Introduction to cryptocurrencies
Two things that we can all agree on in 2021 are that we have to learn to live with Covid-19 and that avocados are increasingly gaining global acceptance. I can add a third one that those who continue to ignore cryptocurrencies risk ‘being left behind,’ if the statement by Mr. Ravi Menon, managing director of the Monetary Authority of Singapore is anything to go by.
Cryptocurrencies have become a global phenomenon, known by many but understood by few. There is a lot of hype going on about crypto. To say the least, you are likely to find a lot of information about crypto through a simple online search and might wonder which one to rely on. Also, many people claim to be experts in that field. I will let you be the judge. This article aims to simplify information about cryptocurrencies and blockchain.
So, what is a cryptocurrency? Cryptocurrencies are digital assets or currencies that are hard to double-spend or create counterfeits. Like real money, you can use cryptocurrency to purchase items. You can also receive crypto in exchange for your services.
There is always a process to progress. So how did we get here? Let us walk down memory lane and remind ourselves about the evolution of money. From barter to commodity money to ancient coins to precious metals (gold, silver, and copper) to paper money to electronic money to crypto. It has been a journey!
Cryptography is a method that protects information and communication so that only the intended recipient can read the information, making double-spending of crypto almost impossible.
Blockchain is the technology that allows cryptocurrencies to exist. It is a distributed database of immutable time-stamped series of record data managed by a cluster of nodes (computers). A distributed/decentralized database outperforms traditional ones mainly because it is more secure.
A study by IBM shows that in 2021, data breach costs rose from USD 3.86 to USD 4.24 million, the highest in the 17-year history of the report. To curb this trend, adopting decentralized databases and blockchain is the way to go.
It is important to introduce and mention crypto coins and tokens and their main difference at this moment. Coins such as Bitcoin represent digital money and operate on their blockchain. On the other hand, tokens such as ADB, are digital assets that do not have their blockchain. They operate on the blockchain of other coins.
Key features of cryptocurrencies include:
i) Operate on decentralized network-cryptocurrencies can be accessed on different nodes in different locations. Government or banks cannot control transactions.
ii) Cryptocurrencies are available only on digital platforms-do not exist in physical forms.
iii) Keep transactions anonymous-Encryption helps hide the identity of people involved in the transaction. Only the address of the transaction is revealed.
iv) Permanency –transactions are recorded on the blockchain and cannot be reversed.
v) Limited supply-unlike Fiat currencies (money issued by central banks) that have an unlimited supply, most of the cryptocurrencies have a limited supply. For example, Bitcoin is capped at 21 million.
One should not consider Cryptocurrencies as an investment, or a quick way to riches. Participating in the crypto space should be viewed as a journey of speculative exploration and having fun while at it.
Whether or not one should own a share of the leading crypto- Bitcoin, a stable token such as ADB or choose to watch from the sidelines, should be informed by own research. Remember when you make decisions, the decisions you make, make you.
Always remember that cryptocurrencies are risky and highly volatile products. Although there are many opportunities to be tapped in crypto, it is advisable to understand the nitty-gritty before diversifying your portfolio into crypto.
The writer is the Marketing Coordinator at Adbank. Earn #freecrypto with the #BLADE app.