From as far back as the 13th century, just about 820 years ago, the predominant currency in the world was metallic substance mined and refined through rigorous processes; the coin. This was all that mattered and all that money was defined as at the time. A different idea about money would have seemed like pouring ice water on hard rock with the hopes to melt it. IMPOSSIBLE.
A few years down the line, however, still somewhere between 1300 – 1200 BC, even though it wasn’t an entirely new idea, that impossibility became a possibility for folks in the late 13th century because they had to measure up with and embrace paper money as the new form of money.
Kublai Khan, a foremost innovator of the concept of money in Ancient China, understood that money was not all about what it was backed by or even its intrinsic value. But, whether or not people believed in it enough to exchange it as value for goods and services.
Today, that has fairly become what the concept of money has come to be known for. Irrespective of the form it takes, people are willing to exchange it for goods and services if they believe in it enough to do so.
In this article:
- How Did It All Begin? A Brief History of Blockchain Technology and Cryptocurrency
- How Most People Describe It
- Know The Difference Between a Coin and a Token
- The Blockchain
- The History of Blockchain
- Some of The Most Common Cryptocurrencies
- Some Differences Between Crypto and Fiat Currency
- What Makes Cryptocurrency Valuable?
- How to Start Using Cryptocurrency
- Key Features of Cryptocurrency
- Where to Buy and Sell Cryptocurrency
- How to Start Trading Cryptocurrency
So… What Is Cryptocurrency Really and Why Does It Matter?
A cryptocurrency is a virtual currency that uses encryption to verify and transfer ownership of digital coins across a network of computers. It’s a type of currency that exists in digital form alone.
This type of currency does not have any form of physical representation but is built with cryptographic protocols that make it impossible for transactions to be faked. It’s usually spent via transfers from one digital device to the other.
Cryptocurrency matters because it does not only make the process of sending and receiving money faster and more effective but also cuts down, by far, the processes involved in managing funds.
How Did This All Begin? A Brief History of Blockchain Technology and Cryptocurrency
The story of blockchain and cryptocurrency started long before Satoshi Nakamoto first introduced the Bitcoin white paper in 2008.
One of such all too familiar stories is that of Nick Szabo’s Bitgold. But, even before Bit Gold, there was an earlier attempt at creating digital currencies by using encryption to secure transactions in 1998. The only problem was that while these systems were initiated, they were, however, for some reasons, not completely established.
Bitcoin was the first cryptocurrency to become established. Its journey can be traced back to 2008 when the white paper, Bitcoin: A Peer-to-Peer Electronic Cash System, was posted to a mailing list discussion on cryptography by a person (or group of people) who went by the pseudonym, Satoshi Nakamoto. In 2009, the Bitcoin application was made available to the public and the process through which new Bitcoin tokens are generated, Bitcoin mining, began. Bitcoin mining is also the process through which new Bitcoin transactions are verified and added to the blockchain.
On May 22, 2010, the first transaction was carried out with Bitcoin when a man called Laszlo Hanyecz bought two pizzas from Papa John’s pizzas for 10,000 BTC. Today, 10,000 BTC is $117 million.
Since the inception of Bitcoin, other cryptocurrencies have emerged as well including Ethereum, Litecoin, Ripple’s XRP, Bitcoin Cash and over 2,000 others. These other cryptocurrencies are called altcoins (alternative coins). So, if you told someone that Bitcoin and altcoins are cryptocurrencies, you’d be 100% accurate.
Blockchain technology is the technology upon which Bitcoin and altcoins are built. But even though blockchain was introduced by Bitcoin, the technology has now been adopted and implemented in different fields including agriculture, entertainment, education and healthcare.
How Most People Describe It
Like yourself, cryptocurrency became a novel concept for everyone at one point or the other. People of different races and regions have tried to describe it in ways in which it made the most sense to them.
In light of this, cryptocurrency has been called different names by different people.
A couple of names it’s been described by are digital tokens, digital assets, digital currencies, tokens, virtual currency, crypto coins and digital coins. The broadest definition of cryptocurrency, however, is that it is a digital asset used as a medium of exchange. Of all the 2000+ existing cryptocurrencies, the most widely known is Bitcoin. The BTC journey started on October 31, 2008, when its white paper was released. It was also the first cryptocurrency to go mainstream. Today, it is the first cryptocurrency most people hear of and get familiar with before they delve into other cryptocurrencies.
Know The Difference Between a Coin and a Token
Even though you may find these two terms used interchangeably a few times by crypto newbies, they do not refer to the same thing.
While a coin is used to describe a type of cryptocurrency that is built on its own blockchain, such as Bitcoin and Ethereum each built on the Bitcoin and the Ethereum blockchains respectively, a token refers to a type of cryptocurrency that is built on other blockchains. Like, another cryptocurrency type built on the Bitcoin blockchain for instance.
Blocks are the components that make up the world of cryptocurrency. These blocks are pieces of data in packages. Each of these blocks carries data that is recorded permanently.
When cryptocurrency transactions occur, information for each transaction is collected and validated by the network. As each of these transactions is collected and validated, they’ll reach a predetermined size where they’ll be grouped together into a block and added to the blockchain. Each block is thus linked to another block and that is what is described as the blockchain.
Think of the blockchain as a file, a shared public journal, or a ledger of cryptocurrency transactions. The historical record of every cryptocurrency transaction that has ever occurred.
The blockchain protocol runs on a peer-to-peer network of computers which all run the protocol. Each of these networks of computers has an identical copy of this ledger. The blockchain is a public and decentralized ledger. But, even though it is open to everyone, no single person can have absolute control of the ledger. This is partly because it is secured using a system called cryptography. Cryptography prevents the blockchain from being tampered with.
It’s also important to establish that blockchain is not Bitcoin. It is the system that Bitcoin operates on.
The History of Blockchain
The saying that nothing is entirely new proves true for blockchain technology. Even though blockchain just became a familiar household name not too long ago, it’s not an entirely new technology. The blockchain technology is made up of technological components that have been around for thousands of years. One of such examples is using tokens or bills. Tokens and bills are money, representatives of units of value.
Another aspect of technology that is a part of the blockchain is cryptography. The first use case for cryptography can be traced to sometime around 1900 BC when the first evidence of its use was found in an inscription in the master chamber of Egyptian nobleman, Khnumhotep II. Cryptography is simply the practice of encrypting information in order to make it secure. The third adopted technology was a ledger. The ledger has been in existence for thousands of years.
So, if you think of the blockchain as a combination of the ledger, cryptography and a token as well as a system which is public and decentralized, you would be absolutely correct.
Some of The Most Common Cryptocurrencies
Today, there are more than 2000 existing cryptocurrencies. At the time of this post, there are 2,283 cryptocurrencies listed on Coin Market Cap. But based on a few factors like market cap, price and trading volume, some of these cryptocurrencies outrank others. Also, because it would be a herculean task to cover all of the 2,283 existing cryptocurrencies within the space of this article, we’ll just take a look at the 9 most valuable cryptocurrencies by market cap.
Both by market cap, price and market volume, BTC outranks every other cryptocurrency. It is the most valuable cryptocurrency today. The trendsetter crypto blazing the trail for all of the other cryptocurrencies to follow. Bitcoin came into existence on January 2009 when its anonymous creator Satoshi Nakamoto mined the first Bitcoin block, block 0, which had a reward of 50 BTC. That was after the Bitcoin white paper was released on October 31, 2008.
Ethereum was founded by Vitalik Buterin. The Ethereum blockchain was programmed to run smart contracts and decentralized apps also known as DApps. Like Bitcoin, Ethereum has its own blockchain called the Ethereum blockchain. This blockchain has its own token called “ether”.
Ethereum came into existence on July 30, 2015, with 72 million tokens “premined”.
When it was first released, the Ethereum blockchain started the verification of transactions using “proof of work” where miners would validate transactions by solving a complicated mathematical equation. After a few months, however, Ethereum started using the “proof of stake’ system which consumed way less energy and which was more efficient. In proof of stake, members validate transactions based on the number of coins they have staked in the Ethereum network.
Ripple operates both as a platform and a currency. As a platform, Ripple is an open-source protocol built to facilitate fast and cheap transactions. The primary idea behind Ripple is that it would be used for worldwide international transactions. Thus, there are certain services that exist within the Ripple framework like Xrapid and RippleNet. The digital currency run by Ripple is called XRP.
Ripple was founded by an American technology company called Ripple Labs which was originally founded in 2012 by Chris Larsen and Jad McCaleb as Opencoins. The company was only renamed Ripple Labs in 2015.
Bitcoin Cash (BCH)
On August 1, 2017, a hard fork was created on the Bitcoin blockchain protocol to increase the block size. This led to the creation of a new chain which had 8MB blocks. The new chain was called Bitcoin Cash. Bitcoin Cash is also sometimes referred to as Bcash. Along the line, it was further split into Bitcoin Cash and Bitcoin SV.
Litecoin is very often described as the silver to Bitcoin’s gold. Litecoin was created sometime in 2011 by Charlee Lee. It was named so as a result of its speed; “Lite”. It was created with the aim that it would make up for some of the shortcomings experienced in the use of Bitcoin as a means of payment. You see, BTC was not an efficient means of payment because it was slower. For example, Litecoin’s block mining time is 2.5 minutes while Bitcoin’s is 10 minutes. Plus, the total number of Litecoin that would ever be mined is 84 million as opposed to Bitcoin’s 21 million.
Tether is a stable coin. It is one of the few cryptocurrencies that are not subject to volatility. This is because its value is pegged in a 1 to 1 ratio to the value of the U.S dollar. This makes it possible for Tether to be used for mainstream day to day transactions if there’s an occasion for that.
Binance Coin (BNB)
The Binance coin was created by an exchange called Binance. It was originally developed on the Ethereum blockchain with the aim for it to be used as a token to fulfil fees incurred by traders on the Binance exchange during the course of their transactions. Today, however, it’s being put to more diverse use including making investments into select ICOs.
EOS is the cryptocurrency of the EOS blockchain. The EOS blockchain claims to have solved the most daunting challenge in the blockchain space which is scalability. This means that they would be able to process millions of transactions without trading fees. EOS currently manages up to 1667 transactions per second while Bitcoin manages only 7 transactions per second.
A private company called Block announced EOS in 2017.
Bitcoin Satoshi’s Vision is an offshoot of Bitcoin Cash. In 2018, the cryptocurrency created out of a Bitcoin fork, Bitcoin Cash, split into two producing Bitcoin SV on November 15, 2018.
Some Differences Between Crypto and Fiat Currency
The fastest way to grasp the concept of cryptocurrency is to place it beside the most common currency type that we’re all conversant with – paper money.
Fiat currency, that’s the paper money that we’re all used to, is different from cryptocurrencies in a lot of significant ways. Some of the differences include authority, the rules guiding them, currency circulation, and a number of other factors.
However, it’s also important to note that amidst all of these differences, Cryptocurrency shares certain remarkable qualities with fiat currency including being a medium of exchange, a unit of value and a unit of account. Like fiat currency, cryptocurrency can be used as a medium of exchange to buy and sell goods and services. In countries like Venezuela for instance, cryptocurrency is used for day to day transactions. As a unit of value, it can be saved, retrieved and exchanged at a later time. As a unit of account, it can be used as a measurement of value.
So, if fiat currency (paper money) shares all of these pivotal features with cryptocurrency, what are some of the distinctions that separate these two currency types and why do they matter?
Form: Cryptocurrency is virtual while fiat currency, largely physical, can exist as both physical and virtual currency.
Circulation: The supply of fiat currency is regulated by the government while that of cryptocurrency is not.
Inflation: Fiat currency is subject to inflation because there is no limit to the amount that can be minted while Cryptocurrency is subject to deflation because there’s a limit to the amount that can be mined in most cases.
Cross-border transactions: While fiat currency can only be used within the borders of a certain region where it is supported by the government of the region, cryptocurrency transcends borders. Crypto can be used to fulfil transactions anywhere in the world where it is accepted as a means of transaction.
What Makes Cryptocurrency Valuable?
Every cryptocurrency type has its own unique properties and functions. This, in a way, defines how much value it has.
The economic value of any given item is a direct reflection of the benefit that is derived from the use of that particular item. Its value is also related to the amount of money that people are willing to pay for it.
Thus, if we were to look at things from this perspective, when we talk about how valuable a cryptocurrency is, it would be from the standpoint of how beneficial it is and how much people are willing to pay for that particular cryptocurrency. But, when it comes to anything money, things are not always that simple.
To paint a more vivid picture, let’s take a quick look at fiat money.
If you take a close look at the history of money, you’ll find that when fiat currency first came into the picture, it was usually backed by a physical commodity like gold or silver to make it valuable. Without these commodities, currency was just pieces of paper or coins.
But today, fiat currency like the US dollar is legal tender declared by a government which is based on the relationship between demand and supply and the credit of the economy. The dollar bills do not have an intrinsic value of their own. It is only pieces of paper or coins made of low-value materials.
Cryptocurrency, on the other hand, gets its value from the balance of demand and supply. Supply simply refers to the amount of a given cryptocurrency that is available for purchase at a given period of time while demand is the desire that people have to own that cryptocurrency.
Some other aspects of value derived from the use of cryptocurrency are things like spending or giving it out as a gift, shopping with it and using it to transfer money across borders. In addition to this, several people derive value from the use of cryptocurrency because they are simply excited about the prospects of supporting new technology or simply being a part of it.
How to Start Using Cryptocurrency
Cryptocurrency is new money. But, like any novel invention, you may have felt bombarded with information on several occasions when all you wanted to know was what you could do with this thing. You wanted to know what benefits you could derive from it on a personal level and some of the risks involved too.
Here are a few ways you can start using cryptocurrency if you’re new to this space.
- To buy and sell: Cryptocurrency is money. What use case first comes to mind when you hear the word “money”? Buying and selling yeah? Cryptocurrency is the most widely accepted currency around the world which means you can spend it anywhere in the world where it is accepted as a means of payment.
- To send money across the border: Ever had a challenge with transferring funds to someone outside your country simply because they used a different type of fiat currency? You can achieve this in a few seconds with cryptocurrency. All you need to do is exchange your Naira for cryptocurrency, send the cryptocurrency to the recipient’s crypto wallet, and the recipient would exchange the cryptocurrency to their local currency on their select cryptocurrency exchange.
- Gift It: You could send cryptocurrency to that special person or anyone at all as a thoughtful gift.
- As a Financial Instrument: As a financial instrument, cryptocurrency can be invested in and traded.
Key Features of Cryptocurrency
There are certain features that distinguish cryptocurrency from other types of currencies. Understanding what these features how would help you identify a cryptocurrency even if you had to pick it out probing in the dark.
Decentralised / No Central Authority
Even though there are few centralized cryptocurrencies around today, most popular cryptocurrencies like Bitcoin, Bitcoin Cash, Litecoin, Ripple, Monero and Stellar are decentralized. In order words, as opposed to the central control that is familiar with fiat currency, transactions are validated and processed by a distributed network in the case of cryptocurrencies.
As mentioned earlier, blockchain technology is the technology that powers cryptocurrency.
People who use cryptocurrency can perform transactions without revealing their identity. This means that they can send and receive money without giving away who they are. This is attractive for many people and a turn off for others. Governments are concerned about the crime that could be perpetrated under such anonymity. If transactions can’t be traced to the individual, then, it means criminal activities can’t be tracked.
This is why on exchanges like Quidax, KYC is required to ensure that users are protected. KYC is also required on exchanges so that fraudulent transactions can be tracked and curbed.
Irreversible / Immutable (cannot be undone)
Transactions on the blockchain cannot be altered.
Limited supply and scarcity
For most cryptocurrency types such as Bitcoin, there’s a cap on the number of tokens that would be produced.
Eliminates the Third Party
Trust in other people or third party systems like the bank is not a requirement to carry out successful transactions on the blockchain. The blockchain makes it possible for individuals to carry out transactions without a central authority.
Transactions are Irreversible
Cryptocurrency transactions are recorded on the blockchain, a decentralised immutable ledger. This automatically translates to permanent records that can’t be altered or tampered with.
Cryptocurrency transactions are fast because they only require few steps to pull off a successful transaction irrespective of physical distance or geographical barrier.
Easy to Get Started
In the cryptocurrency network, getting started is as easy as signing up with an exchange in as little as 5 simple steps or less.
Where to Buy and Sell Cryptocurrency?
You can buy and sell cryptocurrency on a cryptocurrency exchange. A cryptocurrency exchange is a place where you can exchange one digital asset for another. This means that you can turn one type of cryptocurrency such as Bitcoin to another such as Litecoin. You can also turn fiat currency like the USD and Naira to a cryptocurrency like Bitcoin on an exchange that supports either of those fiat currencies.
To begin, it’s important to understand that there are different types of exchanges. Here’s a list of them:
- Instant Buy and Sell / Brokerage
This is by far the most convenient way to buy/sell cryptocurrency. All you need to do on a cryptocurrency exchange that offers this service is exchange one cryptocurrency for another or fiat currency for cryptocurrency or cryptocurrency for fiat currency in as little as 5 seconds. This exchange buys directly from you and sells directly to you. You can access the instant exchange service right here on Quidax.
- Order Book Exchange
The order book exchange automated. It works just like an order book i.e fulfilling orders. All you need to do is list your order to buy or your order to sell on the order book exchange and your order would be automatically fulfilled when there’s an order that matches the order that you have made. Like the instant exchange, the order book exchange is also available on Quidax.
- Peer-to-Peer Exchange
The peer-to-peer exchange acts as an escrow. On this exchange, you list your request to either buy or sell and connect with someone else who’s looking to buy if you’re looking to sell or sell if you’re looking to buy. As an escrow, what the exchange does it that it holds the cryptocurrency until you confirm that you have received money from the person you want to sell to. After you confirm that you have been paid, the escrow would release the cryptocurrency to them. This system is not entirely advisable for security reasons. The reason for this is a shady person could pretend to not have received any funds when in fact they have been paid which leaves the buyer without both his money and the cryptocurrency that s/he is looking to buy.
- Over-The-Counter (OTC)
The over-the-counter exchange is the most random exchange type. This type of exchange simply helps people who are looking to sell cryptocurrency find people who are looking to buy and vice versa. Traders are responsible for their transactions after this. This type is by far the riskiest because trading digital assets with a complete stranger can come with many costs including falling into the hands of fraudsters. Anyone could lie that they have something to sell when in fact they don’t and make away with your hard-earned money. If you would really like to trade directly with others, then, it’s advisable you stick to the peer-to-peer.
How to Start Trading Cryptocurrency
If you’re familiar with trading stocks and forex, cryptocurrency trading should be a walk in the park for you. But, if you aren’t familiar with trading any of those, you’re still in safe hands. Because with the fundamental things like a little knowledge of technical analysis and just the right amount of practice and patience you’d be well on your way to becoming a cryptocurrency trading expert.
While you’re at that, here are some simple steps to help you get started on Quidax:
- Create an account on Quidax
- Fund your Quidax Naira wallet using either the card payment option or a bank transfer.
- Decide which cryptocurrency you would like to buy
- Buy the cryptocurrency using either the “instant buy and sell” or the “order book” exchange.
It’s advisable to buy cryptocurrency in a bear market (when prices are low) and sell in a bull market (when prices are high).
As we’ve seen from all of these, cryptocurrency isn’t as complicated as it might appear from afar. With just the right amount of patience, you could be the expert at cryptocurrency that your friends and family refer to when they need a little help finding their way around.