Nowadays a lot of attention is concentrated on blockchain technologies. They give new opportunities to businesses and other people. It is time to understand what it is!
What is blockchain?
Blockchain is a shared database. It is run by a lot of people. That’s why it is called ‘shared’.
Basically, blockchain is a spreadsheet duplicated across the network thousands of times. Blockchain stores identical blocks of information across its network. The blockchain database is decentralized. That means that there’s no one location to store information. That makes records truly public.
Initially, blockchain is believed to be a creation of Satoshi Nakamoto, a person or a group of people who invented Bitcoin. Since then it became so much greater.
What is cryptocurrency?
Let’s start with the word “cryptocurrency” itself. When everything is pretty clear with “currency” the prefix “crypto” may raise some questions. “Crypto” stands for “cryptography”. It has everything to do with the technology that keeps information hidden and safe. Anonymity and safety are two the most important features when talking about cryptocurrencies.
Cryptocurrencies started with the invention of Satoshi Nakamoto. He created a decentralized digital cash system. The idea was to create a peer-to-peer network to transfer digital cash. Just like peer-to-peer file sharing systems.
To use digital cash there must be a whole system. It must have accounts, balances, and a transaction. Just like the well-known bank system. And also there is a server which solves the most important problem of double spending. If all the parts of the system are in consensus, you can make a transaction. If there is a center, it is easy to get the confirmation. But what if the system is decentralized? Cryptocurrencies help to solve it.
To put it in a very simple way cryptocurrencies are limited entries in a database no one can change without fulfilling specific conditions.
To make a comparison with a physical world cryptocurrencies are very similar to money. But is it all it can be?
Coins and tokens – what’s the difference?
There are two types of сryptocurrencies: coins and tokens. Let’s see what is the difference.
First of all, coins and tokens are units of blockchain value. That’s the similarity.
Now let’s talk about their differences.
Coins are basically currency of cryptoworld. They are used to enable businesses and other users to pay for services. Their job is to be money.
Tokens also have value, but they have more functions. They can deliver value to investors or hold votes by the community.
Types of cryptocurrencies
- Why are there so many cryptocurrencies?
When you only start to get to know the cryptoworld you may be surprised with the quantity of cryptocurrencies. Maybe exactly this may let you think that it is very complicated. But we already know that cryptocurrencies have a lot of functions, it is not only digital money. So basically now developers can create different cryptocurrencies for different functionalities. Blockchain technology allows to do so.
To sum up there are some cryptocurrencies that can be used as fiat. There are others that have different functions. And there are cryptocurrencies that develop as a whole infrastructure. Let’s take a better look at them.
- What are the types of cryptocurrencies?
Everything began with Bitcoin. The story of Bitcoin started in 2008 when the whitepaper was published. Back then Bitcoin was used to trade goods and services. To make it simple Bitcoin is a digital currency. What makes it different from the fiat money is that it is decentralized.
All the cryptocurrencies that appeared after Bitcoin are called altcoins.
There are more than 1,000 altcoins. Some of them are very similar to Bitcoin. Others have their peculiarities. Some altcoins use a different protocol. For example, PoS (Proof of Stake). In this case, there are no miners. Instead, there are stakers. As well as miners stakers verify transactions. The difference is there is no necessity to verify a block before anyone else. They act in turns.
There are also some cryptocurrencies that were designed as platforms. For example, Ethereum or NEO. Due to Ethereum’s developers, these platforms have a special technology. It is called “smart contracts”. The most important feature of this technology is that they automatically execute transactions. Now there is no need in the third party not just in direct payments, but in a lot of things. For example, selling a house.
So even though there are a lot of cryptocurrencies, it is easy to understand cryptoworld when you know the basics.
We hope this article was useful and helped you to understand cryptoworld better. Now using the information from this article you can easily start your journey into cryptoworld. If you need more information please check out other articles on our Medium.
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