What are cryptocurrencies
Cryptocurrencies are digital or virtual currencies that use cryptography to secure online transactions without relying on any central authority. They are based on decentralized networks such as blockchain technology, which is a distributed ledger enforced by a network of computers. Some examples of cryptocurrencies are Bitcoin, Ethereum, Pepe, and Solana.
Cryptocurrencies have some advantages such as transparency, low fees, fast transactions, and anonymity. They also have some disadvantages such as volatility, security risks, regulatory uncertainty, and environmental impact.
Cryptocurrency is a type of digital or virtual currency that uses cryptography to secure and verify transactions. Cryptography is also used to create new units of cryptocurrency, which are usually limited by a predefined algorithm.
Cryptocurrency is different from traditional fiat currency, which is issued and controlled by a central authority, such as a government or a bank. Cryptocurrency is decentralized, meaning that it operates on a network of computers that are distributed across the world and follow a set of rules or protocols. This network is often based on blockchain technology, which is a system that records and validates transactions in a public ledger that cannot be altered or erased.
Advantages of cryptocurrency
Transparency cryptocurrency transactions are recorded and visible on the blockchain, which can prevent fraud and corruption.
Privacy cryptocurrency users can transact anonymously or pseudonymously, without revealing their personal information or identity.
Efficiency cryptocurrency transactions can be faster and cheaper than traditional payment methods, especially for cross-border transfers.
Innovation cryptocurrency can enable new business models and applications, such as smart contracts, decentralized applications, peer-to-peer lending.
Challenges of cryptocurrency
Volatility cryptocurrency prices can fluctuate significantly due to supply and demand, speculation, regulation, hacking.
Security cryptocurrency users are responsible for safeguarding their own funds and private keys, which can be lost or stolen by hackers or malware.
Regulation cryptocurrency faces legal uncertainty and regulatory barriers in many countries, which can affect its adoption and legitimacy.
Education cryptocurrency requires technical knowledge and financial literacy to understand and use effectively.
Thousands of cryptocurrencies in circulation today, each with its own features and functions. Most popular ones are Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), Tether (USDT), Cardano (ADA).
How does cryptography work
Cryptography is the art of writing or solving codes that allow only the sender and intended recipient of a message to view its contents. It is derived from the Greek word kryptos, which means hidden. Cryptography is used to hide or code information so that it is secure and confidential.
There are different types of cryptography, such as symmetric key cryptography, asymmetric key cryptography, and hashing. Symmetric key cryptography uses the same key to encrypt and decrypt messages, while asymmetric key cryptography uses different keys for encryption and decryption. Hashing is a one way function that converts a message into a fixed length string of characters, called a hash or digest.
Symmetric key cryptography
AES (Advanced Encryption Standard) Widely used algorithm that can encrypt and decrypt data using keys of 128, 192, or 256 bits.
DES (Data Encryption Standard) Older algorithm that uses a 56 bit key to encrypt and decrypt data. It is considered insecure today due to its small key size.
Blowfish Variable length key algorithm that can encrypt and decrypt data using keys ranging from 32 to 448 bits.
RC4 Stream cipher that generates a pseudorandom keystream and XORs it with the plaintext to produce ciphertext. It is vulnerable to several attacks and should not be used anymore.
Twofish Block cipher that can encrypt and decrypt data using keys of 128, 192, or 256 bits. It is one of the finalists of the AES competition. Symmetric key cryptography is used for various purposes
- Payment applications, such as card transactions where personal information needs to be protected to prevent identity theft or fraudulent charges.
- Random number generation or hashing to create unpredictable or irreversible outputs.
Asymmetric key cryptography
RSA Widely used algorithm that can encrypt and decrypt data using a pair of keys, a public key and a private key. The public key can be shared with anyone, while the private key must be kept secret. The public key can be used to encrypt data that can only be decrypted by the private key, and vice versa.
DSA (Digital Signature Algorithm) Algorithm that can create and verify digital signatures using a pair of keys, a signing key and a verifying key. The signing key is used to generate a signature for a message, while the verifying key is used to check the validity of the signature.
ECC (Elliptic Curve Cryptography) Type of asymmetric cryptography that uses mathematical curves to generate keys and perform encryption and decryption operations. ECC can provide the same level of security as RSA or DSA with smaller key sizes, which makes it more efficient and faster.
PKI (Public Key Infrastructure)y System that manages and distributes public keys and digital certificates for asymmetric cryptography. PKI uses a trusted authority, such as a certificate authority (CA), to issue and revoke certificates that bind public keys to their owners’ identities.
Blockchain Technology that uses asymmetric cryptography to create and verify transactions for cryptocurrencies, such as Bitcoin or Ethereum. Blockchain uses public keys as addresses for sending and receiving coins, and private keys as signatures for authorizing transactions.
Purpose of hashing
Hashing is the process of transforming a string of characters into another value for the purpose of security or efficiency. A string of characters can be any data, such as a password, a message, a file, etc. The other value is usually a shorter, fixed length value or key that represents the original string. This value or key is called a hash or a hash code.
A hash is generated by applying a mathematical function or algorithm to the original string. This function or algorithm is called a hash function or a hashing algorithm. There are many different hash functions and algorithms, such as MD5, SHA-1, SHA-256. Each hash function or algorithm has its own properties and characteristics.
Hashing has many applications
- Security hashing can be used to protect sensitive data, such as passwords, from unauthorized access or modification. Example, when a user creates an account on a website, the website can store the hash of the user’s password instead of the password itself. This way, even if someone hacks into the website’s database, they cannot see or use the user’s password.
- Verification hashing can be used to verify the integrity or authenticity of data, such as messages, files, transactions, etc. For example, when a user downloads a file from the internet, they can compare the hash of the downloaded file with the hash provided by the source. If the hashes match, it means that the file has not been corrupted or tampered with during transmission.
- Efficiency hashing can be used to improve the performance or speed of data processing or retrieval. Example, hashing can be used to implement hash tables, which are data structures that store and access data using hashes as keys. Hash tables can quickly locate and retrieve data without scanning through all the entries in the table.
Milestones of cryptocurrency
Bitcoin surpassed $1 trillion in market value for the first time, on February 19, 2021. Bitcoin reached a market capitalization of over $1 trillion, making it one of the most valuable assets in the world. This milestone was driven by increased demand from institutional investors and mainstream companies, such as Tesla, MicroStrategy, Square, PayPal.
El Salvador became the first country to adopt Bitcoin as legal tender on September 7, 2021. El Salvador officially recognized Bitcoin as a legal currency, alongside the US dollar. This means that citizens and businesses can use Bitcoin to pay taxes, debts, goods and services. The government also launched a state-backed wallet app called Chivo and gave $30 worth of Bitcoin to every citizen who signed up.
Increasing popularity of meme coins. Meme coins are cryptocurrencies that are inspired by internet memes or jokes, such as Dogecoin (DOGE), Shiba Inu (SHIB), SafeMoon (SAFEMOON), etc. These coins gained a lot of attention and traction in 2021, thanks to social media hype, celebrity endorsements and community support. Some of these coins achieved remarkable returns, such as SHIB, which surged over 50 million percent since its launch in August 2020.
Exploding interest in NFTs, NFTs are non fungible tokens that represent unique digital assets, such as art, music, games, collectibles, etc. NFTs became a global phenomenon in 2021, with record breaking sales and auctions. Example Beeple’s “Everydays The First 5000 Days” sold for $69 million at Christie’s, CryptoPunks’ “Alien #7523” sold for $11.8 million at Sotheby’s, Twitter CEO Jack Dorsey’s first tweet sold for $2.9 million on Valuables.
Growth of DeFi, DeFi stands for decentralized finance, which is a movement that aims to create open and permissionless financial services using blockchain technology and smart contracts. DeFi offers various products and platforms for lending, borrowing, trading, investing, saving without intermediaries or centralized control. DeFi grew exponentially in 2021, with over $200 billion locked in various protocols across different blockchains.
Birth of fan tokens, fan tokens are digital tokens that allow fans to access exclusive content, rewards and experiences from their favorite celebrities, sports teams or influencers. Fan tokens are usually issued on platforms like Socios or BitClout and can be traded on secondary markets. Examples of fan tokens are Paris Saint-Germain (PSG), Juventus (JUV), FC Barcelona (BAR), Naomi Osaka (NAOMI).
Metaverse adaption the metaverse is a term that describes a virtual world where people can interact with each other and digital content through immersive technologies like VR/AR/MR. The metaverse is seen as the next frontier for social media, gaming and entertainment. Cryptocurrency plays a key role in enabling the metaverse by providing digital ownership, identity and economy. Examples of metaverse projects are Decentraland (MANA), Sandbox (SAND), Axie Infinity (AXS).
Top 10 cryptocurrencies by market cap
- * as of March 2023
- Bitcoin (BTC): $35,000 per coin, $657 billion market cap
- Ethereum (ETH): $2,000 per coin, $231 billion market cap
- Binance Coin (BNB): $300 per coin, $46 billion market cap
- Tether (USDT): $1 per coin, $40 billion market cap
- Cardano (ADA): $1.2 per coin, $38 billion market cap
- Polkadot (DOT): $30 per coin, $29 billion market cap
- XRP (XRP): $0.5 per coin, $23 billion market cap
- Uniswap (UNI): $30 per coin, $15 billion market cap
- Litecoin (LTC): $180 per coin, $12 billion market cap
- Chainlink (LINK): $25 per coin, $10 billion market cap
General guide on how to buy cryptocurrency
Choose a broker or a crypto exchange, abroker is a platform that allows you to buy and sell cryptocurrencies at a fixed price, while an exchange is a platform that allows you to trade cryptocurrencies with other buyers and sellers at market prices. Both have their pros and cons, so you need to do some research and compare their features, fees, security, reputation, etc. before choosing one.
Make an account with the broker or exchange, you will need to provide your personal information and verify your identity to complete the registration process. This may take some time depending on the platform and the verification method. You may also need to set up two-factor authentication for extra security.
Fund your account with fiat money, before you can buy any crypto, you need to fund your account with another currency, such as U.S. dollars. You can do this by using various payment methods, such as credit or debit card, bank transfer, PayPal. The availability and speed of these methods may vary depending on the platform and your location.
Decide which cryptocurrency you want to buy, you can choose to invest in one or many cryptocurrencies. Research your options to help you decide which ones suit your goals and risk appetite. You can find information about different cryptocurrencies on websites like CoinMarketCap or CoinLore, which show their prices, market caps, trading volumes.
Place a buy order for your chosen cryptocurrency, follow the steps required by the platform to submit and complete a buy order for one or more cryptocurrencies. You may need to specify the amount of crypto you want to buy or the amount of fiat money you want to spend. You may also need to choose a type of order, such as market order (which executes immediately at the best available price) or limit order (which executes only when the price reaches a certain level).
Store your cryptocurrency in a digital wallet, after your purchase is complete, the information you need to access your cryptocurrency is held in a digital wallet. A digital wallet is a software program that stores your private keys (which are like passwords) that allow you to send and receive crypto transactions. There are different types of wallets, such as online wallets (which are hosted by the platform or a third-party service), offline wallets (which are stored on devices like USB drives or paper), hardware wallets (which are physical devices that connect to your computer or phone), etc. You need to choose a wallet that is compatible with your cryptocurrency and offers enough security and convenience for your needs.
These are the basic steps for buying cryptocurrency, but they may vary depending on the platform and the cryptocurrency you choose. You should always do your own research and due diligence before investing in any cryptocurrency, as they are volatile and risky assets that can lose value quickly.