You may have heard of bitcoin, ethereum, litecoin, and many other types of cryptocurrencies that have been circulating the world wide web. For some time, digital currencies have been making headlines. A number of articles have stated its benefits, listed for interested investors looking to expand their portfolio.
However, if you are still unsure of the nature of cryptocurrency, its types, and its benefits; here is a brief overview of the nature of this cryptocurrency:
What is cryptocurrency?
To start, cryptocurrency is a medium of exchange that utilizes cryptography as a means of security to prevent any government manipulation or interference. Cryptocurrency is not issued by any central authority and its economy is monitored by a peer-to-peer Internet protocol.
How does it work?
In order for a person to receive and send cryptocurrency they must first download a cryptocurrency wallet, which is a software program that allows users to monitor their balance. Unlike traditional wallets that store physical money, cryptocurrency wallets store public and private keys and interfaces that help monitor their operations.
In order spend these coins and unlock funds, the private keys in your wallet must match the public address the currency is assigned. When both private and public keys match, the balance of the wallet will increase while senders decrease. Any following transaction is then recorded on the blockchain along with a chance of balance on your wallet.
What is a blockchain?
A blockchain is a digital ledger that records all economic transactions. This process is irreversible.
What are the properties of cryptocurrency?
1. Secure. Cryptocurrencies are secured by cryptography which is encoded into a form that should make it both non-forgeable and non-repudiable to prevent any manipulation from external factors.
2. Fast. Transactions involving digital currency are readily available over the Internet and can be processed within minutes regardless of one’s location.
3. Non-reversible. Any confirmed transaction cannot be reversed whether its from your miner or the currency’s founder itself which makes it permanent.
4. Uses Pseudonyms. While the flow of transactions is recorded and permanently stored on the blockchain, personal names and addresses are not listed. Although details on your wallet can be used trace a person’s identity in a number of ways.
What are some different types of cryptocurrencies?
Several cryptocurrencies have emerged in the last decade but here are a few examples of some digital currency still used today:
The first and most well-known cryptocurrency. Bitcoin (BT) is considered the gold standard of digital currency and is considered as a global means of payment for several industries. Currently, Bitcoin’s price has increased from zero to over 10,000 CAD.
Considered second only to Bitcoin, Ethereum’s (ETH) blockchain processes transactions as well as complex contacts and programs with more flexibility. However, following a the hacking of DAO (Ethereum-based smart contact) in 2016, it has since expanded into two types: Ethereum (ETH) and Ethereum Classic (ETC).
A real-time global settlement network that offers immediate, secure, and low-cost international payments. Ripple (XRP) allows banks to settle cross-border payments in real time with thorough transparency at a low cost. Unlike other cryptocurrencies that require mining, Ripple forgoes this step to increase network performance.
Considered as the silver standard in contrast to Bitcoin’s gold standard, Litecoin (LTC) emerged as one of the first cryptocurrencies after Bitcoin. This currency is based on an open source global payment network that is not controlled by any central authority and uses “scrypt” as a proof of work. While it shares some similarities with Bitcoin, Litecoin has a faster blockchain generation rate which results in faster transaction confirmations.
Monero (MNR) is a private, secure, and untraceable currency that is completely donation-based and driven by the community. This currency enables complete security and privacy through a special technique called “ring signatures”, where a group of cryptographic signatures (with at least one real participant) appears valid but not isolated, making it impossible to detect the real signature.
With this information in mind, don’t be afraid to shop around the internet for any cryptocurrency you wish to invest in but not before learning about the different types of cryptocurrency wallets.