There seems to be a misconception out there about some of the terms in the Cryptocurrency space and what they actually mean so in this post I am going to dig into what cryptocurrencies really are and I will also talk about Bitcoin, Altcoins, blockchain, ICO’s and many other aspects. I will give a small bit of info on each topic in this post and then I will dig deeper into each topic separately in a full post and video as each topic is huge. Them posts will be linked from this post after I have published them.
What Are Cryptocurrencies?
Cryptocurrencies are ground breaking internet technologies where money is only one of the applications. Alot of people who are new to the concept think money is the only application as it is one of the most common uses so far and was one of the first uses but the monetary aspects is only the tip of the iceberg when it comes to bitcoin and other altcoins which I will discuss further down. At their core they are technology companies and the technology behind their coin and blockchain can offer a wide range of applications in all aspects of your life. The first Cryptocurrency was Bitcoin.
What is Bitcoin?
Some people think bitcoin is Cryptocurrency and use the term bitcoin when they are actually talking about the topic cryptocurrencies. I can see why as bitcoin was the first Cryptocurrency and is definitely the most widely known coin but as you will find out further down there are 100s of other coins which are called AltCoins. Bitcoin first appeared online back in 2009 by an unknown programmer or group of programmers under the name Satoshi Nakamoto as a peer to peer form of transactions. Before I explain it lets look at how transactions were traditionally done.
The Money side
A long time ago we started out with the barter system where you exchange 1 something for something else eg 1 cow for 4 sheep or something like that. Then we moved on to money which was created to facilitate trade and over the years trade has become very complex as we trade with people all over the world. These trades or transactions are recorded in bookkeeping which is often closed off to the public and for this reason we use third parties like banks or governments to keep track and they are known as “trusted third parties”. Yes these institutes make sure things are done correctly but they also create alot of delays and make things difficult for people trying to send and receive money.
Bitcoin and their blockchain technology were the first to introduce an alternative to this age old form of exchange. They introduced the idea of using a network of computers to maintain a collective book keeping system via the internet which is neither closed or under the control of one party but rather in one digital ledger which is distributed across the network and this is called the Blockchain. In simple terms this was a system of peer to peer transactions where transactions take place directly between the users hence cutting out the trusted 3rd parties and they are regulated and confirmed on the blockchain.
Full Post Coming Soon to Expand on Bitcoin and go more in depth
What is The Blockchain?
The blockchain is basically a decentralized database that is used to maintain the continuously growing list of records which are referred to as blocks. With the blockchain all transactions are logged with the time, date, participants and the amounts for that transaction with each node or computer system on the blockchain containing a copy of the transaction. The transactions are verified by the miners who maintain the ledger with the complex maths algorithms constantly verifying each transaction to make sure they are legitimate. For a transaction to approved it needs to be approved by all nodes on the network. If anyone attempts to corrupt a transaction the nodes wont arrive at a conciseness so the transaction will not be accepted, this is why we can always trust the blockchain as no one person has control.
Blockchain Uses Outside of Money
The ledger doesn’t care what each bitcoin or altcoin is worth and so users can decide for themselves what a unit of that particular coin is worth. It could be worth a euro value, a unit of energy, 100 barrels of oil, a share in a company or even a vote in an election. You can have anything you want coded into the currency ranging from rules that if its not used within a certain time frame then it gets returned to the original source right up to coins dedicated to particular services where that coin can only be used for that use. Examples of dedicated uses are where you can have a food allowance where you can only use that allowance at certain places for food. Within companies they could use it to specify that certain amounts of money is only spend on certain sections like salaries, machinery or materials so them budgets can’t be spent on other things. All of this leads to a decrease in bureaucracy and safes accountants and controllers a considerable amount of time as everything is logged on the blockchain and can be retrieved at any time. We are also seeing alot of startups in the gaming industry using blockchain technology to help gamify the experience of their users.
Full Post Coming Soon to Expand on the blockchain as it is a huge topic
What Are AltCoins?
Altcoins (Alternative Coins) refer to all cryptocurrencies that are not Bitcoin and currently as I write this post there are 700+ and growing everyday. In reality there are only about 10-20 major players in the marketplace but there are new companies coming along each day. All Altcoins are created by tech companies and are based on using blockchain technology just like Bitcoin. What alot of them try to do is target and improve upon perceived limitations within Bitcoin which some of them like Ethereum do very well. In my view some of the Altcoins are definitely better in certain aspects than Bitcoin but as Bitcoin was the first to market it is currently the market leader and is becoming a trusted form of exchange even with people that were very skeptical at first. You can take a look at CoinMarketCap.com to see a list of all of the currencies that are currently active. This is an interesting site to see how the currencies are moving every day. You will see some crazy spikes and drops in coins on a daily basis which you would never see in any other type of trading.
Full Post Coming Soon to Expand on this as Altcoins is a huge topic
There are many different types of wallets to store your coins in which I will explain in a more detailed post later but when you break it down the 3 most popular forms of wallets are below.
- Online Web Wallet – Wallets like CoinBase.com, Blockchain.info and many more where everything is stored online and you can access it from any device.
- Mobile Wallet – You can set up your wallet on your mobile device such as a smart phone or iPad but security is questionable as they can be restored onto another device if you lose your phone.
- Hardware Wallet – With a hardware wallet you actually have a physical device usually a type of USB device that can be used to store your bitcoins and altcoins offline. People with bigger amounts of coins like to use hardware wallets as with these noone else can get access to your coins. Examples of these are wallets like the Ledger Nano S.
There are many advantages and disadvantages to all types of wallets ranging from security to ease of access. With the online wallets some of these also act as exchanges for some of the more popular coins like Bitcoin, Ethereum and Litecoin but again I will dig into these when I do a full post dedicated to Cryptocurrency wallets.
Cryptocurrency exchanges are places that allow you to buy and sell all types of coins from Bitcoin to Altcoins. 2 of the exchanges that I currently use are Poloniex.com and bittrex.com. There are many others like Kraken, Bitstamp, bitshares etc but for the purposes of my first few videos I will concentrate on the first 2 to show you how to buy and sell coins on them. Some coins will be on all exchanges and some might only be on 1 or 2 so depending on the coin you want to buy you might need to use a specific exchange. The general practice for using the exchange is that you transfer in your BTC (Bitcoin) and then use this to buy certain amounts of the altcoins. The cryptocurrency marketplace is a volatile market so its not uncommon to see coins moving by 10% to 100% in a 24hour period. This can work for and against you as if it goes in your favor awesome but if it goes against you then you can lose it all. below is a screenshot taken from Bittrex to show you what it looks like. I will explain this screenshot in a video when I do a full post on the exchanges but in brief this screenshot shows the Ethereum coin (ETH) over a week time-frame with 2Hour candles, on the right hand side you have a list of all the coins with their current value against Bitcoin, their volume and also the percentage change in the last 24hrs. Further down which you can’t see in this screenshot you have all the options to buy and sell this coin.
Other Useful Terms to Understand
ICO – This means Initial Coin Offering and it is where anyone can buy coins from a new startup before it hits the exchanges. Cryptocurrency startups do this when they want to raise money in early development stage. With most ICO’s you will be able to read the companies whitepaper which will outline what the project is about. An ICO is similar to an IPO (Initial Public Offering) but there are alot less restrictions on an ICO and startups can use these to bypass alot of the rigorous requirements required for an IPO or when raising money through the banks. If you pick the right ICO you could make big big money or if you pick the wrong one you could lose your money so all about research here.
Mining – Mining is used to describe the process of discovering and solving blocks along the blockchain and the person who solves the block is rewarded with a payment. Some people use their own computers to mine bitcoin but you need a special setup for this so alot of people who are interested in earning money through mining buy contracts through specialized companies which I will talk about in another post
Smart Contract – A smart Contract is an unalterable agreement which is stored on the blockchain and executes the terms of the contract based on the contractual conditions that are agreed at the start. It can be used for things like automatically releasing the money due from an agreement upon completion of the terms. It is also a complete digital record of the transaction and is been used for things like land registry in some countries to verify land rights. They also offer superior security to traditional contract laws and reduce the costs associated with getting contracts drawn up.
Conclusion on my Cryptocurrency 101 Introduction
I really hope this post has been useful to you. As time goes on I will add some info here and I will also link to the other articles which will go into more detail on each of the topics above. This space is continually changing and growing but I feel this post will help give you a good understanding of the basics.
Let me know down below in the comments if you have any questions or opinions on this post and also feel free to SHARE this post to help spread the word.