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What is cryptocurrency exactly?
What is cryptocurrency exactly?

What is cryptocurrency exactly?

Before we talk about cryptocurrency, we have to talk about money first. Since cryptocurrency is a currency 🙂

Our usual money is called fiat money which includes USD, EUR, GBP, etc….. This fiat money has been invented. In the beginning, there was no money. People were trading goods. It was a mess to make a trade. Imagine yourself going to buy a new iPhone and we are still using the old trading method 🙂

You have to give Apple a ton of potatoes to buy your phone. Apple has to have a lot of storage to store those potatoes 🙂 At some point in the past people knew they had to come up with some to ease those trades. They thought about using rare things because a small piece of a rare thing is valuable. So, they used rare metals.

Then, they had to standardize those metals. They also had to make it distinguishable and hard to be forged. That way was used for a long time until we needed an easier way to carry valuable things. It was not so easy to carry metal pieces around.

That’s when the paper money was first introduced. Some people collected those rare metals from their owners and gave them a standardized distinguishable piece of paper and they could use that paper for trades. Of course, those metal collectors had to have a ledger to write down who owned what.

Then, later that link between rare metals and those papers was destroyed. Now, governments have decided to print new paper money as they see right.

That introduced banks as we now. Banks now hold people’s money and write that in a big ledger “mostly Excel sheets”. Transactions we make are stored on those sheets. Of course, those sheets must be secured. Banks take fees from our transactions.

Then, banks gave us cards and mobile apps for easier transactions, but they are still taking fees of course. This was the last stage before cryptocurrency emergence.

After the economic crisis in 2008, an unknown person calling himself Satoshi Nakamoto introduced the idea of cryptocurrency and blockchain by inventing the famous Bitcoin.

So, to make it simple. The Cryptocurrency is like the paper money we talked about above. The blockchain is the ledger “Excel sheet”. So, each cryptocurrency needs a blockchain to work on to do and store transactions.

Bitcoin is not directly controlled by anyone. It is not printed nor controlled by governments. That’s why it is not liked by governments.

Now, let’s talk about blockchain. As the name suggests, it is a chain of blocks in the digital world. Each block has digital dimensions like real-world blocks. Those dimensions are digital size, time to create, programming language, block start, and block end. Each block ends with a unique end which creates a new block that can only be connected to that block. Like a puzzle in which block places can’t be changed.

Those blocks record transactions made by Bitcoin owners and record the current balance of each owner. The blockchain itself is stored in the digital world on a lot of computers and servers around the world. The people who store the blockchain in their computer and connect in online are rewarded. That is the mining activity in a simple explanation. So, bitcoin miners to bitcoin are like banks to fiat money.

However, there are many ways to mine new coins in cryptocurrency. In Bitcoin, you need to have an updated blockchain on your device and have a strong processor, graphic card, or miner to guess the ending of each block. The device that guesses the right end of the block wins this block reward. That is called proof of work “POW” mining which needs strong processing power and a lot of electricity. That is where the problem of Bitcoin mining you may know about.

Other blockchains have different ways of mining which is less electricity consuming but need capital investment in most of them.

Now, let’s talk about how is cryptocurrency different than fiat.

Cryptocurrency is not controlled by a central authority or government. So, it is called decentralized.

Blockchain is public and we can review the transactions made on the blockchain.

Cryptocurrency has a lot of privacy since no one can know what you are doing with it. That seems to contradict the public point above, but it isn’t. That’s because the address you use for your transactions is anonymous. So, everyone can know that certain addresses transacted how much bitcoin to which address. But, the owner of those addresses is not known. That is why cryptocurrency has been used for bad causes. And that required what is called KNOW YOUR CUSTOMER “KYC”. Now, some new blockchain requires this KYC to be legit in the eyes of governments.

Cryptocurrency is much more volatile than fiat money since no one is controlling it and it is affected by offer and demand.

What after bitcoin?

Bitcoin as a currency and blockchain only recorded transactions. New smart people utilized the idea and made blockchain a vessel for many more things. A newer blockchain can store applications which called decentralized apps “DAAPS”. You can also put a smart self-executing contract on blockchains. Smart people are still inventing many things with blockchain and cryptocurrency.

So, we will discuss more things about cryptocurrency. I hope I could give a good idea about cryptocurrency in general. See you soon

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