Basics & Fundamentals of Cryptocurrencies: A Comprehensive Guide to Mastering the EssentialsComprehensive Crypto Encyclopedia: Explore the World of Cryptocurrency!

What is Cryptocurrency?

Cryptocurrency, often referred to as “crypto,” is a digital form of currency that is protected by cryptography (encryption algorithms) and utilizes blockchain technology on a decentralized network in which no main counterparty can control it.

How Many Cryptocurrencies are There?

Bitcoin was the first official cryptocurrency, born shortly after the release of the Bitcoin whitepaper in 2009 by the mysterious person (or group of people) going by the moniker “Satoshi Nakamoto.”
Over the years, many different cryptocurrencies or “digital assets” have been created, each of them with different network characteristics, functions, and varying abilities.
As of September 2022, there are over 10,000 cryptocurrencies in existence in the world, a number which has grown steadily with each passing year.

What is Cryptocurrency Backed By?

In a world in which individuals are used to seeing something tangible that “backs” the value of an asset, many people naturally wonder what cryptocurrency could possibly be backed by. In other words, what exactly gives a crypto value?

To answer, one must first look at what gives any asset value. For a historically long-cherished asset such as gold, there are perhaps four drivers for its value:

  1. Its scarcity
  2. Its function and beauty (jewelry, conductive and malleable metal)
  3. Its universal acceptance as a thing of value by individuals/governments
  4. Trust

Looking at cryptocurrency, we’ll use the example of Bitcoin, the original crypto, some parallels can be derived.

Bitcoin, as well as most other cryptocurrencies have a scarce supply. The very code that it is built upon guarantees it to be a “deflationary” asset. There will only ever be around 21 million Bitcoin in existence.

Cryptos like Bitcoin have a unique function that one does not see in other assets. Value can be sent around the world to anyone very quickly in comparison to sending physical items or a bank wire. The decentralized network does not allow a single person, government, or entity to alter it or affect its function (there is no “central counterparty”).

With more and more people partaking in the holding of cryptocurrency and the usage of the networks, as well as more governments and merchants who are giving positive public acknowledgement of digital assets, cryptocurrencies are gaining more universal acceptance as assets of value.

Not all cryptocurrencies have the same level of public trust. For many, the general lack of understanding of how a particular crypto functions can cause people to avoid using or holding it. Indeed, many crypto projects have proven to be fraudulent and issuing organizations have bilked holders and investors out of massive amounts of money. But for some of the longer-running and more established cryptocurrencies, the trust has grown significantly. This is aided if there is open-source, public access to the rules of the network, the participating validators on the network, and the long-term function of the network with no significant problems.

In short, it depends on the cryptocurrency, but many cryptos have the scarcity, unique and useful function, increasing universal acceptance, and trust which allows people to feel confident in determining them to be things of value.

Is There a Difference Between a Crypto Coin and a Token?

The terms ‘coin’ and ‘token’ are often used synonymously with each other in discussing crypto, but there is a generally accepted difference between the two.

A ‘coin’ is a native currency on its own blockchain. For example, on the decentralized XRP Ledger, the native currency on this blockchain is XRP. However, since the blockchain is open source, anyone can mint a ‘token’ on this ledger. Hundreds of tokens have been created on the XRP blockchain, from tokens representing gold and the US dollar to utility coins for blockchain projects.

The Ethereum blockchain is also a very popular platform for token creation, with droves of ‘ERC-20’ tokens being created and utilized by projects around the world.

What are the Different Types of Cryptocurrency?

Cryptocurrency continues to advance in innovation and function as the technology leaves its adolescence stage, but it can generally be grouped into four categories:

  1. Currency
  2. Utility
  3. Security
  4. Stablecoin

A crypto can be considered a currency if its main purpose is as a value transfer between individuals or entities. For example, Bitcoin was meant to be the first peer-to-peer currency which functioned without the need for a banking intermediate. Anyone ideally can send Bitcoin to any other network participant in the world.

A utility coin or token is a crypto that serves a specific function on a blockchain or blockchain application. For instance, the Basic Attention Token (BAT) is utilized on the Brave Browser and allows people to pay tip website content creators in BAT token in an effort to change the online advertising revenue model.

A security coin is one which functions more as a traditional security (stock, bond, etc.) and is issued by a central party or business in order to raise funds for their network or enterprise.

A stablecoin refers to a cryptocurrency that is designed to be backed 1:1 by an asset. For example, USDC is a stablecoin issued by fintech company Circle that can be utilized to send quickly and easily a 1:1-backed digital US Dollar around the globe for exchange purposes.

What is an Altcoin?

An Altcoin (shortened version of “alternative coin”) is generally accepted to be any cryptocurrency that is not Bitcoin.

Altcoins began to emerge shortly after the creation of Bitcoin, with many individuals and entities wishing to make their own crypto networks with different functions and abilities than the original.

Is Cryptocurrency Used by Criminals?

Just as cash and almost any other assets can be used to transact nefariously, cryptocurrencies have had their share of criminal exchange.

However, the common trope that cryptocurrencies are primarily used by criminals is wholly false.

Studies show that cash remains the number one funding source for criminal activities and that over 99% of all crypto transactions are for legal purposes.

Moreover, crypto networks are mostly all performed on decentralized, open ledgers. Transactions can be seen and tracked, though the account holders might not be known. Regardless, in order to transform these funds into other assets (fiat dollars, for example), one must go through “exchanges,” which are almost unfailingly heavily regulated by their countries of origin.

Just as credit cards and internet commerce continue to be ripe for criminal activity, one of the things people must remain vigilant about is criminals attempting to steal cryptocurrency. In most cases, people who hold cryptocurrency on exchanges and wallets must ensure their passwords and “keys” are stored safely and must scrutinize any correspondence sent that attempts to get this information. The same can be said for online banking or equity accounts.


Crypto Encyclopedia Crypto News

Newton & Kepler

Introducing Newton & Kepler, our expert authors who bring you the latest in crypto education and finance. We chose these names as a tribute to two of the greatest minds in science and mathematics: Isaac Newton and Johannes Kepler. These pioneers made groundbreaking contributions in their respective fields and laid the foundation for much of the modern knowledge we have today. Just as Newton and Kepler searched for truth and knowledge, our authors strive to educate and enlighten our readers about the ever-evolving world of crypto and finance. By honoring these historical figures, we aim to inspire our readers to seek out their own understanding and wisdom in this exciting and complex arena.
Back to top button