Everything you need to know about Cryptocurrency and Blockchain Technology | Simplified
In this article, we will explore what is Cryptocurrency and Blockchain in very simple terms. If you are either a dummy or an advanced user of Blockchain, this Article “Everything you need to know about Cryptocurrency and Blockchain Technology” will help you understand the basics of Blockchain Technology and its related components. Make sure you read it to the end!
So, lets first start with Cryptocurrency.
What is a cryptocurrency?
In very simple terms, a Cryptocurrency is a programmable unit which does not exist in reality but inside the computing world. The first cryptocurrency created was BITCOIN (which is still the boss of all other cryptocurrencies). On 31 October 2008, an anonymous person called Satoshi Nakamoto created this technology. It can be interpreted as one of the biggest socio-economic experiments in human history, and slowly and slowly it got the attention of people. People gave these cryptocurrencies value by buying and bidding it through different online exchanges, just like they gave to the paper money because it solved the various real-world problems that were never been solved before. Bitcoin and other most of the digital currencies are decentralized without a central bank or single administrator who controls the money, and it can be sent from user to user on the peer-to-peer network. The transactions of Cryptocurrencies are transparent, fast, permissionless, irreversible and most secured than the history of any other technologies.
Examples of Cryptocurrencies in 2019 are:
· Bitcoin
· Ethereum
· Ripple
· Lite Coin
· Bitcoin Cash
· Monero
· NEO
· EOS
· Cardano
· VeChain
· Tron
· IOTA
· Dash
· Tether
· ChainLink
· Stellar and more. Click here to see more….
So, in this regard, we have another important term called BLOCKCHAIN technology.
You have to understand BLOCKCHAIN to fully understand Cryptocurrencies.
What is Blockchain? Blockchain Explained
So, to verify Cryptocurrencies’ transactions there needs to be a system, isn’t it? In the traditional world, banks are the intermediaries who verify the transactions and performs various commercial activities. But due to the technological advancement and establishment of Blockchain technology, it performs the task of banks with added features.
Transactions are basically performed, by the banks with the use of databases, the entries of records are kept in databases and manipulated according to the activities of the users. Blockchain is an open ledger for this, who holds the data of transactions in a most transparent and secured fashion than any banks. The verifications process is much faster (in seconds) and automated with the use of cryptography. Once the transaction is settled, it will stay there for forever which also avoids the chances of fraud. Blockchain is immutable, it cannot be changed, once the data is set there it is set and nobody has a power to change it. That is why it is widely decentralized.
In other words, Blockchain is like a database, it is a way of storing records of value and transaction. Many other things can also be recorded in Blockchain like property certification, identity documents and more. Blockchain is here to remove the intermediaries who provide the trust, security and facilitate the transactions and data. Example of such intermediaries is Banks and several financial institutions like insurance, and more.
Why do people need Blockchain?
If you see the stats, Billions of the people are living in countries which still do not have good financial system. A research from World Bank states that, even after the traditional banking system and advanced technology, there are over 2 million adult populations who are unbanked: who do not even have basic financial services, several billion more are underbanked and over 200 million SMEs (small and medium-sized enterprises) depriving of borrowing money from a legal entity to start a business. This creates an insecure environment as they will be deprived of savings, insurance, and access to a credit system. This data shows that there is still a huge problem in the financial world that needs to be solved for financial inclusion. Mostly these problems are seen especially in developing countries and mainly in African countries.
Double spending is another big problem with current traditional finances. In a simple term, Double spending is the money that is spent once is spent several times. Suppose, you spent 1$ for coffee that cost 1$ and again spent that same 1$ for a slice of pizza, this is double spending scenario. Several smart hacking minds are using double-spending techniques for their personal gains. And sometimes institutions even face double-spending problem due to the unreliable system.
Blockchain is the first technology which fully avoids double-spending. Yes, it is possible to double spend with Blockchain, but needs lots of time, money, efforts which exceeds the profit margin for attackers. To perform double, they have to perform a 51% attack on the whole network.
Let’s dive more deeply into Blockchain.
How does Blockchain Work?
Blocks in the network of Blockchain are created with the use of cryptography (cryptography is a technology that encrypts and decrypts the data).
Suppose, 4 blocks are recently created,
Block 1, Block 2, Block 3 and Block 4
Block 1 is linked to Block 2, Block 2 is linked to Block 3, Block 4 is linked to upcoming Block 5…….
This creates a never-ending chain. The chain which is interlinked to each other and communicates with each other in a fraction of a second.
And, Blocks are responsible for holding your data.
Therefore, if you want to trace the data of Block 4, you can trace it using Block 1. And, there is no authority, the authority is already fixed in the network with the use of sophisticated protocols by smart engineers and no one controls it but the network itself.
Let’s say, Person 2 bought a book from a Person 1, and the data of transaction of book is on Block 1. Now, the person 10 got that book. The person 10 holds his transaction data in Block 5. Now, Person 10 wants to see the real owner of the Book. He can easily trace the data of Block 1 which has the transaction’s information and maybe his name and address of the real owner of the book, using his transaction data in Block 5. Several websites are there which helps you trace the data, depending on the Cryptocurrency type.
For Bitcoin| Ethereum| Bitcoin Cash Transactions you can trace the transaction record using: https://www.blockchain.com/explorer
Note: Blockchain transactions cannot be deleted and manipulated like database entries. It makes Blockchain more trusted, and far more secured than traditional systems. This is very bad news for hackers.
Mining and staking:
If you are a little bit familiar with Cryptocurrency, you may have heard these two terms mining and staking.
Let’s first discuss mining,
What is Mining?
Mining is similar to traditional mining like gold mining. But this time, mining on networks using hardware and software.
Transactions need to be verified, and what the protocol engineers have done is that they incentivized the system. If the system is in the hand of people, fully decentralized without any banks and governments, it needs to run in a way which benefits all participants along with the system. Which means the people’s participation is very important to run the system, just like the voting system of a country in some democratic nations. Now, think Blockchain as a modern democratic Global financing system.
In the Blockchain mining process, what people should do is that contribute their computing power to the Blockchain Network to verify the transactions. For that, they need to contribute their hardware using software to the network, and the hardware solves the complicated mathematical problems to actually find a new block, which stores the transaction records. And a hardware that finds the solution to this problem and creates a block is incentivized by giving rewards in the form of Cryptocurrency which has a real value.
The algorithm for this process is known as PROOF OF WORK. Remember this term Proof of work, you will hear this several times in this space. It is an algorithm for verification of transactions, in a Blockchain network.
However, with this algorithm of Proof of work and mining concept, it needs lots of highly powerful hardware and consumes lots of energy which has created a real problem for mass adoption of this new technology. In 2015, it was estimated that one Bitcoin transaction required the amount of electricity needed to power up 1.57 American households per day.
So, there comes another important term called staking.
What is Staking?
The mining process needs lots of resources and lots of energy. Humans cannot afford such resources and that amount of energy for the network to run.
So, in the replace of Proof of work algorithm, the new algorithm is developed called PROOF OF STAKE.
Basically, a Proof of Stake Blockchain is fortified in a deterministic way. There is no mining in these systems and the validation of new blocks is dependent on the number of coins being staked. A number of coins being staked? In mining, the miners should stake their hardware and energy to verify the transactions, but in staking, users should stake their coin holdings in the dedicated software, and the coins themselves play the part for the verification of transactions in the network, and the coin holder is rewarded some percentages of transaction fees. Therefore, staking is another way of earning passive income through staking like miners.
This process is the most efficient than mining because it does not need energy consumption and expensive resources. Software and some cryptocurrency coins are all you need. Percentage of Rewards depend on the coin you stake and how the reward system of that specific coin is engineered. Nevertheless, the more you stake, the more you earn. Think of it as a new way of gaining interest from your deposited amount similar to the banking system. The more staking coins a person holds, the higher the chances of being picked as a block validator (Transaction validator).
Additionally, PoS (Proof of stake) is more secured in a 51% attack. It needs lots of time and money to perform 51% attack and a failed attempt will lose in lots of money.
There are other two important terms in Blockchain: Smart Contracts and ICO (Initial Coin offering)
Let’s discuss each of them individually!
What are Smart Contracts?
Transactions and any form of data sharing are settled by the Blockchain, but to perform any sort of legal transactions, there need to be some specific rules. In the traditional world, these rules are set by lawyers. Smart Contracts are contracts like a traditional contract, which automates the process of transactions or data sharing (Property, Shares or anything of value) with the help of Blockchain.
Smart contracts are in coded form, like computer programming, which sets the rules for these type of sharing.
Smart Contracts are nothing but a set of rules that are set using computing codes for any type of contracts using a Blockchain. The applications or software you are seeing is centralized today, in control of central authority, in future, you will see thousands or millions of decentralized applications and software with the use of smart contracts. Those applications can be anything like online store, online university, online health checkup or anything with products and services.
The first Blockchain to introduce and implement this idea is “ETHEREUM”.
In other words, “SMART CONTRACTS” which is Blockchain-based (New Disruptive Technology) is the new way of creating a more secure and feasible world. The automation it brings to the real-world economy will have a tremendous impact in several areas like corruption, insurance, tax issue, agent fraud, health sector, Identity verification and more. The logistics of this technology has the power to reduce the cost of traditional contracts and automate the process to save precious hours, days and months. Smart contracts automate the process and lower the cost of the transaction.
Key use cases of Smart Contracts
Governments: -
Governments can use smart contracts to build Decentralized Applications to create a new voting system for their citizens, which is more transparent, accurate, secure and feasible. Other logistics can also be developed which is yet to be recognized.
Managements: -
Business organizations can manage their workflow more accurately, transparently, and automatically. As smart contracts automate the process of workflow, it can help organizations to save their time and money. Other logistics can also be developed which is yet to be recognized.
Supply Chain: -
As it automates the task of payment through Escrow contracts (part of smart contracts), the supply of products will be more transparent and payment process will be automated. Other logistics can also be developed which is yet to be recognized.
Digital Identify: -
Smart contracts can allow individuals to own and control their digital identity. It lets the user choose the data they want to disclose to counterparties, and lets which data to send and which not to. Smart contracts even allow the enterprises and governments to verify the identity of the people in a very efficient way. Other logistics can also be developed which is yet to be recognized.
Other realistic use cases of Smart Contracts are: -
- Trade finance
- Derivatives
- Financial Data Recordings
- Mortgages
- Land Title Recordings
- Auto Insurance
- Cancer Research and more
Smart contracts programming languages in 2019
- Solidity (Ethereum Blockchain)
- Python
- Java
- JavaScript
- Plutus ( Cardano )
- Marlowe ( Cardano )
Let’s Discuss ICO (Initial Coin Offering)
What is ICO (Initial Coin Offering)?
ICO is a new way of raising capital selling Cryptocurrencies. In a traditional market, there are only a few ways of raising funds for the developments and expansions of the project. To do so, Companies usually sell Share or Stocks through an IPO (Initial Public offering).
ICO (Initial Coin Offering) is similar to IPO but instead of share and stocks, ICO is a capital raised by issuing Cryptocurrency tokens or Cryptocurrency coins to the public for the development of the projects. These digital currencies can be bought using fiat currencies or can be exchanged from one cryptocurrency coin or token to another. And after investing, Investors hope that token will perform well in the future providing them worthy return on investment. Mostly startups projects launch ICO to raise the capital.
Note: The price of the token or coin is set by the business itself.
Crowdfunding of ICO can be done either on Cryptocurrency coin or Cryptocurrency token.
Difference between Cryptocurrency coins and Cryptocurrency Tokens
Cryptocurrency Coins
Cryptocurrency coins are the coins that run on its own Blockchain. Examples: Bitcoin, Ethereum, Litecoin, Cardano, Dash, etc.
They have their own use cases. For Example, Ethereum coin can be used to fuel the Ethereum Blockchain to verify the transactions. Bitcoin is famous as a store of value like Gold. Lite coin is an alternative coin of Bitcoin just like Silver. Cardano (ADA) is used to fuel the Cardano Blockchain, it means it needs ADA coin to build applications, participate in voting and various other activities inside Cardano eco-system, just like oil for vehicles to run. Dash coin is used in the Dash platform to support the voting’s system for the development of the Dash Blockchain.
Think Cryptocurrency Coins as an independent asset, commodity or currencies.
Cryptocurrency Tokens
Cryptocurrency Tokens are created in the top of the Blockchain Projects like Ethereum, Cardano and more. They depend on the other Blockchain platform. It means they do not have their own Blockchain. Now, think cryptocurrency coins as an internet and Cryptocurrency tokens as a website that only runs on the top of the internet. Some of the examples include OMG token, BAT token, ZRX token, etc.
Most of these tokens are platform specifics and is used in DApps (Decentralized Applications). For example, a gaming decentralized app can make their own token and can be used to play the game, buy the game and give a gift. An E-commerce website can create their own token and distribute to its customers to pay for products and services. These tokens are programmable and can be created using Blockchain platforms.
Tokens are far easier to create than coins. A developer can use some platform-specific templates to create tokens.
Both coins and tokens are stored in Digital wallets and can be exchanged in online exchanges. They both can be issued in Crowdfunding to raise capitals.
Platforms to Buy and Sell Cryptocurrency Easily
So, if you are interested to Buy, Sell or Trade your first cryptocurrency now or in future, I will provide you a few platforms that you might have interest in.
Note: There are multiple scam platforms like where people have lost thousands and millions in amount. Be aware of those platforms.
These below-listed Cryptocurrency platforms are established one and are highly secure for your safe transactions.
- Binance ( Click here to register ) — ( suitable for beginners or an advanced user) If you want to buy, trade, sell and exchange cryptocurrency this is the most famous platform out there. You can buy and trade cryptocurrency using your Credit card or if you have other coins in your wallet you can simply deposit and trade. Binance is highly secure and has insurance in the case of a hack which means you will be refunded whatever balance you have lost ( Chance of hack is too low). If you join from here you will get 5% commision back of your transaction cost.
- CoinSwitch ( Click here to register ) — (Suitable for beginners and easy buying and selling with simple user interface) If you want simple buying and selling platform or want to buy using your credit cards this might be the best platform. If you register form here and make your first 100$ transaction you will get 5$ as a bonus balance.
- LocalBitcoins ( Click here to register) — ( Suitable for people who wants to buy and sell Bitcoins only in the local market) If you are searching to buy bitcoin only in the local market, this might be the platform where you want to look after. You will find so many local people in your area or country, who are interested to buy and sell Bitcoins. They accept payment from various sources like Paypal, Local Bank Transfer, Payoneer and more. Note that: Local Bitcoins specializes in Bitcoin only.
So, how do I earn Cryptocurrencies? If my country or bank does not let directly buy from online exchanges?
Buy Bitcoin, through Local Bitcoins, and Exchange Bitcoin to other cryptocurrencies from CoinSwitch. That way you can accumulate other coins of your choice easily.
Do not get confused with so many platforms, these are the most secure and proven platforms running services for a long time. Join one and start your first crypto life. You have a chance to accumulate wealth through cryptocurrencies whether you take it or not, it's up to you. Good luck!
References
2> https://www.weforum.org/agenda/2017/09/the-worlds-unbanked-in-6-charts
3> https://blockgeeks.com/guides/smart-contracts/
4> https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp
