What is cryptocurrency? This introduction explains the most important things about cryptocurrency and blockchain technology. After reading this, you should know more about cryptocurrency.
In 2008, the financial crisis gained momentum after the major American bank Lehman Brothers went bankrupt. As a result, people, businesses and gov
ernments worldwide ran the risk of losing their property held with the bank. Shortly thereafter, an unknown person or with the alias Satoshi Nakamoto published a document called "Bitcoin: A Peer-to-Peer Electronic Cash System". In it, Satoshi explains his invention, Bitcoin: a decentralized (P2P) digital network for mutual payments without the intervention of a third party, such as a bank or government.
At first Bitcoin was not even intended as a digital currency, but as a watertight system to send money directly from one party to another without the intervention of a financial institution. We will try to explain how such a decentralized system for digital money (cryptocurrency) works.
How does cryptocurrency work?
In order to operate a digital systems with the ability to transfer value, at least the following things are necessary:
A payment system can be set up on the basis of this information, however, what is most important to a payment system, is that after each transaction the balance on an account is updated so that the money can only be spent once. All conventional digital payment systems, such as internet banking or PayPal, make use of a central authority that keeps track of this. Because there is therefore a central authority (servers / the bank) to keep track of, you are always dependent on a third party for storing assets and transferring value in a conventional payment system.
In a decentralized network (cryptocurrency), there is no question of a central authority or a third party. This means that this must be part of a transaction and of the balance to be able to execute the transaction.
The payment system only works when all parts of the network have the same information. Normally this is fairly easy because this information can be verified at a central authority, but in a decentralized cryptocurrency network this is not the case. Nobody therefore believed that it would be possible to develop a decentralized digital payment system, but Satoshi Nakamoto proved the opposite. In the Bitcoin network based on blockchain technology, all parts of the network always have exactly the same information, so that this information does not need to be verified with a central authority.
Cryptocurrency in practice: what is it?
Just like with money in a bank account, digital currency ultimately turns into a number in a database that represents a certain value. For both currencies such as Euros or Dollars on a bank account, and cryptocurrencies such as Bitcoin / Ethereum / Litecoin / Monero / Bytecoin, this number can not be adjusted by anyone unless certain conditions are met. Cryptocurrencies can be used just like "normal" currency to make payments. Within the network of the relevant crypto coin, a payment must be confirmed by several parts of the network, after which the transaction is recorded in a general ledger.
This ledger is called: The Blockchain.
Characteristics of digital currency are:
Cryptocurrency is always usable for everyone. Because no third parties are involved in transactions, anyone with a digital wallet (wallet) can manage their own money and make payments with it. There is no bank that can go bankrupt, no cash machines are needed, there is no government that can intercept or withdraw money, there are no high transaction costs and long waiting times for international transfers.
Payments are irreversible. Once a transaction has been confirmed, it can not be reversed. By no one. After you have transferred cryptocurrency, nobody can change this.
Security guaranteed by cryptography. Funds and transactions are sent and stored encrypted. Encryption of this data is based on encryption with Publick Key Cryptography. Advanced cryptography makes the system unhackable, so your money is safe as long as you keep your wallet well.
Pseudonym or anonymous payment transactions. Both the account numbers and transactions of blockchain payment systems are not linked to your identity in the real world. What is visible depends on the crypto coin. For example: the Bitcoin and Litecoin blockchains show that there was a transaction, the value of the transaction and between which parties the transaction was, while cryptocurrency such as Monero and Bytecoin obfuscate this information.
Pay fast and internationally. Making a payment with cryptocurrency is easy and goes very fast. Moreover, transactions are not location-dependent: a payment in cryptocurrency can be received as quickly by your neighbor as by someone on the other side of the world. This will take a maximum of a few minutes.
Video: how the blockchain changes money and business.
What is the blockchain? We have already written a lot about this on this page and also posted a video about it. In the following video Don Tapscott explains in a fun way what the blockchain is and how this technology can change our view
on money and business. The video lasts almost 20 minutes, but is definitely worth it!
Getting started with the blockchain: investing in cryptocurrency
In this topic we use information about the most popular and interesting blockchain start-ups and technologies. Almost every blockchain technology has its "own" cryptographic token
Cryptocurrencies can be obtained by mining, earning or buying them. For most people who want to make money with blockchain, investing in cryptocurrencies is the most logical step: It simply means buying a cryptocurrency and reselling it after the crypto coin has increased in value.
To start trading in cryptocurrency, you can take the following steps:
Choose one or more cryptocurrencies you want to invest in. View the most popular crypto coins and research the currencies / technologies that interest you.
After you have decided in which cryptocurrency (s) you want to invest, you create a cryptocurrency wallet for this or you buy a hardware wallet for extra security.
You can now purchase the desired cryptocurrencies. The easiest way is usually to buy Bitcoin first and then (partially) exchange it for altcoins if you want to invest here. An alternative is to register with a cryptocurrency exchange.
You can now keep track of the price trend of your favorite cryptocurrencies. Keep an eye on the market, but do not let yourself be influenced too much by short-term price fluctuations: selling panic is never a good idea and as long as you do not sell your cryptocurrencies, you do not lose.
When your blockchain investments have increased in value and you have achieved a return that you are satisfied with, you can sell the cryptocurrencies again!
Investing in cryptocurrency
Do you want to start investing in cryptocurrency? Investing in Bitcoin is often a first good step. Other cryptocurrencies can sometimes be bought with euros, but can always be bought with bitcoins via a cryptocurrency exchange.