What is a Cryptocurrency? There are likely countless definitions out there, some valid some not. The basic premise for a digital coin technology, is that it be provably able to serve people as a store of value (and enable exchange of value). This must also be done in a provably fair and incorruptible manner. Cryptocurrencies must limit the rate at which they are produced, just like government printed money. They do all this via a shared record of transactions called the blockchain. The blockchain can be considered how the bank considers a ledger. A bank can issue money, and record its deposits, withdrawals, and loans on a ledger. Therefore the simplest way to think of the blockchain, is to consider it as a digital ledger. Unlike traditional bank ledgers however, blockchains are completely tamperproof, and in most cases (by definition) should not be owned by a single entity or corporation. Blockchains are the heart of every cryptocurrency, they manage their coin supply and economy, just like a central bank manages monetary supply and policies. The questions come when traditional authorities want to get a grip with how to regulate these technologies which are not tied to ‘traditional’ large corporate entities (that can be held liable). Often you will see foundations and non-profits setup to try and bridge this gap in order to serve members and stakeholders in decentralized blockchain led communities.
Blockchain Technology and Cryptocurrency Represents A World of Possibilities
You can pay for goods and services with cryptocurrency. Any merchant that has their own digital wallet can accept cryptocurrency payments from customers without needing middlemen. Both parties to a trade know that the blockchain is secure and immutable, and will handle making the public record of transaction. All this happens for tiny processing fees or in some cases, zero fees. Cryptocurrency is able to be sent worldwide, in a matter of seconds, without relying on banks or financial institutions. This reason alone means many international corporations are looking towards blockchain as a way to transact with one another.
Blockchain transactions are almost impossible to fake, double, or reverse once committed. Cryptocurrency can also represent more than just traditional fiat paper notes and metal coins. They can also be tokens representing utility value or shares in an organization. ‘Smart Contracts’ can be used in place of traditional legal documentation (deed transfer of property, precious metal holdings, insurance policy, even work contracts and more). ‘Delegated Proof of Stake’ or DPOS blockchains, (such as BitShares) use voting algorithms that provide the technology for humans to perform accounting and make decisions in a democratic and trust less manner.
The Global Paradigm Shift to Blockchain
The concept of the Blockchain was also the most ingenious part of the original Bitcoin paper in 2009. The anonymous inventor or group of inventors going by the name Satoshi Nakamoto first came up with Bitcoin, and their real identity is still unknown. Bitcoin was the first viable proposal for cryptocurrency as we know it. In 2019 there are over 2000 cryptocurrencies, too many of which fail to display real purpose other than being in it for the gold rush factor, or forks of existing chains with limited added purpose or utility. As a new and hyped market, people look for the quick money. Don’t throw your caution to the wind. Work carefully with cryptocurrencies, to find ones that have true purpose and intent.
There are perhaps just a few dozen real viable blockchain and cryptocurrency projects out there as the tech strives to become more widely adopted and relevant to a larger base of users, whether business, industry, or the public in general. We expect to see all this revealed in coming years. For the beginner, the trick is to just make sure the cryptocurrency you take interest is actually something with a purpose – not just speculation.
You don’t need be an expert to analyze a project listed on coinmarketcap.com. As the final part of this cryptocurrency beginner article, here is a few things to look into for any project you might look at in the digital space*:
- Is it a technology you can try today?
- Does it work as intended?
- Are many other people using it? (or would they be?)
- Does it have market trading volume?
- Does it have a white paper that makes sense?
- Can I purchase and then actually use the tokens to do something or pay for some service?
You could say the same things for any kind of investment … common sense rules!
*Not investment advice