Embarking on a journey in a new city as a novice traveler may seem confusing , yet a well-defined guide with details about landmarks and local cuisines can serve as your ultimate support. Similarly, entering the realm of cryptocurrency is like venturing into uncharted territory. Being comfortable in your hometown might create an illusion of an ideal world, but thrilling experiences await in other cities, ready to create lasting memories. All you need to do is book a flight, and start unraveling the richness of life through your travel experience .

How does that sound?

Thrilling, right?

This article will be a roadmap to guide you as you explore cryptocurrency. At the end of this article, you’ll see reasons why you need to accommodate digital currencies like crypto. You’ll gain an understanding of practical ways to take the bold step of exploring (buying, selling, and trading) cryptocurrency.

Fiat Currency Vs Cryptocurrency

Cryptocurrency is a type of digital or virtual currency. A holder of this currency does not need to own or possess physical cash. Like fiat currency, cryptocurrency is also a medium of exchange and storage. The differences between fiat and cryptocurrency are as follows:

Fiat currency is government-issued and regulated, while cryptocurrencies are decentralized and rely on blockchain technology.
Fiat is physical (cash and coins) and digital (bank deposits), whereas cryptocurrencies exist only in digital form. Cryptocurrencies operate on a peer-to-peer network, providing a degree of anonymity, whereas fiat transactions are typically more traceable.
The value of fiat is influenced by economic factors, while cryptocurrency values can be volatile and are often driven by market demand.
Additionally, governments can control and regulate fiat, but cryptocurrencies are generally beyond direct government control.

However, there are limitations attached to using a fiat currency. When doing an online transaction, a user can be limited due to the following reasons:

Unstable network
The daily transfer limit exceed
System malfunction
High charge rate

The advent of cryptocurrency seeks to address the shortcomings of a fiat currency.

What is Cryptocurrency?

Cryptocurrency comes from the combination of two distinct words , cryptography and currency. Cryptocurrency is an alternative way of making payments that is secured through cryptography. Cryptography is a mathematical graph-like method of hiding data by turning it into code so that only an authorized person can decode the encrypted data.

Advantages of Cryptocurrency

The future of cryptocurrency made it possible to change the financial ecosystem. That is, it seeks to give individuals the ability to be in charge of their finances and be fully involved in every financial decision. The following are the benefits of crypto:

No third-party interference
Ease of transactions
Security of user identity
Less costly to transact
It’s decentralized
Financial autonomy is possible
It is secured

Understanding How Cryptocurrency Works on the Blockchain

Having gained an understanding of what cryptocurrency is, let’s take a look at how it works.

A cryptocurrency is a decentralized form of transaction between two or more people. Just as you can save, invest, or spend your fiat currency, a cryptocurrency holder can also decide to save and invest their crypto. A crypto transaction takes place on the blockchain.

Cryptocurrencies are digital currencies that are encrypted into the blockchain. This helps secure the data on the blockchain. Cryptocurrency is widely used, recognised and associated with blockchain technology

Cryptocurrencies are digital assets on the blockchain. Each block contains transactions that are joined together with the next block, making them immutable.

Let us illustrate:

Participant A wants to transfer 20BTC to Participant B. All nodes that are connected to that blockchain get notified, and they verify the transaction.

By verifying, they try to see if, truly participant A has that amount of BTC in his crypto wallet. If Participant A does not have up to 20 BTC, the transaction becomes invalid. Then, the blockchain will store and record the transaction.

Also, a user can get crypto that can be used for exchange or storage by verifying a block. Through a process known as the consensus mechanism, miners and validators compete to get the block added to the blockchain. When a block is successfully added to the blockchain, the miner or validator who did it is rewarded with newly minted crypto that can be properly invested.

When can you use cryptocurrency?

Cryptocurrencies can be used to transact at any time of the day. A holder of an Ethereum cryptocurrency in Nigeria can decide to transfer Ethereum to someone in China while in the comfort of their home. All that is required to have an easy flow of transactions is a device (either a phone or computer), an internet connection, and enough crypto.

Popular Cryptocurrencies

Bitcoin: Bitcoin is the most popular and widely used kind of cryptocurrency. One interesting fact about Bitcoin is that most people who possess it will rather hold it for long-term purposes. They do this while believing that the value of Bitcoin will appreciate over time.

Bitcoin was created and launched as open software in 2009. Satoshi minted the first 50 coins, which had no value then. However, these first transactions entail a software developer, Laszlo, who buys two pizzas for 10,000 bitcoins.

The success of Bitcoin in the early years of its creation led to the creation of other digital currencies. These other models of Bitcoin were referred to as alternative coins, aka altcoins. Being the first of its kind, demand for Bitcoin in the market increased as of 2010. However, bitcoin’s first loss in 2013 widened its visibility to the whole world, with people wanting to learn more about cryptocurrency. In addition, 21 million BTC have been released, with 19 million in circulation.

Bitcoin transactions do not happen the way we do at our traditional bank. Here, the sender is more like “writing on a sheet” (of paper) for all to see (those connected to that network) that digital cash is going out. That “sheet of paper” is a kind of database called the blockchain.

Ethereum: In 2015, Ethereum was launched. Vitalik Buterin, a computer programmer, is known as the founder of the Ethereum network.

Ethereum is open-source software that is based on blockchain technology. It has ether as its native currency. Ethereum is not the largest cryptocurrency but is considered the second largest. This is because the Bitcoin network was first created, popularized, and has more users holding its native coin, BTC.

Nevertheless, Ethereum has a certain advantage over other cryptocurrencies. Ethereum has drifted from being just a digital currency to accepting programs run on its blockchain. A common example is smartcontracts. Smart contracts are programs that self-execute transactions when certain conditions agreed upon have been met.

With smart contracts living on the Ethereum network, there are diverse opportunities for developers and creators to build use cases like decentralized applications (DApps). An example of DApp is decentralized finance (DeFi).

Litecoin: Two years after the creation of Bitcoin, Litecoin was formed. In 2011, an ex-Google engineer, Charlie Lee, created Litecoin. Litecoin was created from bitcoin. That makes it an altcoin.

A copy of Bitcoin’s open-source code was then used to create Litecoin, with a few changes to address Bitcoin’s scalability issue. What this means is that Litecoin was able to process transactions at a faster speed than Bitcoin.

Despite the significant changes Litecoin seeks to address, the Bitcoin model from which it was created has a wider market value. This is because of its rise in demand. Bitcoin’s higher demand and lesser supply affect the market size of Litecoin.

One other important piece of information to note about Litecoin is that it uses a different cryptographic algorithm or hashing value. While Bitcoin uses SHA-256, Litecoin uses Scrypt.

Litecoin has released 84 million coins, with over 70 million already mined and in circulation. Going by the principles of demand and supply, Litecoin tends to have a lower market value. The good thing about Litecoin is that, depending on the user’s financial goals, it can serve its purpose.

Conclusion

This article has introduced you to a comprehensive understanding of cryptocurrency. Bitcoin is considered the first official cryptocurrency to ever be used. All other cryptocurrencies are referred to as altcoins. However, cryptocurrencies have opened the world to a whole new level of interaction. All thanks to the blockchain for making this possible.

People from all around the world are interacting and trading at the same time. Cryptocurrency has lots of benefits in the future. It is expected that, as users, you should not be left out. Begin now to explore and learn more about this digital currency.