If you have been anywhere on the internet lately, you would have at least heard about cryptocurrency and blockchain. These digital assets of the contemporary age are all the rage right now. Experts say cryptocurrency will be the only form of money used in the future. People are investing heavily in securing this digital currency, which is already a billion-dollar industry.
Cryptocurrency is created on a certain technology which is known as Blockchain. It has gained a lot of popularity due to its decentralized system. The decentralized system allows the web to run without the need for intermediaries. This brings a lot of clarity and transparency to the system.
The use of crypto and blockchain is not limited to individuals only. Big corporations have started incorporating crypto and other blockchain technologies into their businesses. For example, Taco Bell has begun distributing NFTs related to their business, with several advantages for the owner.
With so much potential and significance for the future, you must grasp the basics of blockchain and cryptocurrency. If you have no idea what these complex concepts are, keep reading for a simple guide on cryptocurrency and blockchain.
What is Blockchain?
Blockchain is a digital ledger that records all transactions in a way that once a transaction is processed, it can’t be altered or copied. This has brought a revolution in fields like cybersecurity, healthcare, banking, and more. Unlike the previous digital technologies, once you buy something from a project built on blockchain, no one else can buy the exact same thing. There is only one kind of piece. The ownership can be transferred but not copied or changed.
Another feature that defines blockchain is that it is fully transparent and decentralized. This means that there is no intermediate party like banks involved in monitoring the transactions. The buying and selling are done directly between the owner and the buyer. Also, any transaction on the blockchain is recorded forever and made accessible to the public.
People can see what has been happening on blockchain anytime, and no one can change it. This has opened unparalleled avenues for transparency, which gives back control to the regular user instead of centralized corporate authorities. It also reduces the risk of fraudulent activities that have been prevalent in other digital technologies.
To completely understand the decentralized concept of blockchain, consider the example of a giant internet company, PayPal. It allows users to transfer money online, but to do that, the user has to integrate the information of the accounts in their physical banks. This is how most other online payment systems work as well – by integrating a bank’s credit card.
Blockchain technology eliminates the need for a bank. You don’t need a credit card or a bank account to carry out transactions or send money. All you need is a digital wallet; most of your work could be done through that.
How Does Blockchain Work?
People basically use blockchain to transfer data or carry out transactions in a way that can’t be tampered with. The whole system is built on three different concepts – blocks, miners, and nodes.
Just like you publish information and send it to other people on the rest of the internet, you can create blocks of data or information on the blockchain network, and anyone can access that data from anywhere in the world. But to access that block of data, the person needs a special cryptographically created key.
That special key resides with the owner only, and unless the owner shares that key with someone allowing them to access and edit the blocks of data stored on the blockchain, no one can change anything in that data. The network would block all edits made to the information from the outside without the key.
It is possible to steal the digital key from the owner, but there are ways to prevent something like that from happening. The transactions or activities on the blockchain may be very similar to physical entities like banks, but cryptocurrency still has the advantage of allowing users to do all those things at a fraction of the speed.
How is a Transaction Carried Out?
The transaction process on the blockchain starts when someone requests that transaction, which can be any form of data. The transaction Is carried out in a P2P network or a peer-to-peer network, in which various computers worldwide are linked with equal permissions and responsibilities. The network of computers is called nodes.
The transaction and the status of the user are validated and confirmed by pre-set algorithms. The transactions could be based on cryptocurrency, records, contracts, or other information. As soon as the transaction is verified and confirmed, a new block of data is formed to be added to the decentralized ledger with other data blocks.
The new block of data is added to the blockchain network and becomes a part of a permanent record, which can’t be changed. The transaction is now complete.
What Is Cryptocurrency?
Cryptocurrency is the most prominent and eminent use of blockchain technology. It is digital money or tokens which are used to carry out online transactions on the blockchain network.
Recently, there have been several new cryptocurrencies introduced into the market. Some of the oldest and most popular ones include Bitcoin, Ethereum, Litecoin, etc. This digital money collects in your digital wallet, and just like normal cash, you can use cryptocurrency to buy different things such as clothes and even real estate.
The main difference between cryptocurrency and real cash is that transactions carried out by crypto are recorded in the permanent ledger, which is open to the public. The cryptographic system ensures that these transactions are fully secure.
How Do Cryptocurrencies Work?
Cryptocurrencies run on the public ledger or blockchain. There are a few different ways you can acquire and use cryptocurrencies.
The process of mining is the main method of creating cryptocurrencies and owning them. Mining is the process where you solve complex mathematical problems using computer power and certain specialized hardware to generate crypto coins. You can also purchase cryptocurrency from brokers. The digital money is stored and spent using cryptographic digital wallets.
Unlike hard cash, you won’t have anything tangible to show for the cryptocurrency you own. When you own a piece of cryptocurrency, you basically have a digital key that lets you transfer different units from one place to another without involving any third party.
Bitcoin first emerged in the market in 2009, but blockchain technology and cryptocurrency are still being explored for more functions and uses. It is not a fully developed technology yet. Many experts have predicted that most major transactions of our life will be successfully accomplished using cryptocurrency and blockchain in the future.
The Metaverse and NFTs, which are a part of the blockchain as well, have expanded the practical usage of cryptocurrency and blockchain. Soon, you will be able to live life as you know it in the real world and the Metaverse (more on this later!). You will be able to trade stocks, buy clothes, and build houses as well.
What Can You Purchase With Cryptocurrency?
When Bitcoin was initially launched, the real intention was to allow users to buy everything small and large, from coffee to houses and everything in between. This aim hasn’t been able to see the light of the day yet, but with more investors and big names associating themselves with cryptocurrency, the transactions being carried out with cryptocurrency are gradually becoming larger. More businesses are accepting cryptocurrency as a form of payment, and many big-name companies have invested in digital currency as well.
There are a few popular things you can buy with cryptocurrency. Several techs and e-commerce companies now accept crypto as a form of payment, like Microsoft and Shopify. Some high-end luxury brands, like Rolex, have also started accepting crypto. You can also buy cars using crypto. Recently, some insurance companies also started accepting digital money.
Besides using cryptocurrency for traditional purchases, you can also use it for investment purposes and asset creation. Investing in cryptocurrency builds your assets, as you can trade it off for a higher value when the worth goes up. The investment part is speculative, as the value of crypto is volatile and can change within a matter of minutes.
The Future of Cryptocurrency and Blockchain
While blockchain is being explored for other projects, cryptocurrency is still not a widely accepted form of payment. Mark Zuckerberg and other big names are famously exploring the Metaverse, blockchain, NFTs, and other Web 3 elements, but there are some other famous names, like Warren Buffett, who are against it.
Many consider it untrustworthy and an enabler for criminal activities. If experts are to be believed, cryptocurrency will replace 25% of the world currency by 2030. Whether that comes to fruition or becomes true is yet to be seen.
Meanwhile, make sure to research the projects and do your due diligence before thinking about investing in cryptocurrency because it’s extremely volatile.