The word cryptocurrency was coined from two words, Cryptography, and Currency. In simple terms, cryptocurrency is a digital currency designed to serve the primary purpose of money; a medium of exchange. Cryptocurrency uses cryptography to secure and authenticate transactions and manage the creation and distribution of new units of a particular cryptocurrency.
Blockchain is the backbone of many cryptocurrencies. Blockchain technology is an advanced database mechanism that allows transparent information sharing within a business network. A blockchain database stores data in blocks linked together in a chain. Blockchain is a distributed ledger of cryptocurrency transactions distributed across nodes of numerous computer networks. The major difference between cryptocurrency and fiat currency like the US dollar or the Nigeria naira is the absence of any central authority or regulatory body charged with issuing them. The absence of a controlling body in cryptocurrency makes it impervious to government manipulation or intervention.
This article will discuss various concepts of cryptocurrency to help you understand the novel financial innovation.
How Does Cryptocurrency Work?
Cryptocurrency operates on the principles of decentralized digital currency and cryptography. Here’s a simplified explanation of how it works:
1. Blockchain Technology: Cryptocurrencies are built on blockchain technology, a distributed ledger maintained by a network of computers called nodes. This technology ensures transparency, security, and immutability of transactions.
2. Digital Tokens: Cryptocurrencies are represented as digital tokens that can be created, stored, and transferred electronically. Each token represents a unit of value within the specific cryptocurrency system.
3. Decentralization: Cryptocurrencies are decentralized, unlike traditional fiat currencies issued and regulated by central authorities like banks or governments. They rely on cryptographic techniques to secure transactions and control the creation of new units.
4. Cryptographic Security: Cryptography is used to secure transactions and control the creation of new units. It involves complex mathematical algorithms to encode and protect the information.
5. Consensus Mechanisms: Cryptocurrencies use consensus mechanisms to validate and verify transactions on the blockchain. Popular mechanisms include Proof of Work (PoW) and Proof of Stake (PoS), among others, ensuring the transaction history’s accuracy and integrity.
6. Wallets: Cryptocurrency wallets are used to store, send, and receive digital tokens. Wallets can be software-based (such as desktop or mobile applications) or hardware devices specially designed for secure storage.
7. Anonymity and Privacy: While transactions on the blockchain are transparent and can be viewed by anyone, the participants’ identities are generally pseudonymous. This offers a certain level of privacy, although the degree of anonymity varies depending on the cryptocurrency and its associated protocols.
8. Mining and Rewards: Some cryptocurrencies, like Bitcoin, use mining as a way to add new transactions to the blockchain. Miners compete to solve complex mathematical problems, and when successful, they are rewarded with new cryptocurrency tokens as an incentive for their computational efforts.
What is Bitcoin?
Bitcoin is the first successful attempt at creating a decentralized digital currency. Bitcoin was created by Satoshi Nakamoto, a pseudonymous character, in 2009. At launch, Bitcoin was worth around $0.0001 and was mainly used by cryptography fans. They send BTC to each other through Bitcoin Wallet as a hobby.
It is worth knowing that Bitcoin has a total supply of 21 million. The current amount of total Bitcoin in circulation is 19,380,362 BTC.
Brief History of Bitcoin
Bitcoin’s history is characterized by its volatile price movements, technological advancements, regulatory challenges, and growing interest from various sectors. It has sparked a broader interest in cryptocurrencies and blockchain technology, leading to the emergence of thousands of alternative cryptocurrencies and innovative blockchain applications.
– In the early years, Bitcoin gained attention within a small community of enthusiasts and technologists. In 2010, the first real-world Bitcoin transaction occurred when Laszlo Hanyecz famously purchased two pizzas for 10,000 Bitcoins. This transaction is the perfect depiction of Bitcoin’s worth then. 10,000 BTC for two pizzas, using today’s exchange rate of around $26,000 for 1 BTC, now do the conversion to your local currency. That was only enough to buy two pizzas then!
– Expansion and Market Growth: Bitcoin started to gain wider recognition and adoption. Bitcoin exchanges were established to facilitate the buying and selling of bitcoins. By 2013, Bitcoin reached a significant milestone as its price surged to over $1,000 for the first time.
– Volatility and Mt. Gox: Bitcoin’s price experienced extreme volatility during its early years. In 2014, one of the largest Bitcoin exchanges at the time, Mt. Gox, filed for bankruptcy following a significant security breach and loss of hundreds of thousands of bitcoins.
– Maturing Infrastructure: Despite the setbacks, the Bitcoin ecosystem continued to develop. More regulated and secure exchanges emerged, providing improved infrastructure for buying, selling, and storing bitcoins. Bitcoin ATMs also started to appear in various locations globally.
– Mainstream Recognition and Price Surge: In 2017, Bitcoin witnessed a remarkable bull run, attracting widespread attention and media coverage. Its price soared to nearly $20,000 in December 2017 but subsequently experienced a significant correction.
Types Of Cryptocurrency
Apart from Bitcoin, there are other types of cryptocurrencies called Altcoin.
“Altcoin” refers to any blockchain-based cryptocurrency that isn’t Bitcoin. The term “altcoin” was coined as a shorthand for “alternative to Bitcoin,” and the vast majority of altcoins were created to improve Bitcoin somehow.
Today, there are far over 5000 cryptocurrencies, and while you may never hear of many of them, others have become so well-known that you will hear about them in discussions about crypto trading. Some include Ripple (XRP), Dogecoin, BNB, Litecoin (LTC), Ethereum, and USD Coin (USDC) are examples of altcoins.
We live in an exhilarating era where cryptocurrencies and blockchain technology present vast growth prospects across multiple sectors, promising to enhance the lives of countless individuals. Dart Africa is excited to be part of this transformative era. We aim to empower Africans by facilitating the adoption of cryptocurrencies. Our platform provides a simple and convenient way to sell Bitcoin and other cryptocurrencies for naira and cedi. We are committed to making it easy to trade cryptocurrencies for cash, and we’re thrilled to be part of crypto’s positive impact on people’s lives.