A DETAILED RE-INTRODUCTION TO CRYPTO CURRENCY.
CONTENT GUIDE:
- Cryptocurrency Definition.
- Blockchain Definition.
- Working Principle Of A Cryptocurrency.
- Introduction To Crypto Wallet.
- Safe Crypto Storing Practices & Guide.
- Mining Definition.
- Types Of Cryptocurrencies And Use Cases.
- Glossary.
NOTE: PLEASE ENSURE TO REFER TO THE GLOSARY SECTION FOR KEY POINT DEFINITION IN DETAILS.
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In a very simple term, Cryptocurrencies are digital money and a means of virtual electronic payment system that doesn't depend on the bank to verify it's transactions. The mode of payment is usually a peer-to-peer system(p2p) meaning that two individuals communicate directly over the internet with each other without the interference of any third party such as the bank.
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Every cryptocurrency activity is conducted on a secure virtual environment or network called the "BLOCKCHAIN". Now, what is a blockchain? A blockchain; as the name implies, is a decentralized public ledger that records all transactions that exists across a network.
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Moving on, I have explained what crypto currencies are. However my explanation wouldn't be complete if I don't tell you how they actually work in details. So lets get into the working principle of a Cryptocurrency.
Cryptocurrencies run on a distributed public ledger called blockchain. Every transaction information in the blockchain network are openly shared and held across the network by the currency holders. Since owning a crypto currency means owing a virtual asset, what you actually own is a unique key that allows you move a record from a wallet to another. While trying to move cryptocurrencies around, you might be prompted to pay a certain transactional fee often called "gas fee".
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With that been explained, lets talk about wallets, addresses and safe crypto storing practices.
Cryptocurrencies are stored in special types of wallet called digital wallets. Through these wallets we are able to send and receive cryptocurrencies, each wallet has the ability to hold various crypto currencies at once and each cryptocurrency has a unique set of code called "wallet address" and another unique set of code called "contract address" respectively.
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Ensure to always store your cryptocurerencies safely from hack or theft. Some way you can do that include the following:
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Using a Hot wallet storage.
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Using a cold wallet storage.
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Never share your wallet address on websites or to wallets you don't trust.
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Store your security code offline.
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On no account should you give out your wallet login details to anyone.
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If you must transact on an untrusted website make sure to
create an entirely new wallet aside from your main wallet. -
Be generally carful.
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Unlike fiat currencies that are being printed and controlled by the Central Bank, Cryptocurrencies are created through a process called mining.
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Now let's discuss the various types of cryptocurrencies and their use cases.
The first on our list is Bitcoin. Developed in 2008 by an anonymous individual named "Satoshi Nakamoto", the digital currency emulates the value placed on gold by being limited in supply and having a fixed amount of twenty one million that can be mined. Due to the fact that it is decentralized, It breaks down the barrier of having a third party involved in transactions like the bank, this is achieved through peer-to-peer network. It also allocates its real value or worth directly to every holder who hold a piece of it.
The next on my list is Ethereum. It was launched in 2015 with the sole purpose of making it possible to build applications on its blockchain network through a process called "smart contract". One unique feature and difference between the Bitcoin Blockchain and Ethereum Blockchain is the ability to tokenize smarts contracts this means value can be attached to the smart contract and then they automatically carry out specific tasks. For instance: if a smart contract is created on the Ethereum network with the condition to facilitate the purchase of a house or payment for utility, once value(money) is added to the smart contract the task is automatically carried out without any third party involved. Ethereum is the name of the blockchain or network while Ether is the currency.
The last but the least on my list is Tokens or Token. They solely exist because of "dApps". Just like other types of cryptocurrencies, tokens have no physical representation instead they are used to make transactions on the dApp, gain voting advantages on the blockchain network, held for price appreciation and so much more.
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Glossary:
CRYPTO: meaning it uses an encryption called Cryptography to secure and verify it's transactions.
MINING: a digital form of creating crypto currency, which involves using a computer's processing power to solve complex mathematical problems in a blockchain network.
BLOCK: a block of digitally recorded data.
CHAIN: a chain linking various digitally stored information across a block together.
GAS FEES: gas fees are transaction fees that crypto currency users pay to miners on a blockchain so their transactions can be added to the block, and these fees are used to maintain the blockchain to ensure it runs efficiently.
HOT WALLET STORAGE: hot wallets stores cryptocurrencies online using a special type of code to protect the private key.
COLD WALLET STORAGE: also known as hardware wallets, cold wallets store cryptocurrencies offline.
WALLET ADDRESS: wallet address are used by humans to communicate with other humans through a wallet, by sending or receiving crypto currencies. Wallet Address are different for each cryptocurrency and can never be interchanged.
CONTRACT ADDRESS: contract address are computer programs and they are set of rules and compliances for exchanging funds on the blockchain.
PROOF-OF-WORK: a system for achieving agreement through validation on the blockchain network in order to confirm transactions and produce new blocks to the chain.
SATOSHI: the smallest unit of a Bitcoin.
ALT COINS: other crypto currencies aside from Bitcoin.
SMART CONTRACT: smart contracts are computer programs that acts as a guide on blockchain. They contain certain specific agreements, and these agreements are executed once the given conditions are met.
MINNER: a miner is anyone who use the process of mining to generate a new cryptocurrency.
STAKERS: stakers are people that verify transactions on the blockchain for rewards. The difference between miners and stakers is that stakers are selected in order to take their turn while miners have to compete for transaction verification.
dApps: dApps fully known as decentralized applications, are apps built on the smart contract blockchain network.
