We are going to explain what exactly cryptocurrencies are so that if you have heard of them in general or of a specific one such as Bitcoin, you can know what exactly it is about. It is a type of digital exchange medium that has been with us for more than a decade, but it has been in recent years that its fame has increased the most.
In addition to explaining what they are, we are also going to try to briefly and simply explain how they work internally, as well as mentioning some of the others that currently exist and that you are hearing about.
What is cryptocurrency?
Cryptocurrencies, also called cryptocurrencies or crypto assets, are a digital medium of exchange. It fulfills the function of a coin, and that is why they are known by that name. It is, however, an entirely digital thing, using cryptographic methods to secure your financial transactions, control the creation of new units, and verify the transfer of assets.
Therefore, we can consider them as a decentralized alternative to digital currencies. With the term “decentralized” we mean that these currencies are not controlled by a single service or company. The same happens with conventional currencies, centralized and organized by entities and banks, so they are the opposite method to both.
The first cryptocurrency was Bitcoin created by “Satoshi Nakamoto”, a pseudonym that corresponds to a person who nobody knows exactly who he is. This person published an article in 2009 in which he described a P2P payment system that he called Bitcoin. After a few months, he published the first version of the software that allows managing the currency network and begins to interact in forums with the first interested parties.
It is still not known who this person is, but it is known that he has become one of the 20 richest people in the world. Bitcoin and its technology have had such an impact that over the years more and more alternatives have been arriving, new alternative cryptocurrencies that have been increasing their value with more or less luck. Since then, as we will see a little later, a large number of different cryptocurrencies have been created.
Another thing you should know is that the value of each cryptocurrency is variable and that in recent times there has been speculation similar to stock market assets. Therefore, many people are creating wallets in services where they can buy cryptocurrencies, and try to buy them to sell them later and thus earn money.
It is not recommended that you get involved in this if you do not know, because there can also be abrupt drops in the value of cryptocurrencies and you end up losing money. However, if you have cryptocurrencies, it is also important to know this, since if you are going to operate with them to make payments, you should know that you can find variable prices for this reason. There are several alternatives to see the heat of cryptocurrencies.
How cryptocurrencies work
To understand how cryptocurrencies work, you must also understand several basic concepts. The first is that it is based on a decentralized computer network, which means nodes spread all over the world with copies of all the transactions that have been carried out. The second concept is that of the miners, people who are part of the nodes, and who have the incentive that every time new Bitcoins are generated they are distributed among those who are part of these nodes.
Another important concept is that of exchanges, which are companies that allow you to exchange currencies such as euros or dollars for Bitcoins and get into the world more easily. When you get them, they are stored in the ‘Wallets’ or portfolios, which are applications that allow you to save or exchange them.
Each cryptocurrency has its algorithm, which is the one that manages the number of new units that are issued each year. For example, we have Bitcoin, which every four years reduces the amount produced by two, and only a total of 21 million Bitcoins will be issued. This is a fundamental difference with conventional currencies since banks modify the value of their free will. This gives it more capacity to generate value against currencies that can be devalued when the banks say.
And since the algorithms of different cryptocurrencies are different, the maximum units of each cryptocurrency also vary. This can also affect its value and performance, although it is not something that the most basic users have to worry about so much.
This decentralized computer network with different nodes is known as a chain of blocks or Blockchain. Its blocks or nodes are linked and secured using cryptography. Each block links to a previous block, as well as date and transaction data, and is by design resistant to data modification.
Therefore, it is as if this network or chain of blocks were an open and public library in which all the transactions made by two users are recorded. When you make a transaction, its data is recorded in a block, and it is automatically replicated in the rest. This means that the data cannot be modified or manipulated without modifying the rest of the blocks, something extremely complicated.
What other cryptocurrencies exist
As we have told you before, Bitcoin began to take its first steps in 2009. Since then, more and more new cryptocurrencies have been arriving over time. Some have been positioning themselves for years as robust and popular alternatives such as Ethereum, Litecoin, and the like. Ethereum even has a new version called Ethereum 2.
But there are also some new surprises like the newcomer Dogecoin, a cryptocurrency created for fun and based on a meme. But since Elon Musk spoke of it, assuring that it is the cryptocurrency of the people, its value has not stopped growing.
And how are you, there are many alternatives with rising values and new ones that are coming out. Some proper names among the most valued are Binance Coin, XRP, Cardano, Tether, Polkador, Uniswap, Chainlink, and Bitcoin Cash. However, most of them are left with a value that is very far from that of the big three, which are Bitcoin, Ethereum, and Ethereum 2.
There are some companies and services that have also tried to create their cryptocurrencies, but so far they do not seem to be achieving good results. Facebook changed course on Libra, which will become an alternative to PayPal instead of a cryptocurrency, and Telegram also abandoned its project to create a cryptocurrency called Gram. However, it is to be hoped that new alternatives will continue to emerge over time.
Sharlene Meriel is an avid gamer with a knack for technology. He has been writing about the latest technologies for the past 5 years. His contribution in technology journalism has been noteworthy. He is also a day trader with interest in the Forex market.