Although most people are familiar with the term cryptocurrency, not a lot of them actually understand the basics of this innovation. Not only do cryptocurrencies have a high level of security in transactions, but they can also be converted into real cash. Whether you’re an investor or enthusiast, following these tips will certainly ease your path towards understanding the idea behind this form of digital currency.
Understanding the Blockchain Technology
This is the starting point when you’re learning about cryptocurrencies. Blockchain technology was created and implemented by the same person or group of people that designed the Bitcoin. The creator refers to himself as Satoshi Nakamoto, although no one knows his true identity. Although not much is known about Satoshi, he did write that he is a man living in Japan who was born on April 5, 1975. This information was written on a P2P Foundation profile.
It is not necessary to understand the whole technology behind the blockchain in order to use it. Blockchain represents a digital ledger of economic transactions. Therefore, everything of value on internet is virtually recorded by this technology. The interesting part is that blockchain is incorruptible. There’s no single location that stores this database, so there’s no specific target for hackers to attack. Actually, all the data is hosted by millions of computers simultaneously and everyone has access to it.
Types of Online Currencies
In order to understand cryptocurrencies, you have to acknowledge the differences between other online terms of value. All currencies that have a non-physical representation and are managed through computer systems are digital currencies. They have been in use for decades and were implemented so people could make online transactions and purchases.
Digital currencies that are unregulated and used by a certain online community are known as virtual currencies. Virtual currencies are mostly used for in-app purchases. For instance, in order to make these kinds of purchases, you have to buy ‘coins’ first. These coins are regulated by aforementioned communities.
If a virtual currency issued as a formal medium of exchange, with security measures regulated by cryptography, it’s referred to as a cryptocurrency. In this case, cryptography is used to verify transactions and to control the creation of new units for a particular cryptocurrency.
Coins vs Tokens
Cryptocurrencies that operate on an independent blockchain network with their own rules and governance structure are referred to as coins or altcoins. The majority of altcoins are variants of Bitcoin that use Bitcoin’s original open-sourced protocol with changes in its underlying codes. Changing these codes leads to a development of new coins with a different set of features. Some examples of altcoins that are variants of Bitcoin are Litecoin, Namecoin, Peercoin, Dogecoin, and Auroracoin.
If a cryptocurrency resides and depends on a blockchain network regulated by another cryptocurrency, then it is called a token. Transactions made by tokens are linked to the parent platform and followed by transactions on this platform with its own coins.
Start with Bitcoin
Bitcoin stands for the most valuable cryptocurrency and it has become an extremely popular topic in the last few years. As mentioned above, it was developed by a mysterious person who refers to himself as Satoshi Nakamoto. Although it’s followed by many benefits, most people don’t really understand the purpose or the regulations of cryptocurrencies. If you’re just now entering the crypto world, make sure to do your research on Bitcoin first.
Pseudo Anonymous vs Fully Anonymous
Some of the currencies are anonymously managed while others are pseudo anonymous. Bitcoin is pseudo anonymous. This means that other users can’t see your name attached to the IP address. But, if required, the law enforcement can proceed to investigate the case and find out who is behind the IP.
On the other hand, if privacy is your main concern, then Monero would be your best bet. This is a fully anonymous cryptocurrency that doesn’t allow even the law enforcement to track it down. Because of its complicated cryptography, transaction sizes of Monero are fifty times bigger than that of Bitcoin. Although this is the only downside of Monero, it’s worth it for people who demand privacy.