All about Cryptocurrency
Cryptocurrency is a digital currency which means that it does not exist physically unless you write “bitcoin” on your next birthday cake!
When I first came to know about crypto, for me cryptocurrency meant bitcoin. Then I heard about Ethereum and I thought it is similar to Amazon and Flipkart in ECommerce. But then I came to know about more coins and all thanks go to the Elon Musk tweets. (Just kidding). So, what the heck is this cryptocurrency?
Before starting, let me tell you that this blog article is just the extension of previous articles in the series- #blockchainWithK where I have explained how about Blockchain and if you are new to this article then by reading them you will come to know how blockchain and cryptocurrencies are interdependent.
Now, coming back to today's topic, I will address the “what”, “why” and “how” about Crypto.
What, why and how about the cryptocurrencies-
I always do believe that if you try to understand your physical and materialistic world without any preconceived notions then cryptocurrency will not be an alien thing. It is just like any other currency but a few characteristic differences are that- Cryptocurrency is a digital currency which means that it does not exist physically unless you write “bitcoin” on your next birthday cake! Also, each cryptocurrency is fundamentally a collection of numbers and letters. To understand crypto coins easily, let us take the example of Mr Quant. Mr Quant is a public representative(leader) and is doing very good work in his region to make the life of common citizens very happy. Since he is very honest with his job, he is getting paid in his local currency. Now, whenever he has to buy something he can use that currency in the market as the currency is acceptable there. But if somewhere suppose any other country he travels, he will have to get his currencies converted into another form of currency which will be acceptable there. And this thumb rule is also followed by Blockchain. Whatever mining work is done by the miners to validate any smart contract, they are compensated in cryptocurrency since it is the locally accepted currency in the crypto world. Later, if someone wants, s/he can exchange it with INR/EURO/USD etc. Else, that cryptocurrency can be held in their wallet just like your physical wallet for a long time.
This was all about the existence of cryptocurrency.
Now let us try to vouch over the other fundamental aspects in our real world to understand cryptocurrency better. We all have seen that any physical money bill on the planet has a unique serial number. This serial number corresponds to information like when the bill was printed where it was printed and so on in theory a record of all money bills that have ever been printed and where they are is kept by a central bank which shares this information with smaller banks and the government. If you have a debit card or credit card you’ll know that you have an account number there as well. You also have a password or PIN that you use to access the money in that account your bank branch knows your account number and your name because you had to provide your personal information to open an account. This info is also shared with the central bank and government. Now let’s say you have a 20 bill with the serial number “ABC” and your bank account number is “123”. When you deposit that bill into your bank account, your bank branch the central bank and the government will see and confirm that the 20-bill ABC has been moved into the bank accounts number one two three. This is almost exactly how cryptocurrencies work each cryptocurrency coin is like the serial number you see on a physical bill just without the physical bill, just like regular bills almost every cryptocurrency can be divided into smaller pieces in the case of bitcoin, each BTC can be divided into 100 million pieces called satoshi’s which are like cents to a dollar. A cryptocurrency wallet address is like a bank account except that there’s no physical card that goes along with it. It’s just an account number because you don’t need to provide any personal information to create a cryptocurrency wallet. This means that your identity is not attached to your crypto wallet like a bank account is most importantly any cryptocurrency held in your wallet is held directly by you not custodied by a bank like regular money in a bank account, this means that nobody can shut down your cryptocurrency wallet or block your transactions because you have total control over that account at all times. Now the trade-off here is that if you lose access to your cryptocurrency wallet or forget to write down the recovery phrase you get when you make one, you’ll lose your cryptocurrency forever. Instead of banks and the government keeping track of everyone’s bills and bank account balances, these records are stored across all the computers connected to a cryptocurrency network. These transactions and account balances are public and can be viewed by anyone using something called a blockchain explorer because computers can earn cryptocurrency for processing transactions on a cryptocurrency network. This incentivizes more computers to join the network to process transactions and earn cryptocurrency.
Now let us try to understand different types of cryptocurrency-
So, we have come across different names of crypto like bitcoin, Ethereum, Doge, Cardano, Stellar, Litecoin, Solar, etc. Also, you might have heard about Altcoins. The altcoin is the short abbreviation for the word — alternate coins. So, all the cryptocurrencies which are not Bitcoin are the alternate realities for bitcoin and are hence called as altcoins. Ethereum, doge, stellar and all other crypto currencies except bitcoin fall under the category of altcoins. Now, the question arises that why so many cryptocurrencies exist? The answer comes with the question- why do so many currencies like INR, USD, EURO, GBP, JPY etc exist? Because all these currencies are alternate fundamental realities for the sustenance of the parallel existing economy. Similarly, if some smart contract is being written and managed by the Ethereum blockchain platform, it is going to pay the miner in Ethereum’s local currency which is termed Ethereum, and vice versa for other platforms and cryptocurrencies. Just like currencies, this cryptocurrencies are also exchangeable across the domain.
This was all about the understanding fundamentals of cryptocurrencies. In the next article, we will cover some more important aspects related to blockchain. Thank you for your time and till then keep chaining the blocks!