Introduction to Cryptocurrency

For those entertaining the idea that one day you’ll take up your life savings, invest them into your completely stable Dogecoin account, break lucky, and earn $10 million to buy a Bugatti and cruise down the Autobahn, never to be heard from again: sorry to tell you, but the reality of investing in cryptocurrency is nothing like that. It’s much more interesting.

There are many different types of cryptocurrencies, but the most recent one you’ve probably heard of is Ethereum. Ethereum is known for being highly volatile, and after an initial boom in popularity, has massively dropped in price. But what about older cryptocurrencies? What about the oldest cryptocurrency? How is it faring now? Well, as you may know, the first cryptocurrency was Bitcoin.

In 2009, when Satoshi Nakamoto published his paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” he set the bedrock for how every cryptocurrency would come to work. The paper explains that cryptocurrencies are designed around a ledger, containing all the transactions made by everyone who uses the currency. The ledger isn’t owned by anyone, so everyone has a version of it and transactions are protected under a digital signature that changes after a new one is made, for security purposes.

Every time someone makes a transaction, a new ledger is sent to everyone. To make sure everyone has the same ledger, each one has a different kind of stamp, called the “proof of work”, which shows that the ledger is authentic. Eventually people will have lists of ledgers all connected by the same proof of work, and these are called blockchains.

There are block creators or miners who find new blocks to add to the chain. You know you have the correct blockchain if you can trace it back to the very first transaction of the cryptocurrency.

To invest in cryptocurrency, you need an “exchange” and a “wallet.” Exchanges are privately owned platforms that make it easy to trade crypto. It is the most common way to transact crypto; however, there are two distinct types of exchanges: centralized and decentralized. Centralized exchanges are similar to banks and use intermediaries to complete transactions and make money through commissions and fees. Decentralized exchanges do not use intermediaries.

You must also have a digital wallet. A digital wallet doesn’t keep your cryptocurrencies; it has a private key that allows you to access them. Your cryptocurrencies are on the blockchain.

The technologies involved in cryptocurrency are innovative, utilizing cryptography and a decentralized investment system that doesn’t need a bank or intermediary to function. Because of the security and convenience of cryptocurrency, many have said that it will become the currency of the future. However, with a new cryptocurrency developing every day, no one knows whether it will revolutionize the world or fade away into the annals of time as another one of those strange concepts people pursued.