When Satoshi Nakamoto created Bitcoin in 2009, he also created the first blockchain network. Today, there are thousands of different blockchains and cryptocurrencies in the world. So what is a blockchain and what is a cryptocurrency? In this post, we will talk about cryptocurrency.
What is Cryptocurrency?
Cryptocurrency, like traditional currencies, can be used to buy goods and services. However, there are key differences between the two. One of the biggest differences is that cryptocurrencies, such as Bitcoin or Ethereum, are decentralized and not controlled by any government or financial institution. They are based on cryptography and blockchain technology, which provides a high level of security and transparency.
To store and manage your cryptocurrency, you can use a digital wallet, also known as a crypto wallet. There are different types of crypto wallets, including hardware wallets and cold wallets, which are considered to be the most secure. A hardware wallet is a physical device that stores your private keys offline, making it more difficult for hackers to access your funds. A cold wallet is also an offline wallet, but it can refer to any wallet that is not connected to the internet, such as a paper wallet.
Another difference between fiat currencies and cryptocurrencies is their nature. Cryptocurrencies are digital and operate on a peer-to-peer network, whereas fiat currencies are physical and centralized. Cryptocurrencies are also valid and can be used in any part of the world, while the validity of fiat currencies is limited to the country or region where they are issued.
Finally, one of the most important features of cryptocurrencies is their traceability and immutability. Every transaction on the blockchain is recorded and cannot be altered or deleted, making it highly transparent and secure. This is why it is essential to keep your private keys secure using a hardware or cold wallet, to prevent unauthorized access to your funds.
Control: Fiat currencies are centralized and are usually under control of central authorities, ie the Federal Reserve. Cryptocurrencies are decentralized and are governed by majority rules. Majority rule is a decision rule that selects alternatives which have a majority, that is, more than half the votes or as in Blockchain, more than half of the users.
Nature: Fiat currencies are local and country-specific, meaning you can only use USD in the US and Euro in the EU, unless you exchange them. Same goes for international purchases; you need to pay exchange fees. However, for cryptocurrencies, it is global and borderless. You can transfer cryptocurrencies to anyone, anywhere, sometimes even instantly. The network fee or gas fee that occured with the transaction is paid towards miners on the blockchain, and it can be much lower than any foreign exchange fees.
Validity: You need an intermediary or a third party, like a bank, to verify and check your transactions for fiat currency. But for cryptocurrencies, all transactions are done peer-to-peer and all of the transactions are verified by the blockchain itself.
Traceability: One of the biggest advantages of cryptocurrency is anonymity; the only thing people will be able to see is your public address. However, fiat currency is traceable and since it’s verified by banks, transactions can be traced by your name or personal identity.
Immutability (Fixed, unchangeable): Once a cryptocurrency transaction is made, it is irreversible, thus preventing fraud. For a fiat currency transaction, you can do chargebacks by calling your bank and have them cancel a transaction.
As of 2021, there are over 10,000 different types of cryptocurrencies and they can be divided into two types: coins or tokens.
