If you are new to the crypto ecosystem or want to relearn essential concepts that you already know, we put together this guide with basic (and not so basic knowledge) that you need to know.
- What are cryptocurrencies?
- How do cryptocurrencies work? What is blockchain?
- Bitcoin, the first crypto
- Ethereum, a whole ecosystem
- Cryptocurrencies vs. token
What are cryptocurrencies?
A cryptocurrency is a digital currency used to invest, save, or buy things protected by cryptography, making it nearly impossible to counterfeit. Many cryptocurrencies are decentralized networks based on blockchain technology, like a distributed ledger enforced by a computer network, with strong cryptography to secure online transactions.
A defining characteristic of cryptocurrencies is that they are decentralized. They are generally not issued by any central authority, making them theoretically immune to interference or “tampering” by any government.
How do cryptocurrencies work? What is blockchain?
- Blockchain: it is a way to register decentralized databases.
- Its technology allows the use of cryptocurrencies.
- The Bitcoin blockchain was the first.
- The records are unalterable and cannot be falsified.
Unlike the US dollar or the Euro, a cryptocurrency has no central authority that manages and maintains its value. Instead, these tasks disperse throughout the Internet among users of a cryptocurrency.
Cryptocurrencies operate on blockchain technology, a decentralized technology dispersed across multiple computers that manage and record transactions. These are organizational approaches for ensuring the integrity of transactional data and are a necessary component of many cryptocurrencies.
Is there only one blockchain? No, there are several different blockchains. For example, Ethereum has its blockchain. Other development teams, like IBM, are working on their blockchains. Bitcoin has the oldest and longest blockchain, as well as the one with the most transactions.
Bitcoin, the first cryptocurrency
- It was the first cryptocurrency blockchain network.
- bitcoin (in lowercase) is the cryptocurrency, while Bitcoin is the network.
- BTC is the symbol of bitcoin.
- Will have a maximum supply of 21 million bitcoin.
Bitcoin is the first decentralized cryptocurrency, digital money based on an accounting system that works between people without any bank or state having to validate the transactions.
One of its most significant innovations was the technology on which it is based: blockchain, which enables the creation of immutable records of each transaction through a cryptographic system and mathematical problems.
This currency, bitcoin (BTC), acts as a unit of value, holding funds and conducting transactions and payments.
Where does the bitcoin price come from? Although fluctuations in supply and demand affect bitcoin’s value minute-by-minute, two other elements influence its worth on a larger scale.
First, bitcoin has value because 25 million people trust and use it.
Secondly, bitcoins are valuable because they are limited in supply: there will only be 21 million, with 18 million now in circulation. A government does not set this pricing. The central bank, mint, or corporation does. They have value because they are difficult and expensive to create and mine.
What is my cryptography? In the crypto ecosystem, we use the term “mining” to validate transactions on a blockchain. However, despite its name, this operation does not include any form of material extraction from the soil or rocks. It is, instead, a method of running software, a computing effort.
- They are not printed but rather mined.
- Each bitcoin is unique and cannot be counterfeited, duplicated, or altered.
- They are divisible, and currently, you can operate up to 8 bitcoin decimal places.
- In addition, they are convertible to dollars or any other legal currency.
- There are no days, hours, or places: Bitcoin works all the time and everywhere.
- Because of network engineering, bitcoin accounts cannot be frozen, and payments cannot be blocked or canceled.
Etherium, a whole ecosystem
- Allows you to create distributed apps regulated by smart contracts
- Ether is its cryptocurrency, while Ethereum is the network
- ETH is the symbol of ether, which does not have a maximum supply.
- Its creator is Vitalik Buterin
- It allows you to create tokens on top of your blockchain.
Ethereum is the second most popular cryptocurrency in market price or market cap.
Ethereum is a cryptocurrency that also serves as a decentralized, online digital computer. This allows for many more applications beyond merely the transfer and storage of value or payments.
Ethereum enables the development of a wide range of decentralized applications (DAPPS). It is a market for financial services, video games, numerous apps, and a value transfer platform.
Ethereum enables the production of altcoins (alternative cryptocurrencies); for example, projects such as DAI, USDC, and TrueUSD rely on Ethereum technology.
Nowadays, Ethereum is the blockchain with the most significant number of innovations and searches for the construction of new services. So it plays a dominant role in the crypto world. It has been the leading network in recent years to host the surge in a unique variety of decentralized finance solutions known as DeFi (Decentralized Finances), as well as the tendency for collectibles and art to be sold in the NFT format.
SUCCESSFUL ETHEREUM-BASED PROJECTS
- Decentraland: a virtual reality video game with its token (MANA) and sale of virtual land.
- Uniswap: decentralized exchange that allows exchanging cryptocurrencies without an order book but with a system of “liquidity pools.”
- USDC: stablecoin with parity 1-1 with the US dollar.
- BAT: token given to brave users in exchange for viewing online advertising.
- DAI: stablecoin with parity 1-1 with the US dollar, Maker is its governance platform (which also has its token, MKR)
What is an Altcoin?
Altcoins means “alternative currencies.” But an alternative to what? Well, to Bitcoin. The first altcoins were Litecoin, Dash, Monero, or Ripple, each with utility and distinctiveness. Even Ethereum is an altcoin.
But since it allows the creation of smart contracts that, in turn, can be used to create other tokens, the appearance of Ethereum in 2015 boomed the crypto ecosystem and the proliferation of hundreds of new coins, many of which you probably already know.
Before investing in any cryptocurrency, you must research the project behind the cryptocurrency of your choice. Many projects seem “promising” and end up being a scam. If you’re interested in crypto, do your homework, read the whitepaper, look it up on social media, and don’t be misled by the fact that a relative or friend has invested in it.
There are different crypto assets on the market. An excellent strategy to reduce risks is to divide the investment among several of the ones you want and have thoroughly investigated.
Cryptocurrencies are volatile, especially in the short term, but they usually don’t crash all at once. While some projects appreciate, others depreciate, and vice versa. Having different currencies in your portfolio will help reduce the risk of large devaluations in a single asset.
What is a stablecoin?
- They are cryptocurrencies whose price remains stable over time
- Ethereum smart contracts allowed its appearance
- In trading, they will enable you to protect yourself from the decline of a cryptocurrency
- By always being worth the same, they eliminate the volatility of other cryptocurrencies.
Stablecoins are digital assets whose price is linked to another asset through a parity relationship, in contrast to the cost of other cryptocurrencies, which determines supply and demand.
The most famous cases have a 1:1 relationship with the US dollar, while others pair with gold, precious metals, or land parcels. Some of the most common stablecoins are:
3. a) USDT
To preserve its linkage to the US dollar, the Tether stablecoin is collateralized in fiat. That is, with dollar reserves in a bank account determined by the amount of USDT in circulation. It is a question of titles and bonds in dollars, not just money or electronic transfers.
3. b) USDC
Coinbase and Circle created two well-known companies in the crypto market. USDC is another stablecoin whose value links to the US dollar. USDCs have fiat collateral, although in this case, with a more intense audit and monitoring policy in which external and international auditors review the existence of collateral.
What is the difference between a token and a cryptocurrency?
Cryptocurrencies are digital currencies that operate on blockchain networks. Bitcoin created its blockchain for its cryptocurrency, bitcoin (BTC). Ethereum is another distributed network with its coin, ether (ETH).
The most crucial distinction is that the token does not have its network but is created on an existing blockchain. Although the Ethereum network has its coin, it also allows alternative tokens with economic value to be generated using its ERC-20 and ERC-721 protocols.
Checking CoinMarketCap, the crypto ecosystem’s reference website is an easy way to figure out which token is a cryptocurrency. It lets you view all listed crypto projects and learn more about them.
Currently, these are the ten cryptocurrencies with the highest market capitalization. It is essential to understand that, except for stablecoins, cryptocurrencies are risky asset, and their price fluctuates.
Altcoin: “alternative” currencies. To what? Well, to Bitcoin. The first altcoins were Litecoin, Dash, Monero, and Ripple.
Bitcoin: when written with a capital B, refers to the project, the protocol, and the network behind the leading cryptocurrency, while in lower case, it is the units of that crypto created in 2008 by Satoshi Nakamoto, whose acronym is BTC.
Bear market or bearish: a period of prolonged price decline.
Blockchain is a type of network and digital registry that functions as a “notary public” without human intervention. It cannot be changed and is capable of accrediting transactions and guaranteeing a secure and predictable payment and collection system.
Cryptography: the techniques used to protect confidential, sensitive, or private information. In the blockchain, this encryption is done by applying complex mathematical functions to “hide” the data in an encrypted version that can be transmitted securely.
Cryptocurrency: a digital currency that works on a blockchain network and registry system for value storage, exchange, or payment. Cryptocurrencies, unlike traditional currencies, do not require a central authority such as a government or a bank.
Dapp (Decentralized App): computer programs not managed by an entity but work autonomously are regulated by smart contracts and operated by multiple nodes on a blockchain.
Ethereum: open source, decentralized platform based on the blockchain model that, in addition to serving as a network and transaction registry, allows the implementation of smart contracts and the creation of decentralized applications.
Ether: native cryptocurrency of the Ethereum network, created in 2015 by programmer Vitalik Buterin and a development team. Its acronym is ETH.
Fiat currency: legal tender issued by entities authorized by law, such as a country’s Central Bank. Includes coins, banknotes, and any means of exchange manufactured and recognized by the entity legally in charge.
Fundamental analysis: methodology to study financial assets in search of their “fundamental value,” that is, the value that they should have according to their essential properties, regardless of the behavior of their price.
Technical analysis: the study of the behavior and evolution of the market through indicators and graphs to predict future price trends.
Stablecoins: digital assets linked to the price of other assets, such as the dollar. In this way, they avoid the wide variations in the price of freely priced cryptocurrencies.
Token: a way of representing value within a specific community. Casino chips are physical tokens, while cryptocurrencies are digital tokens.