TL;DR
Cryptocurrency is digital money that is used as a a medium of exchange and operates using a connected network of computers. It operates in a decentralized manner and doesn't require any central authority to maintain.
Cryptocurrencies differ significantly from any other online form of payment systems you might think of like Paypal or online banking. Under the hood, they rely on blockchain technology.
Cryptocurrencies are digital currencies without any central authority controlling it.
Introduction
Cryptocurrencies are electronic forms of currency that let you send or receive payments online. They can be used to purchase things like cars, drinks at bars, or even speculatively.
So they are not like traditional banking systems where you must ask the bank itself to transfer your money to another location. Instead, cryptocurrencies are decentralized so that no one person controls them. You can operate a cryptocurrency wallet yourself and move funds around without having to ask a bank to do it for you.
Why Is It Called Cryptocurrency?
Cryptocurrency comes from combining the words cryptography and currency. Cryptography are techniques that use advanced math to secure our crypto, so that others cannot steal them.
Recapping
We will be having lots of recaps so be ready for those. Cryptocurrencies are a type of digital currency that is decentralized and run on a blockchain. They're used for making purchases online, transfering funds, speculative reasons, among others. But why should people use them instead of traditional forms of payment. Three reasons:
Permisionless: You're free to use your cryptocurrency however you want. Because it's decentralized, no one has control over your wallet.
Censor Resistant: Due to the level security, it is hard for hackers to get into your account and steal your funds.
Payment System: With cryptocurrencies, transferring money from one part of the world to another has never been easier. You no longer need to wait days for your transfer to arrive at its destination.
Bitcoin
Bitcoin deserves a special place in our list of cryptocurrencies for its historical significance. It was the first crypto currency to be implemented using blockchain technology.
Bitcoin was an important step towards the development of cryptocurrencies. Many of these cryptocurrencies use the same software as Bitcoin, so they're often referred to as "altcoins."
Cryptocurrencies differ based on how they work. Some are decentralized (meaning no central authority controls them), some are centralized (a company or government does). Some are fast, some are slow. Some are easy to mine, some are difficult. Some are used only for trading, some are also used for payments.
Some are backed by governments, some are not. Some are completely anonymous, some require your identity. Some are open source, some are closed source. Some are meant to replace fiat currency, some are just fun toys. Some are designed to be used as a store of value, some are designed to be spent.
Some are designed to disrupt existing industries, some are designed to create new ones. Some are designed to solve problems, some are designed to entertain. And yes, there are hundreds of cryptocurrencies. But we’re focusing on the top ones.
Lastly, before we proceed there is an infamous acronym in the crypt space that you should know of. It is DYOR. What does it mean? It means to Do Your Own Research and do not rely on the financial advise of others when making investment decisions.
There are several types of cryptocurrencies. Typically we can classify them into two categories: Bitcoin, then altcoins. For example:
Bitcoin: The king of cryptocurrencies and the first one in existence. It is the first mover in the space.
Ethereum: First smart contracts platform created, it is often categorized as an altcoin.
Monero: A privacy digital coin, not only does it hide transactions but also the wallet address. This is also known as an altcoin.
What Is Blockchain?
At MinuteCrypto, we aim to teach people about cryptocurrencies in a simple way. No need to bring a dictionary along with you as we simplify even the most technical topics.
Blockchain
You don't need to be an expert programmer to use blockchain technology. All you really need is a basic understanding of databases.
These databases are append-only, which means you can't edit the cells after they've been filled out. They can only be updated with new information.
Blockchain technology is different from traditional databases because every data entry is chronologically related to the previous one. A block in this context is just a data entry.
Each new entry contains an encrypted hash of the previous block. It is because of these hashes that it is called a blockchain. You end up with chains of blocks linked to each other.
A key feature of the blockchain is its immutability. If one block is changed, then subsequent blocks will change. Thus, any changes to a block will be immediately noticed by anyone who has access to the blockchain.
What Is Proof of Work?
Proof of work is a consensus mechanism that confirms and records transactions on a blockchain.
In order to understand how this works, we'll start by imagining Alice and Bob running the Bitcoin software. Alice agrees to send 10 coins to Bob. Doing this, everyone running the Bitcoin software will recieve the instructions, however no coins will be sent.
Instead, due to a consensus algorithm, Proof-of-Work, cryptography, and game thoery no coins will be sent just yet. This system was designed to stop people spending money they don’t actually own. Instead crypto miners need to find a target hash. This hash basically says the transaction is good to go. As a reward, the miner who finds the target hash first is rewarded with crypto.
Since this guide is merely an introduction to crypto, I'll link a guide on Proof of Work here!
What Are Decentralized Applications (dApps)?
Decentralized Applications (dApps) are digital programs that exist on blockchain. They exist on a network of computers instead of a single one. These applications are decentralized and can serve a vareity of purposes. Some popular ones include finance, social media, and gaming applications.
Another way to think of Decentralized Apps are like decentralized versions of web applicatins we see in the internet today. For instance, Youtube, a popular video site is centralized in the sense that there is one single authority dictating the operations of the platform. Another person could create a decentralized version of Youtube that exists over a blockchain.
What Are Some Popular Decentralized Applications (dApps)?
Although there are many, some examples of Decentralized Applications include Peepeth, Axie Infinity, and MakerDAO. Peepeth is a decentralized version of twitter while Axie Infinity is a NFT based game. MakerDAO focus is on lending and borrowing crypto. This brings us to another industry that has become incredibly popular withing the space, Decentralized Finance (DeFi).
What is Decentralized Finance (DeFi)?
Decentralized finance (DeFi) is a blockchain-based emerging financial technology. It eliminates the need for banks and institutions that control money, financial products, and financial services.
Blockchain technology has successfully been able to produce a financial system that is not reliant on central banks or other financial institutions that control money. As a result, DeFi seeks to bank the unbank across the world. It has also become a popular destination for investors and crypto enthusiasts.
Some popular DeFi projects are as followed:
Aave: A DeFi protocol for lending and borrwing crypto.
MakerDAO: An autonomous peer-to-peer lending and borrowing platform that is contolled by smart contracts.
Uniswap: A decentralized exchange (DEX) where users can trade for other cryptocurrencies.
What Are Smart Contracts?
Smart contracts are pieces of code that are stored on a blockchain that execute when predetermined conditions are met. To better understand smart contracts lets think of a real world example. Whenever you apply for a home or car loan there is usually a contract involved. This contracts lays out the terms and conditions of the agreement. If everything pans out, then you could very well be a homeowner or car owner at the end of it.
But how can we replicate this at a decentralized level? Smart Contracts.
Smart Contracts are the solution to this and are widely used. Ethereum, a popular smart contracts blockchain, is a great example that utilizes the power of smart contracts to execute things without a middleman being involved.
Final Thoughts
We've covered everything from cryptocurrencies, to blockchains to smart contracts. Now you are on your way to exploring a decentralized space where the user has total control over their personal information. Let's get down to business!
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