Partner with the best cryptocurrency payments provider. Here’s everything you need to know about cryptocurrency, in bite-sized pieces:
- What is a Cryptocurrency?
- Anonymous Electronic Cash
- How does cryptography work?
- What is Blockchain?
- 10 Popular Cryptocurrency
- Cryptocurrency Overview
What is a cryptocurrency?
A cryptocurrency is a type of electronic cash. Unlike other forms of digital currency however, a cryptocurrency has its own value. It differentiates itself from actual, traditional cash, called ‘fiat money’ – the legal tender that we all know, in our own different currencies across the world.
Cryptocurrency operates via blockchain technology and is ‘encrypted’. The cryptography allows impenetrable storage, and a foolproof system of verifying and recording transactions. A record is stamped to the blockchain as soon as a cryptocurrency is sent to another user.
This form of payment is decentralized and independent. Traditional eCommerce and online transactions have payment networks like Visa and MasterCard to authorize transactions. Cryptocurrency on the other hand, uses blockchain to record and secure transactions and keeping everyone in the network responsible. Everyone in the network keeps a record of all transactions, to avoid double-spending. This system eliminates the need for a central governing body.
Cryptocurrency users have no intermediaries. Everyone can transact from anywhere the world, and without cross-border fees. Transactions between users are anonymous.
Bitcoin is the first-ever cryptocurrency, released in 2009. It started the whole decentralized system of cryptocurrencies that is used to this day. Bitcoin inventor Satoshi Nakamoto’s real identity remains vague, but speculations of it coming from the following group of companies Samsung, Toshiba, Nakamichi and Motorola, remains the most sound of all other theories.
Currently, there are over 4000 altcoins (alternative cryptocurrencies) created since the release of Bitcoin ten (10) years ago.
Just like other digital currencies, cryptocurrencies are stored via online wallets. What makes it different from fiat money, however, is that it can also be stored in a hardware wallet.
Anonymous Electronic Cash
A cryptocurrency user starts by enrolling for an online wallet account. This is the only screening process that one needs to go through before transacting with crypo. It is required by law and financial institutions for one person with a bank account to provide personal information. When everything is set, fiat money is then converted to cryptocurrency. Online transactions in the crypto space is done freely and anonymously. By free, this means any and all kinds of business and transactions are not monitored. Cryptocurrency requires no interchange fees.
On the business side, a merchant needs to partner with a payment processor such as EU Paymentz that offers Bitcoin or any type of cryptocurrency. A KYC (Know-Your-Customer) process is done for opening a merchant account with a bank, and everything is set from there. This is the gateway for crypto users to enter the unidentifiable world of cryptocurrency exchange. The KYC is required by law, to collect personal information to users. After that, they can freely transact in the digital space.
A transaction is irreversible once the customer sends the payment to the merchant. Transaction fees are nonexistent, and payments are very straightforward. This makes cryptocurrencies a fast-growing option for online payments.
How Cryptography Works
Put simply, cryptography allows secure storage and communication between users, especially in the presence of third parties. It’s not just digital currency that is sent. Users can also send encrypted messages that is impossible to crack open.
A cryptocurrency wallet serves as the bearer of both public and private ‘keys’. These keys work as addresses, used to receive or spend the currency. The private key is made up of 64 letters and numbers, and is responsible for stamping a record on the public ledger or blockchain. This shows that the associated cryptocurrency has been used or spent.
The public key on the other hand, is made up of 34 letters and numbers. Its function is to allow a user to send currency to another user’s wallet. These two keys are related, and it is very important for users to keep it secret.
Blockchain serves as the database for all cryptocurrency transactions. It works as a “distributed ledger technology”. As the name suggests, every transaction is added to the blockchain. Once an exchange or a payment is sent, it gets added to this record or chain of other transactions on the database. Think of it like infinitely growing digital lego blocks.
Every transaction is irreversible because there is no way of deleting all the other blocks or payments done before. Transactions made are solid and unchangeable.
Only one transaction from one user is processed at a time. This is made possible by using various timestamping schemes in the system. The peer-to-peer (P2P) network verify and approve transactions. It can be from 2 to ten minutes depending on the cryptocurrency. Once a transaction is validated, it is then added or recorded to the blockchain. Double-spending, a common instance of fraud in traditional eCommerce, is just not possible.
Cryptocurrencies are decentralized. There is no way to dispute transactions. There is no governing body, so users are left with no choice but to take accountability for every cryptocurrency sent.
10 Popular Cryptocurrency
- Bitcoin (BTC)
- Ethereum (ETH)
- Litecoin (LTC)
- Dash (DASH)
- Ripple (CRP)
- Monero (XMR)
- Bitcoin Cash (BCH)
- NEO (NEO)
- CARDANO (ADA)
- EOS (EOS)
Bitcoin remains the top and most popular cryptocurrency, in terms of market capitalization and number of users. Bitcoin is used widely, and remains the most trusted all across industries as enterprise, travel, to big corporations as Microsoft.
Ethereum and Ripple are used more for enterprises. Litecoin on the other hand is said to be the faster and less complicated version of Bitcoin. It can process transactions in over 2.5 minutes, as compared to Bitcoin’s 10 minutes. It also has a way bigger supply of currency. It is estimated to be at 84 million Litecoins, with Bitcoin coming only at 21 million Bitcoins. Its less complex algorithms make it easy for miners to solve and crack Litecoins.
- No central authority
- The blockchain system keeps the database for cryptocurrency transactions
- The system decides if new cryptocurrency units needs to be created
- Cryptocurrency ownership are proven only through cryptography
- Transactions are done by changing ownership of the cryptographic units. The exchange goes from one legitimate owner (proved cryptographically) to the other (with a transaction statement).
- In case of two simultaneous transactions from one crypto owner, only one is processed by the system. Double-spending is impossible.
- It is impenetrable. As aptly put by BlockGeeks, “Cryptocurrencies are built on cryptography. They are not secured by people or by trust, but by math. It is more probable that an asteroid falls on your house than that a bitcoin address is compromised.”
- Transactions are irreversible, which means if a user got scammed by a business or another user, there is no way to take the money back.