The financial system has felt the pressure of the growth of the world of cryptocurrencies, which has been taking leaps and bounds. By now, the vast majority have already come across the term “cryptocurrency”, “blockchain” or even “XLM price”. That is why it is important to review some key aspects to understand the world of cryptocurrencies.
Multiple technological currents have transformed our daily lives: Cloud computing, also known as “the cloud”; the increasingly used artificial intelligence; the internet of things, which allows us to obtain data online; cybersecurity and the urgency of prioritizing it; and the blockchain phenomenon. Associated with this latest technology, the concept of “cryptocurrencies” is born, which have become an important investment alternative.
The origin of cryptocurrencies dates back to the 80s and 90s when different projects were developed that include specific characteristics that today constitute fundamental aspects of them. Years later, during the financial crisis of 2008, “bitcoin” was born, the first cryptocurrency, raised by the pseudonym “Satoshi Nakamoto”. Bitcoin is a decentralized P2P (peer-to-peer) protocol without intermediaries, which introduces the revolutionary concept of decentralization of information, thus seeking to democratize the financial market, making it independent of intermediaries and giving full control to the users themselves.
What are cryptocurrencies?
A cryptocurrency is nothing more than digital money intended to function as a medium of exchange. This means that there are no physical coins or bills, but rather everything is handled virtually through digital platforms.
They are defined in accounting jargon as “digital assets” and are created and distributed through an infrastructure known as the blockchain. Looking at it from a technical point of view, it is a chain of blocks that uses a cryptographic encryption system to ensure the integrity of transactions and allows their irrevocable registration, in a kind of open “accounting book”, made up of all the computers that are part of this network. How can we get cryptocurrencies? Basically in three ways: 1) Direct purchase from exchange houses; 2) Exchanges with a third party or 3) As payment through the coin data “mining” concept, where the miner is paid to process and validate network transaction data. Today, cryptocurrencies have become a fairly common trading commodity, as evidenced by the ease with which everyone can access a crypto trading platform. It is important to consider that mining also requires high computing capacity, considerable energy consumption, and transaction fee collection, among others.
How does the blockchain work?
To understand what it consists of, let us think of a network, where all the points or nodes that make it up are linked together and, therefore, share all the information contained in each one of them. There is not a single node that concentrates all the information of the network, but it is completely replicated in each one. Thus, to register information on the network, all nodes must agree. This gives you a level of security and independence that allows you not to need intermediaries since it is the network itself that manages itself and validates the veracity and security of its own transactions. By decentralizing the concentration of information, a whole network of inspectors gains, each of which has the complete figure available.
It is essential to point out that, unlike the traditional market and traditional payment systems, the fundamental characteristics of this technology on which cryptocurrencies are developed are:
How many cryptocurrencies and what are their functions?
Approximately, 10 thousand! Each of them with different functions. But not all crypto assets are just cryptocurrencies and not all need to have their own blockchain network or are used in the same way. Some examples of how they are classified are cryptocurrencies (used as a means of accumulating value or digital payment, just like traditional currencies), utility tokens (used to access products or services within a specific platform), shares (they are digital shares and represent the ownership of shares within a company), among others.
We hope this post was helpful for you to understand cryptocurrencies. Thank you for reading!