History of Cryptocurrency and How It Works
Cryptocurrency is derived from the Greek word “kryptos” meaning hidden and currency literally means money or a value generally accepted. Using a few technical terms, cryptocurrency can simply be defined as a value stored cryptographically in a way that prevents double-spending. Cryptography is a technology used to secure data using encryption and this technology has been in existence decades before the pseudonym named “Satoshi Nakamoto” integrated this technology to create the world's first cryptocurrency named Bitcoin. Cryptocurrency is powered by a technology that possesses some unique attributes like immutability, decentralization, transparency and other attributes that solve the vulnerabilities of traditional fiat (Money) and other physical stores of value like Gold. This technology is called the Blockchain.
Blockchain is as simple a term as it sounds, don’t be thrilled by the nerdy fancy name; it’s literally a chain of blocks. These blocks are grouped data we call Ledger that is distributed in a network of computers we call nodes. These nodes agree on a protocol termed “Consensus” on how the blockchain operates. Different blockchains have different consensus. Examples of famous blockchains are:
- Bitcoin Blockchain
- Ethereum Blockchain
- Solana Blockchain
Let’s dive back into the technical part of cryptocurrency and talk about the problems cryptocurrency solves. The traditional money we use in our day-to-day activities has a lot of vulnerabilities. The problems that cryptocurrency solves are beyond the major problem, which is double spending.
Problems Cryptocurrency Solved
According to the Wikipedia definition, in economics, inflation is a general increase in the prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. Governments and central banks tend to manipulate interest rates to easily boost any currency's circulating money supply, which is a fundamental issue with FIAT currencies(Money). Markets are typically momentarily injected with liquidity as a result, but the extra supply reduces the purchasing power of that currency.
Cryptocurrency has a hard-capped supply that does not exceed after creation and more cryptocurrency can’t be injected into circulation discreetly like our traditional FIAT. The total supply of cryptocurrency is agreed on before deployment, the circulating supply can be injected periodically or burnt(Eliminated) periodically transparently, thereby eliminating the major cause of inflation.
2. Money Transfer Remittance
Sending money from a bank to another bank, either locally or internationally, using famous remittances like Western Union, World Remit comes with ridiculous fees and trust for your money to be transferred successfully and it also takes a lot of time for the transfer to be processed. The general market remittance will reach about a Trillion dollars in the nearest future. These intermediaries tend to take a lot of commission to process your money transfer and also unnecessary trust.
Cryptocurrency solves this by taking these middlemen away, there’s no need to trust a third party as transactions are processed automatedly peer-to-peer with a very little fee (less than a dollar) to process these transactions. These fees are gained by the computers securing the cryptocurrency network using blockchain technology.
3. The Unbanked
More than 2 billion people worldwide still lack a bank account. A significant number of people are prevented from taking part in international trade by infrastructure and bureaucratic constraints. It might be challenging to have a bank account and utilize traditional currency(FIAT) for individuals who lack one due to financial hardship or if they reside in a region with few banks. The uneducated and poor can also have access to cryptocurrency and perform transactions efficiently without much knowledge with significantly lower fees.
4. Increased Transparency in Charities and Fundraising
Cryptocurrency solves the problem of transparency in fundraising and charities. Due to the transparent nature of cryptocurrency, it ensures the safety of funds. Every transaction and remittance can be traced. This also keeps the anonymity of addresses for security reasons. To prevent fraud and corruption, the cryptocurrency can be deposited straight into the recipients' crypto wallets. A lot of Non-Profit Organizations and Non-Governmental Organizations (NGOs) have opened to the idea of receiving cryptocurrency as a means of payment for easy access, convenience, and also to keep anonymity as the majority of charity givers prefer to keep their identity anonymous.
5. Security of Transactions
Security of cryptocurrency transactions is guaranteed, as cryptocurrency is decentralized (not governed by a central authority) and also peer-to-peer. The more trusted the blockchain is, the tighter the security of the transactions. Cryptocurrency transactions are very transparent as transactions can be seen and tracked via blockchain explorer. To break the security of cryptocurrency, you have to convince more than 50% of the nodes securing the network in order to fake a transaction which is logically impossible as there are hundreds of thousands of nodes in some cryptocurrency blockchains like the bitcoin blockchain. The security of cryptocurrency varies from blockchain to blockchain, depending on the number of nodes securing the network and also the consensus of the blockchain network.
Features of Cryptocurrency
- Ensured security using encryption
- Decentralized (Not governed by any central authority)
- Works Peer-to-Peer
- Privacy as transactions is anonymous
- Permanent and Immutable transaction (No cashback)
- Digital currency
Classification of cryptocurrencies
This is the first cryptocurrency to ever exist, it was developed by the pseudonym “Satoshi Nakamoto”, It’s the most reliable and trusted cryptocurrency. It has a market capitalization of over $400 Billion as of July 2022. Bitcoin has a Max supply of 21 million bitcoins, it can never exceed that value which is an advantage over the traditional FIAT in terms of Inflation. Bitcoin has about 19 Million circulating as of July 2022.
Altcoin is a term used for cryptocurrency other than bitcoin, all other cryptocurrencies are categorized as altcoins(Alts in short). Examples of Alts are Ethereum, Solana, Matic, Stellar Lumen, Dogecoin, etc.
3. Other classifications
- Shitcoins (Meme coins):
Shitcoins, also known as Meme coins, is a term used for cryptocurrencies that don't have utility; this is basically a pump-and-dump scheme. They are worth over $16.36 Billion by market capitalization(cryptoslate.com/cryptos/meme). Shitcoins are mostly cryptocurrency tokens and are extremely volatile in nature compared to Altcoins and Bitcoin, and seem like a gamble to the cryptocurrency holders.
The goal of stablecoins is to offer a substitute for the volatility of the most widely used cryptocurrencies, such as Bitcoin and Altcoins. Stablecoins are cryptocurrencies pegged with the USD price that is backed up with dollar reserves that equate to the amount of the stable cryptocurrency in circulation. Stablecoins can be pegged to other currencies and also gold.
How and Where to Buy Bitcoin and Other Cryptocurrencies?
Before buying your first cryptocurrency, you have to choose where to buy your cryptocurrency. There are now Centralized Exchanges which are also known as CEX, Decentralized Exchanges, which are also known as DEX, Bitcoin ATMs, etc. Examples of top cryptocurrency centralized exchanges are CoinEx, Binance, Coinbase, etc. CoinEx has several payment partners like Guardarian, Mercuryo, MoonPay, Advcash, Banxa and Simplex. CoinEx supports a lot of payment methods like VISA, Mastercard, Sepa, Bank Transfer and SWIFT. On CoinEx you can buy major cryptocurrencies like Bitcoin(BTC), Ethereum(ETH), BNB, and other famous and emerging cryptocurrencies. CoinEx also has features like Spot trading, Futures and Margin trading; it’s easy to use and has a user-friendly interface. You can as well buy from other top exchanges you’re convenient with based on your jurisdiction, Bitcoin ATMs and decentralized exchanges like Uniswap, Pancakeswap, Sushiswap, etc.
How to Store Cryptocurrency?
After buying cryptocurrency, you have to store it in a safe digital wallet to prevent fraud, theft, or hacks. Cryptocurrencies are stored in digital wallets and centralized exchange wallets, but it’s safer to store your cryptocurrency in a decentralized digital wallet because you get complete control of your assets; this can also be a hardware decentralized wallet, also known as cold storage wallet. Examples of decentralized wallets are Trustwallet, Metamask, Torus, Gnosis, etc. When creating a decentralized wallet, you’ll be given a private key which is the key to your wallet. As the owner of this wallet, you have to keep your private key very safe, as that's the key to your asset. This private key can also be in the form of 12 or 24 seed phrases. Under no condition should you share your seed phrase or private key with anyone, as that would be literally giving the person control over your assets. Hardware wallets are cold storage physical drives that hold the private keys for your cryptocurrency. Examples of hardware wallets are Ledger Nano X, Ledger Nano S, Trezor Model T, SecuX V. These can be gotten from physical and commercial stores.
How to Send and Receive Cryptocurrencies?
Cryptocurrency can be sent and received from one wallet to another; every cryptocurrency in your wallet has an address attached to it which is also known as your public key to that particular cryptocurrency. Public keys differ from one crypto to another. In a centralized wallet, it’s common to see one address used, especially in one chain for all the tokens on that chain (Blockchain). For example, your BNB crypto address will be the same as other tokens on the BEP20(BNB Blockchain) chain. Regardless, it's more important to verify your address for each token than to end up sending the wrong address to the sender of the crypto and lose your crypto or tokens. This also applies to receiving your crypto on decentralized wallets, you should always confirm your address for that particular cryptocurrency and verify the chain as well. There are chains that ask for Memo. Memos are unique numbers that are required to deliver your crypto as well as the public key of that crypto. Examples of coins that require memo and public key are Stellar Lumens(XLM) and Ripple (XRP) coins and their respective tokens on their blockchains.
In summary, cryptocurrencies are here to stay and it’s the future of finance as the world gradually gets decentralized. We don’t have to trust third parties to process our transactions and keep the rich richer by paying ridiculous charges to process simple tasks such as money transfers. Transparency and anonymity are also important in transactions, and cryptocurrency is the ideal way to solve this issue, and lastly, inflation which tends to break economies, is solved.