer their funds.
One of the biggest innovations about blockchains is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.
Blockchain Transactions
Transactions in a blockchain are groups of blocks that hold sets of information. These blocks have a limited (by convention) storage capacity, that when filled is closed and linked to the previous one, hence the name blockchain. All new information will be added to a new block and the process repeats.
This specific data structure usage mechanism allows data immutability (data can’t change) when implemented in a decentralized manner. Data is added as a timeline since the first block, called the genesis block.
In most networks, like Bitcoin, the transactions are not added directly to the blockchain. All the valid transactions have to enter a waiting area before being accepted in a block. The name of this waiting area mempool. If the size of the mempool is big, it results in longer transaction confirmation times and higher transaction fees.
Why Is Crypto So Popular?
Cryptocurrencies are often hailed as the future of money and have been growing in popularity since their inception in 2009. There are a few reasons for crypto’s popularity:
1. Decentralization: Cryptocurrencies are not subject to government or financial institution control. This appeals to individuals who are distrustful of centralized systems and institutions.
2. Abundance: There are over 5,000 different types of cryptocurrencies, providing users with a wide variety of choices.
3. Security: Cryptocurrencies use cryptography to secure their transactions. This makes them resistant to fraud and theft.
4. Growth: The cryptocurrency market has seen tremendous growth over the past few years, with the total market value of all cryptocurrencies increasing from $12 billion in 2016 to over $2 trillion in 2022.
5. Innovation: Cryptocurrencies are constantly evolving, with new types and applications being developed.
How Do I Buy Cryptocurrencies?
Step 1: Find a reputable exchange. There are many exchanges available, and it is important to do your research to find one that is right for you.
Step 2: You will need to…