What is cryptocurrency?
Over the many centuries of human existence, people realized the importance of trading with each other to obtain various goods and commodities. In the modern world, digital currency is gaining ground and bringing many benefits. The cryptocurrency, also called “crypto” for short, is built on blockchain technology, whereby this technology records information in a system that makes it practically impossible to change. With the use of cryptography, the information is stored securely, giving people peace of mind when making transfers using cryptocurrency.
Cryptocurrency terminology in the industry
Altcoin, as the name suggests, is any alternative coin to Bitcoin. Altcoins include Cardano, Ethereum, and XRP, among thousands of other coins used in the crypto market.
Bitcoin (BTC) is the largest and most popular cryptocurrency to date, and it was also the authentic cryptocurrency that paved the way for this industry to develop into what it is today. Because it is a decentralized digital currency, individuals can buy, sell and even exchange it directly without going through an intermediary like a bank or other financial institutions.
Furthermore, bitcoin does not require entry of one’s personal information such as personal names, tax identification numbers, social security numbers or residential addresses, hence the owners would remain completely anonymous. Instead, what happens is that buyers and sellers are connected via encryption keys, and bitcoin can be “mined” via powerful computers running a specific program that records the transaction in multiple blocks to create the blockchain concept discussed above.
Cardano (ADA) emerged later, in 2017, and is also a blockchain platform, heavily focused on academic research, often calling itself a third-generation blockchain platform. In contrast to Bitcoin, it is more environmentally friendly in that it dispenses with the concept of mining and thus eliminates the need for a high power supply. Cardano has often been praised for its use of Proof of Stake (PoS) instead of Proof of Work (PoW) mining.
In the traditional cryptocurrencies like Bitcoin, participants compete with each other to figure out mathematical sequences, the downside being that the unselected participant ends up not being rewarded, wasting a significant amount of energy in the process. On the other hand, Cardano’s PoS mechanism, namely Ouroboros, selects these participants randomly and not on a competitive basis, leaving less room for wasted energy while being more resource efficient.
Ethereum (ETH) is the second largest blockchain project today after bitcoin, but although it works in the same way as a blockchain, it has different characteristics, specifications and also uses different technologies. However, while Bitcoin is solely focused on being a form of digital currency, Ethereum is considered a ledger technology used by companies worldwide to establish new programs and create space for further innovation. This is best illustrated by the presence of numerous Ethereum developer communities focused on strengthening the network and creating new programs.
Furthermore, Ethereum is also working towards the launch of Ethereum 2.0, which would be an upgrade that would switch from the PoW mechanism to a PoS mechanism, which would result in it working in a similar way to Cardano and giving more prioritization to the environment. According to Forbes, with this upgrade, Ethereum 2.0 is predicted to reduce the carbon footprint of the entire cryptocurrency by at least 99.95%.
Fiat currencies in relation to crypto are known as traditional currencies that are regulated and supported by the country. Examples are the US dollar, the British pound and the euro.
Non-Fungible Tokens (NFTs) are also part of the cryptocurrency world, however, the difference between NFTs and the cryptocurrency coins described above is a matter of fungibility. This is because cryptocurrencies like bitcoin can be traded between different people and they would receive the exact same asset that they previously owned. However, since NFTs are not fungible, each NFT is unique in its own way and therefore cannot be replicated. Often represented by a digital work of art like an image, NFTs often trade for thousands if not millions depending on the individual’s personal preferences and are slowly becoming the future of digital investing.
Stablecoins are cryptocurrencies that have their value tied to other assets, often currencies like fiat currencies. Unlike most cryptocurrencies like Ethereum and Bitcoin, stablecoins are backed by hard assets, making their value more stable over time and less volatile than typical cryptocurrencies. Hence, stablecoins eliminate the concept of “mining” and derive their price from the value of another asset. Rather than having to buy bitcoin directly in a fiat currency such as the US dollar, traders generally exchange fiat for a stablecoin, resulting in the stablecoin being traded for another cryptocurrency such as bitcoin or ether. Some of the most popular stablecoins are Tether (USDT), USD Coin (USDC) and Binance (BUSD).
In digital terms, a wallet is used as a digital storage device for a person to keep their crypto assets in a safe form. Wallets can be divided into two categories, either hot wallets or cold wallets. The former would be connected to the internet and users would have to access it by creating an account and setting a password, hence it could be vulnerable to attack from hackers which could lead to significant monetary loss. The latter is more secure in the sense that it isn’t constantly connected to the internet, and more secure because to access the wallet itself, the transaction would need to be signed or authorized by the hardware device storing the crypto.