Demystifying Cryptocurrencies: An Introduction to Cryptocurrencies for Beginners

Cryptocurrencies have taken the world by storm, captivating people's attention with their potential and revolutionising the traditional financial landscape. If you're new to the world of digital currencies, you've probably heard of popular ones like Bitcoin, Ethereum, Tether, Solana, Cardano etc.  But did you know there are hundreds of cryptocurrencies with unique use cases? In this article, we'll delve into the fascinating realm of cryptocurrencies, covering everything from their meaning, how they differ from fiat currencies and their intriguing history.

Cryptocurrencies are slowly becoming a must to learn about as their revolutionary nature changes the world as we know it. Why? They offer the benefits of traditional fiat currencies and much more, making them the interest of millions across the globe. What, then, are cryptocurrencies? The simple meaning of cryptocurrency is digital currencies. Unlike fiat currencies, they cannot be touched or moved physically. Cryptocurrencies only exist strictly in the digital form. 

In your journey through the world of cryptocurrencies, you may come across the terms "coins" and "tokens." While these terms are often used interchangeably, they have distinct characteristics. Coins, like Bitcoin and Ethereum, operate on their blockchain and serve as a means of exchange. On the other hand, tokens, such as Tether (USDT), leverage the blockchains of existing coins, like Ethereum, to represent assets or facilitate specific functionalities.

Tokens can be a digital representation of an asset, such as NFTs or company shares, transferred from one person to another. This is distinct from coins because crypto coins do not move; only account balances change. When you transfer money from one bank to another, it does not leave your account. The bank adjusts the balances of both accounts and charges fees.

The idea of the existence of digital currencies has been around since the end of the 20th century. That idea was first shared with the world by David Chaum, a cryptographer when he came up with ecash which was electronic money that used cryptography to protect users’ identities. He implemented the idea through Digicash in 1995, but the company declared bankruptcy 3 years later. Although Digicash used cryptography protocols to encrypt data about a person withdrawing money from a bank and sending it to another party, it was a way to ensure that electronic transactions were untraceable.

In 1998, Wei Dai and Nick Szabo described other electronic cash systems called b-money and bit-gold. The concept behind these ideas was the existence of anonymous electronic cash. However, these concepts were never implemented.

It wasn’t until 2009 that the first cryptocurrency, bitcoin, was created. Bitcoin was developed by a person or group of persons under the pseudonym Satoshi Nakamoto. Bitcoin was first mentioned in a white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System”. Since the creation of Bitcoin, other cryptocurrencies have been created similar to bitcoin and others quite distinct from it for specific purposes.

Cryptocurrencies are built on a blockchain; for instance, bitcoin is built on a Bitcoin blockchain. The blockchain contains all the transactions on Bitcoin and records them as blocks. Learning how the Bitcoin blockchain works helps us see that new blocks are added to the blockchain through mining, which involves validating the authenticity of blocks added to the blockchain network for a reward.

Fiat currencies like dollars, naira, cedi, shillings and cryptocurrencies facilitate transactions and can be used as a store of value. Yet, certain distinct features differentiate fiat currencies and cryptocurrencies that help explain crypto better.

As crypto adoption is on the increase, you might just be curious about how to purchase cryptocurrencies. Cryptocurrencies are structured to be bought peer-to-peer, so you can easily purchase cryptocurrencies directly from an individual at a bid-ask price that suits you. However, new risks have developed with purchasing cryptocurrencies directly as fraudsters and scammers are masked as crypto traders. This is why cryptocurrency exchanges like Yellow Card are popular among people as you can purchase cryptocurrencies directly and securely from Yellow Card.

The creation of cryptocurrencies marks a significant turning point in the financial world. They offer a fresh perspective on monetary systems and present potential advantages over traditional fiat currencies, such as decentralisation, anonymity, speed and more. Understanding these basics would equip you to navigate the ever-growing crypto space better.