A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange through a computer network. Unlike traditional currencies issued by governments and backed by physical assets, cryptocurrencies are:
Decentralized: They don't rely on a central authority like a bank or government to manage or validate transactions. Instead, they use a distributed ledger technology called blockchain, which is a shared database maintained by a network of computers.
Secured with cryptography: Transactions are verified and secured using cryptography, making them resistant to fraud and counterfeiting.
Pseudonymous: While transactions are public on the blockchain, individual users are typically only identified by their wallet addresses, creating a layer of anonymity.
Potentially borderless: Cryptocurrencies can be transferred anywhere in the world quickly and without the need for intermediaries like banks.
Bitcoin (BTC) is the first and most well-known cryptocurrency, created by an unknown person or group of people using the pseudonym Satoshi Nakamoto. Bitcoin was introduced in a 2008 whitepaper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" and launched as open-source software in 2009.
Bitcoin operates on a decentralized network of computers, known as nodes, which validate and record transactions on a public ledger called the blockchain. This decentralized nature means there is no central authority governing or controlling the Bitcoin network.
Bitcoin's blockchain is a chronological chain of blocks, each containing a list of transactions. This decentralized and distributed ledger ensures transparency, security, and immutability of transaction history.
Bitcoin has a capped supply of 21 million coins, a design choice to create scarcity and prevent inflation. This fixed supply is programmed into the Bitcoin protocol, with new bitcoins being created through a process called mining.
Bitcoin transactions are confirmed through a process called mining, where miners use computational power to solve complex mathematical problems. This process, known as proof-of-work, secures the network and adds new blocks to the blockchain. Miners are rewarded with newly created bitcoins and transaction fees.
To control the rate at which new bitcoins are created, Bitcoin undergoes a halving event approximately every four years. During a halving, the reward that miners receive for each block they mine is cut in half. The most recent halving occurred in May 2020.
Transactions on the Bitcoin network are pseudonymous, meaning they are not directly tied to individuals' identities. Participants are identified by cryptographic addresses.
Bitcoin's security is maintained through cryptographic techniques, and its blockchain is considered immutable. Once a block is added to the blockchain, it is extremely difficult to alter previous blocks, providing a high level of security against fraud and tampering.
Bitcoin is often referred to as "digital gold" and is considered by some as a store of value. Its scarcity, decentralized nature, and resistance to censorship make it appealing to those seeking a hedge against inflation or economic uncertainty.
Ethereum (ETH) is a decentralized blockchain platform that enables the creation and execution of smart contracts and decentralized applications (DApps). It was proposed by Vitalik Buterin in late 2013, with development beginning in early 2014 and the network going live on July 30, 2015.
Ethereum is renowned for introducing the concept of smart contracts, self-executing contracts with the terms of the agreement directly written into code. These contracts automatically execute when predefined conditions are met, providing a trustless and automated way to enforce agreements.
Ethereum serves as a platform for the development and deployment of decentralized applications. DApps run on the Ethereum blockchain and can cover a wide range of industries, including finance, gaming, supply chain, and more.
Ether (ETH) is the native cryptocurrency of the Ethereum platform. It is used to compensate participants who perform computations (miners) and validate transactions. Ether can also be used as "gas," paying for computational services and transaction fees within the Ethereum network.
Ethereum standards like ERC-20 and ERC-721 have become fundamental to the tokenization of assets on the blockchain. ERC-20 tokens are fungible and widely used for creating utility and security tokens, while ERC-721 tokens are non-fungible tokens (NFTs) used for unique digital assets like collectibles and digital art.
Ethereum has played a pivotal role in the rise of decentralized finance (DeFi), a movement that leverages blockchain technology to recreate traditional financial instruments without relying on traditional intermediaries. DeFi applications include lending, borrowing, decentralized exchanges, and more.
Ethereum has a strong developer community and undergoes regular upgrades to improve its functionality and address scalability concerns. Major upgrades, such as Ethereum Improvement Proposals (EIPs) and network improvements, contribute to the platform's evolution.
Dogecoin (DOGE) is a cryptocurrency that started as a lighthearted and meme-inspired project based on the popular "Doge" internet meme featuring a Shiba Inu dog. Despite its origin as a joke, Dogecoin has gained a substantial and passionate community.
Dogecoin was created by Billy Markus and Jackson Palmer, and it was officially launched on December 6, 2013. The founders initially intended Dogecoin to be a playful and friendly cryptocurrency, characterized by its Shiba Inu logo from the "Doge" meme.
Unlike Bitcoin, which has a capped supply of 21 million coins, Dogecoin operates with an inflationary supply. Originally, there was no maximum supply limit, but a decision was later made to cap it at 5 billion DOGE per year, making it a relatively inflationary cryptocurrency.
Dogecoin gained popularity for its use in microtransactions and tipping on social media platforms. The Dogecoin Tipbot allowed users to send small amounts of DOGE as tips for content creators or to express appreciation online.
Dogecoin has experienced periods of significant market activity and volatility. It garnered attention during speculative "pump and dump" cycles, often fueled by social media trends and celebrity endorsements. Elon Musk, CEO of Tesla and SpaceX, has been particularly influential in shaping Dogecoin's market sentiment through his tweets.
Despite its origins as a joke, Dogecoin has gained some degree of mainstream recognition and acceptance. Merchants and online platforms have, at times, accepted Dogecoin as a form of payment.
Ethereum was created to give blockchain Non-financial use cases, and it can be largely agreed that it was successful in this as cryptocurrency expands into almost every industry in some way.
There are so many use cases that it’s impossible to list them all, but here are some of the best examples split by financial and non-financial.
Peer-to-peer transactions - thanks to the decentralized nature of cryptocurrencies, individuals can send money between themselves without needing an intermediary like a bank.
DeFi yield farming - cryptocurrencies can be used to create passive income, offering much higher rates than the interest rates offered by traditional banks.
Remittance - cross-border payments can be sent and settled near-instantly with very low fees compared to international banking payments.
NFTs & Ownership - thanks to Non-Fungible Tokens, it is possible to prove immutable ownership of assets digitally. These assets could include items in a video game, the deed to a house, a car or artwork. The possibilities are endless and enable a faster and more convenient way of acquiring and transferring ownership.
Gaming - blockchain has the potential to revolutionize in-game economies through the combination of tokens and NFTs, allowing gamers to benefit from true ownership of their in-game items and the ability to buy or sell them.
Music - NFT royalty payments provide a new way for music artists to monetize.
Governance - rather than centralized companies run by individuals who amass decision-making power, Decentralized Autonomous Organizations or DAOs can be created and community-governed by holders of governance tokens.
In the interest of balance, we must present the risks of engaging with cryptocurrencies, and there are many:
Scams - unfortunately, there are many bad actors in the space, and countless scams known as “rug pulls” occur, when developers disappear with funds they’ve raised from the community.
Volatility - cryptocurrency projects can and do crash to 0, far more often than they gain 10, 100 or 1000 times their previous value.
Changing financial regulation - crypto has been inconsistently regulated throughout the world, and outright censored in some countries. At any given time, using crypto may become illegal or suddenly become regulated and taxed heavily.
Security - users of crypto need to be aware that they must take steps to protect their privacy and financial security, such as never sharing their private keys, always checking links are official and staying away from questionable projects.
To learn more about the wider web3 context, make sure you check out the rest of 3 Web News content!
