Cryptocurrency has been at the center of financial discussions for several years. But what is a cryptocurrency ? How does it work? What technology is it based on and what is its impact on the global economy? This article reveals everything you need to know to understand the world of cryptos.
Table of contents
History and evolution of cryptocurrency
The beginnings with Bitcoin
Bitcoin , the first cryptocurrency, appeared in 2009. It was created by a certain Satoshi Nakamoto . At that time, online transactions depended almost exclusively on banks and other financial institutions to guarantee their security. These institutions acting as a trusted third party, involving high fees and risks, as they had the power to block or revise transactions. In addition, some banks with poor heritage management that is entrusted to them can fall into bankruptcy during an economic crisis, endangering the security of individual funds.
In his white paper, Nakamoto described Bitcoin as a new form of electronic currency, designed to operate without intermediaries. Thanks to a system of proof of work and a decentralized structure, Bitcoin allows two people to make a transaction directly, without bank or other central authority. This system makes transactions almost impossible to manipulate or cancel, because each exchange is permanently recorded on a chain of blocks (blockchain). In response to central banking practices, which can create money unlimited, Nakamoto has limited Bitcoin's offer, in order to create a stable and resilient digital currency.
The evolution towards thousands of cryptocurrencies: a decentralized economy expanding
Today, there are thousands of cryptocurrencies, each having a specific utility and role within the digital ecosystem. These cryptocurrencies can be grouped into different categories, such as project -focused projects of basic blockchain, solutions to improve the speed and cost of transactions, or applications for decentralized finance ( DEFI ), artificial intelligence, data storage, and much more.
Depending on the category, the token (or token) of a project fulfills a specific and unique function within its ecosystem. For example, Ether (ETH) is the token used on Ethereum : it is used to pay the transaction costs to interact with decentralized applications, thus ensuring the proper functioning of the network. Other tokens, such as the TAO in the Bittensor , are used to reward participants who contribute to learning and sharing artificial intelligence models, thus promoting the development of a decentralized machine learning infrastructure. All these tokens are exchangeable from peer to peer, that is to say directly between users without intermediaries, on different blockchains, creating a complete and decentralized economy.
This diversity creates a complete decentralized economy where transactions and exchanges are made without centralized institutions, allowing everyone to access a wide range of services and investment possibilities in the world of cryptocurrencies.
What is a cryptocurrency?
Simple definition of cryptocurrency
A cryptocurrency is a digital currency that is based on cryptography to secure transactions and control the creation of new units. Unlike conventional currencies like the euro or the dollar, cryptocurrencies are decentralized and are not controlled by a central bank.
The difference with traditional currencies
Cryptocurrencies are neither physical nor issued by governments. Instead, they operate on a blockchain , a technology that records each transaction in a secure and immutable manner. Thus, having cryptocurrencies means having an independent monetary value of banks and governments.
How does cryptocurrency work?
Blockchain and secure transactions
Blockchain is the central element of cryptocurrencies, serving as a public and decentralized register where each transaction is recorded transparent and securely. To guarantee the validity of transactions, blockchains use different consensus mechanisms, that is to say methods to verify and approve exchanges without the need for an intermediary.
Among the best -known consensus mechanisms, we find proof of work ( Proof of Work ), where the "minors" resolve complex calculations to validate transactions, and proof of stake ( Proof of Stake ), which is based on validators involving a part of their cryptocurrencies to secure the network. Each system contributes to the reliability of the blockchain, ensuring the safety of transactions while maintaining the integrity of the decentralized register.
Digital portfolios: keep your cryptos
The easiest way to buy cryptocurrencies is to go through centralized exchanges like Binance, Coinbase or Crypto.com.
However, when you buy cryptos on these platforms, it is they who really hold your assets, a bit like a bank that promises to return funds from your bank account. This means that your cryptocurrencies are not decentralized, which limits your direct control.
To fully own your cryptocurrencies in a decentralized and completely autonomous way, it is useful to use a digital portfolio (or wallet). However, this requires a little more technical knowledge. This requires knowing how to transfer cryptocurrencies from one public address to another using a single network (also called blockchain).
More information here
This portfolio can be a hot wallet (permanently connected software, ideal for frequent transactions) or a cold wallet (disconnected hardware device, more secure for long -term storage). Each portfolio contains a public key (like an IBAN, to receive funds) and a private key (like a secret password), which are necessary to access and manage your assets safely.
The main cryptocurrencies and their uses
Bitcoin, Ethereum, and the others
Bitcoin is often compared to digital gold, mainly used as a reserve of value. Ethereum , on the other hand, has brought a major innovation with smart contract ( or intelligent contracts): autonomous programs executed automatically on blockchain, without human intervention, once the conditions specified. This technology makes it possible to host decentralized applications ( DApp S ) and has paved the way for many uses.
For example, on Ethereum , applications such as Drift (decentralized trading), Aave (loan platform) or Opensea (NFT market) operate thanks to smart contract s.
Take the case of an insurance application: suppose that an intelligent contract is scheduled to trigger an automatic refund if a flight is delayed. Once the delay is confirmed by an oracle (external data source), the smart contract instantly sends the amount of the reimbursement to the insured passenger. Everything is automatic, secure and without intervention by the insurer, making the process faster and transparent.
The importance of blockchain in cryptocurrencies
Why the blockchain is crucial
The blockchain is at the heart of the safety and transparency of cryptocurrencies. It ensures that each transaction is verifiable, without risk of fraud. Unlike traditional systems, it is based on a network of nodes (computers) which collectively control the integrity of transactions.
The advantages of transparency and decentralization
Thanks to the blockchain, transactions are not only transparent , but also irreversible and traceable . This limits the possibility of fraud and makes each transfer visible by the public, without revealing the identity of users.
The advantages of cryptocurrencies
Freedom and decentralization
Cryptocurrencies make it possible to transfer money without intermediaries, thus reducing the costs and transaction deadlines. In addition, they offer access to financial services without the need for a bank account, which is essential for millions of people around the world.
Reduction in transaction costs and instant transfers
Transferring cryptocurrencies often costs much less than an international banking transfer. Transactions are done instantly and without limits of amounts or borders, offering a simple solution for global exchanges.
The current risks and limits of cryptocurrencies
Price volatility
The strong volatility of cryptocurrencies is due in part to the youth of this market and to the constant appearance of new projects, arousing great speculation. Prices, especially those of Bitcoin, can fluctuate several thousand dollars in a few days. Although this instability can be perceived as a drawback, it also represents an opportunity for those who apply suitable trading strategies, allowing significant potential gains.
Safety and protection against fraud
Although cryptocurrencies are secured by blockchain, risks exist. The hacks of wallets or exchange platforms are possible, and the transactions, once validated, are irreversible.
Cryptocurrencies and regulation
The challenges of the regulation of cryptos
With the rapid growth of cryptocurrencies, governments seek to establish regulations. For example, certain regulations impose identity checks ( KYC ) to open an account on an exchange platform. In the United States, the SEC (Securities and Exchange Commission) is at war with several Cryptos platforms and projects, wanting to attribute the status of securities to cryptocurrencies. In Europe, the MiCA (Markets in Crypto-Asets) regulations aims to supervise stablecoin and require platforms to meet strict transparency and fund protection standards.
Challenges for governments and institutions
Regulating a global and decentralized market like that of cryptos poses a major challenge. Governments must find a delicate balance between encouraging technological innovation and ensuring user safety. Too many restrictions are at risk of stifling the growth of this new economy, while an overly permissive approach could increase the risks of abuse and scam.
Cryptocurrencies and deffi: a new financial paradigm
Decentralized finance and its promises
DEFI an application ecosystem that allow financial services without intermediary. Loans, savings, and exchanges are made directly between users, thanks to smart contract . The DEFI promises to revolutionize the banking sector by offering open and accessible alternatives.
The opportunities offered by the DEFI
With the DEFI, users can get loans or generate interests without going through a bank. These services are accessible to anyone with an internet connection, facilitating financial inclusion on a global scale.
The future prospects of cryptocurrencies
Massive adoption potential
Cryptocurrencies could become a common means of exchange in the future. With the adoption by large companies and even certain governments, cryptos are increasingly integrated into the world economy.
Technological innovations and new uses
Innovations such as NFTS and asset tokenization broaden the possibilities of using cryptos. Users can not only exchange money, but also have works of art, real estate, and much more.
FAQ on cryptocurrencies
What is a cryptocurrency in simple terms?
A cryptocurrency is a decentralized digital currency, operating without the intervention of banks or governments, and secured by the blockchain.
How does the blockchain work in cryptos?
Blockchain is a public register that records each transaction in a secure and transparent manner, thus guaranteeing the reliability of cryptocurrency transfers.
What are the risks of investing in cryptocurrencies?
Cryptos are volatile, with prices that can fluctuate quickly. In addition, they are not covered by protections such as traditional banks.
Is cryptocurrency legal?
Yes, in the majority of countries, although each country imposes its own regulations and restrictions on the purchase and use of cryptocurrencies.
Investments in cryptocurrencies are risky. Crypternon could not be held responsible, directly or indirectly, for any damage or loss caused following the use of a property or service put forward in this article. Investments linked to cryptocurrencies are risky by nature, readers must do their own research before undertaking any action and investing only within the limits of their financial capacities. This article does not constitute an investment .
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Noah
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
