Cryptocurrencies for Dummies I - What is a Cryptocurrency?

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History of Cryptocurrencies

The first step in our journey involves understanding the basics of cryptocurrencies as a whole. As an investor, you never want to invest in something you know nothing about. The more you can learn the better you will do in this realm. There’s a lot to know, but you can quickly become familiar with the topic. Firstly, we want to understand why cryptocurrencies were invented and how they have evolved.

Bitcoin was created in 2009 by someone or a group of people with the pen name “Satoshi Nakamoto.” The goal for bitcoin was to create a peer-to-peer cash system that could replace the financial system in place. Central banks that control the current system have a history of manipulating markets, and regularly causing recessions or depressions. These manipulations are wrong and cause a lot of un necessary trouble for regular people of the world.

Cryptocurrencies work upon the principle of decentralization. This allows the currency to operate without a central authority authorizing transactions or manipulating currency supply. The technology is still relatively young, but it has the potential to be a game changer for the entire world. No one has a crystal ball to tell the future of cryptocurrencies, but the future potential of the technology looks very bright.

What’s the Value of Cryptocurrency?

Bitcoin originally was created to facilitate transactions on the network. However, with high fees and slow transaction times, bitcoin has moved to a new category of value. Some cryptocurrencies act as a store of value. People buy the coins to try to earn money from them appreciating in value. You could compare these currencies to gold, they act as a store of value. This is one of the three main types of value that cryptocurrencies can provide.

The original intent for the invention of cryptocurrencies was facilitation of transactions. With so many different currencies being around now, different ones serve different purposes. Almost all cryptos could be used in transactions, but some are far superior in this function than others. Transaction currencies ideally need to have fast transaction times and minimal fees. This allows for small micropayments that don’t suck up many fees to occur. Some examples of platforms that can serve this purpose are IOTA, ZCASH, and Bitcoin Cash.

The final type of cryptocurrency we will cover here are application tokens. These projects use their tokens and platform as a basis for other applications. Business applications, games, and new networks can all be built upon these platforms. These applications are also sometimes referred to as decentralized applications (DAPPS). Application tokens are becoming very popular, they can be used in almost all areas of the economy today. Some projects that can fall into this category include NULS, Ethereum, and IOTA’s Qubic Project.

Keep in mind that most cryptocurrencies don’t just fall into one category. For example, almost all application tokens can also serve as transaction currencies. When researching new cryptocurrencies just make sure to investigate their niche, and make sure they serve some purpose in the world.

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Cryptocurrency Technology

Cryptocurrencies are based upon decentralized distributed ledger technology. The most commonly used type for cryptos is called the blockchain. Every user on the blockchain is equal to the other. Users can send and receive tokens or coins in blocks on the network which make up the block chain. Each block typically contains user wallet ids, token amounts, confirmations, and transaction ids. Their transaction request is sent to all the nodes in the network where it is to be confirmed by other users on the network.

The technology known to be secure because each node in the network (users) has a copy of the blockchain. One user can not randomly change the network at one point due to this distribution. Any change in the blockchain must be validated by multiple points on the network. Blockchains are a great subject with a lot to learn about. Our next post in the cryptocurrency for dummies series will be about blockchain technology specifically.

I appreciate you guys reading one of my first posts in the Cryptocurrencies for Dummies series. All suggestions and comments are welcome below! Please upvote and resteem so other people can check out our work.

Click this link to go to part II of the series!
Cryptocurrencies for Dummies Part II

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