At its core, cryptocurrencies are digital assets (crypto assets) that make use of computer codes and blockchains to be able to operate on their own to some degree without the need to rely on someone or something to manage the system.
Blockchains refer to the public ledger that keeps track of all cryptocurrency transactions. This ledger is distributed and maintained throughout the computers linked to the network. The transactions that are recorded are put into blocks that are then linked to each other in chronological order, creating a historical record of all the transactions that have ever happened on that blockchain.
Bitcoin, considered the first cryptocurrency, was originally created to serve as a payment mechanism to be used solely online. At the time of its release, it was faster and cheaper than any other payment method, with the added bonus of not being subject to decisions by banks or the government.
There are thousands of cryptocurrencies in circulation at the moment, and cryptocurrencies can still be seen as a payment mechanism, although other applications for it have been developed. Nowadays, it can be used for lending and borrowing or for things like acting as a digital storage.
There is no doubt that cryptocurrencies will play a large part in how we approach finance in the future. In the meanwhile, it might be wise to invest in them for the long term.
But while the definition of what cryptocurrencies are can be fluid,
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Here are the typical features of crypto assets
1. Cryptography
A cryptocurrency makes use of cryptography, specifically public-key cryptography, which refers to coding techniques that are used to secure information. In systems where public keys are used, there are unique public keys that you can share with others, and this is the key you would share with people if they want to send you crypto.
There is also a private key, which is meant to be kept only to yourself. This private key serves as a password that secures your cryptocurrency holdings and is used when signing transactions you initiate.
2. Transparency
One of the main appeals of cryptocurrencies is the transparency it provides. Nearly all of the protocols that cryptocurrencies use are open source and are free for redistribution and modification. Additionally, every transaction made on the network is attached with a timestamp when it gets recorded onto the blockchain, which creates a chronological timeline of the ownership of the assets.
3. Incentives
Cryptocurrencies make use of game theory components to make sure that all the people on the network are active and move in a way that keeps the system running. Take the acting of crypto mining, for example. People who mine cryptocurrencies make use of specialised computing rigs to verify transactions. In exchange for the work they do, they are rewarded with newly minted coins whenever they successfully verify transactions. By doing this, miners are incentivised to keep dedicating their resources to verifying transactions.
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In the cryptocurrency market, a lot of terms are used interchangeably, and this can make things confusing for newbies. But to make things simple, cryptocurrencies can be split into three categories:
Crypto Assets or Digital Assets
This term can be used widely for all of the assets that were created from the blockchain revolution and use cryptography as a security measure. Cryptocurrencies and crypto tokens can both be considered crypto assets.
1. Cryptocurrency
These digital assets can also be called crypto coins, and they can be defined as being native to blockchains. Take Bitcoin and Ethereum. For example, their native coins are bitcoin (BTC) and ether (ETH), respectively. These coins can be used to pay for the transaction fees on the network, and are also the main compensation for the miners for every transaction that they verify.
2. Crypto Tokens
This term refers to crypto assets that do not run on blockchains of their own. Instead, crypto tokens operate on top of an already established blockchain. The most popular example of this is Ehtereum, which has become a popular blockchains that can be used to build tokens. Decentralised Finance tokens can also be considered as part of this category.
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