INTRODUCTION TO CRYPTOCURRENCIES

WHAT IS A CRYPTOCURRENCY

A cryptocurrency is a medium of exchange that is digital, encrypted and decentralized

Forbes Advisor defines cryptocurrency simply as decentralized digital money that is based on blockchain technology. Unlike fiat currencies, there is no central authority that manages and maintains the value of a cryptocurrency. The tasks are broadly distributed among the users through the internet.

Some cryptocurrencies have ventured into the physical world with credit cards or other projects. The greater majority remain entirely intangible.

CRYPTOGRAPHY

The word “crypto” refers to complicated cryptography. It allows the creation and processing of digital currencies and their transactions across decentralized systems. Alongside this important “crypto” feature is a common commitment to decentralization

MINING

Mining is the name for the mechanisms for issuance of Cryptocurrencies. The process involves using sophisticated hardware that solves an extremely complex computational math problem. It is computational work that nodes in the network undertake in hopes of earning new tokens.

FIAT CURRENCIES VS CRYPTOCURRENCIES

Fiat Currencies derive their authority as mediums of transaction from the government or monetary authorities. Cryptocurrencies are not backed by any public or private entities. Cryptocurrencies have largely functioned outside most existing financial infrastructure. Some cryptocurrencies use decentralized networks that are based on blockchain technology. This technology is a distributed ledger enforced by a disparate network of computers.

TYPES OF CRYPTOCURRENCIES

The standard definitions of cryptocurrencies tends to create the impression that it is all about another form of money. Or simply some digital mode of exchange of goods and services. In reality, the sophisticated technology behind cryptocurrencies has far reaching implications way beyond exchange of goods and services. The discourse on cryptocurrencies here is thus based on their respective development focus.

• Conventional stored value Cryptocurrencies. These are basically digital gold. These have the potential to replace fiat currency. Coins like Bitcoin and Litecoin fall into this category.

Bitcoin (BTC)

Bitcoin is the most popular and valuable cryptocurrency. It was invented by Satoshi Nakamoto. The name is said to be a pseudo name however. It was launched in 2009. Bitcoin is the world’s largest cryptocurrency by market capitalization.

As the earliest virtual currency to meet widespread popularity and success, Bitcoin has inspired a host of other cryptocurrencies in its wake.

It has a current (11^th February 2022 by 12:31PM GMT+1) market capitalization of $823.34 billion and a per token value of around $43,431.07.

Litecoin (LTC)

Litecoin launched in 2011, was among the first cryptocurrencies to follow in the footsteps of Bitcoin. It is often refers to as “silver to Bitcoin’s gold. It was created by Charlie Lee, an MIT graduate and a former Google engineer. Litecoin is like Bitcoin in many ways but it has a faster block generation rate and thus offers a faster transaction confirmation time.

It has a current ((11^th February 2022 by 12:36PM GMT+1) market capitalization of $9.25 billion and a per token value of around $132.92, making it the 20^th largest cryptocurrency in the world

• Privacy Focused Cryptocurrencies

Some cryptocurrencies focus more on privacy. Two examples are

MONERO (XMR)

Monero is a secure, private, and untraceable open-source cryptocurrency launched in April 2014. It was launched with a strong focus on decentralization and scalability. It enables complete privacy by using a special technique called “ring signatures”.

Due to its exceptional security mechanisms, Monero has generated a lot of interest among the cryptography community. This coin has wide use for making anonymous criminal transactions. However, the inherent privacy is said to be helpful to freedom fighters.

It has a current (11^th February 2022 by 12:35PM GMT+1) market capitalization of $3.25 billion and a per token value of around $179.57, making it the 45^th largest cryptocurrency in the world.

DASH

The name Dash comes from “digital cash”. It is a fork of Litecoin (LTC), launched in January 2014. The founders were software developers by name Evan Duffield and Kyle Hagan.

It has a PrivateSend feature which offers additional optional privacy for transactions.

When it was initially created, it was designed to ensure user privacy and anonymity. The cryptocurrency’s whitepaper, co-authored by Evan Duffield and Daniel Diaz, describes it as a privacy-centric cryptocurrency based on Bitcoin founder Satoshi Nakamoto’s

It has a current (11^th February 2022 by 12:54PM GMT+1) market capitalization of $1.2 billion and a per token value of around $113.14, making it the 79^th largest cryptocurrency in the world.

• SETTLEMENT NETWORKS

Ripple (XRP)

XRP is the native cryptocurrency for products developed by Ripple Labs. Its products are used for payment settlement, asset exchange, and remittance systems that work more like SWIFT, a service for international money and security transfers used by a network of banks and financial intermediaries. XRP and Ripple are often used interchangeably. Both are actually different. Ripple is the name of the company and network behind the XRP cryptocurrency.

Ripple is a technology that acts as both a cryptocurrency and a digital payment network for financial transactions. It was first released in 2012 and was co-founded by Chris Larsen and Jed McCaleb. Ripple’s main process is a payment settlement asset exchange and remittance system, similar to the SWIFT system for international money and security transfers, which is used by banks and financial middlemen dealing across currencies.

Ripple transactions use less energy than bitcoin. The transactions are confirmed in seconds. And cost very little, whereas bitcoin transactions use more energy, take longer to confirm, and include higher transaction costs.

It has a current (11^th February 2022 by 12:33PM GMT+1) market capitalization of $39.133billion and a per token value of around $0.8181, making it the 6^th largest cryptocurrency in the world.

TETHER (USDT)

Tether was Launched in 2014. It describes itself as “a blockchain-enabled platform…to make it easier to use fiat currency digitally.” Effectively, this cryptocurrency allows individuals to utilize a blockchain network and related technologies to transact in traditional currencies while minimizing the volatility and complexity often associated with digital currencies. Tether and other stablecoins attempt to smooth out price fluctuations to attract users who may otherwise be cautious. Tether’s price is tied directly to the price of the U.S. dollar. The system allows users to more easily make transfers from other cryptocurrencies back to U.S. dollars in a more timely manner than actually converting to normal currency

It has a current (11^th February 2022 by 12:35PM GMT+1) market capitalization of $78.431billion and a per token value of $1, making it the 3^rd largest cryptocurrency in the world.

ETHEREUM (ETH)

Ethereum, launched in 2015, is currently the second-largest digital currency by market capitalization after Bitcoin. It is a decentralized software platform that enables smart contracts and decentralized applications (dApps) to be built and run without any downtime, fraud, control, or interference from a third party. The goal behind Ethereum is to create a decentralized suite of financial products that anyone in the world can freely access, regardless of nationality, ethnicity, or faith.

 This aspect makes the implications for those in some countries more compelling because those without state infrastructure and state identifications can get access to bank accounts, loans, insurance, or a variety of other financial products. 

It has a current (11^th February 2022 by 12:33PM GMT+1) market capitalization of $370.34billion and a per token value of around $3,098.15., making it the 2^nd largest cryptocurrency in the world.

TOKENS

Unlike coins, which directly represent a proposed medium of exchange, crypto tokens are a representation of an asset. These ‘tokens’ can be held for value, traded, and ‘staked’ to earn interest. 

The term crypto token refers to a special virtual currency token or how cryptocurrencies are denominated. These tokens represent fungible and tradable assets or utilities that reside on their own blockchains. Crypto tokens are often used to fundraise for crowd sales, but they can also serve as a substitute for other things. These tokens are usually created, distributed, sold, and circulated through the standard initial coin offering (ICO) process, which involves a crowdfunding exercise to fund project development.

Crypto tokens are a type of cryptocurrency that represents an asset or specific use and reside on their own blockchain.

Tokens are created through an initial coin offering, which represents the cryptocurrency version of an initial public offering (IPO). Tokens are created by cryptocurrency companies that want to raise money. Investors who are interested in the company can purchase these tokens.

It is important to note that there are over ten thousand cryptocurrencies in existence at the moment. The above is just an introductory scratching of the surface.  And by the way, talking about scratching the surface, it may be safe to say that with the ongoing scale and speed of technological innovations, even the coins as we know them today and the technology behind them may just be at the level of scratching the surface. The earlier we develop interest in having knowledge of at least the basics the better for us all. Lest, particularly we the aging population wake up one day and find ourselves totally lost in the world we thought we knew.