What is Cryptocurrency

            Today cryptocurrencies have become a global phenomenon, with the first cryptocurrency being created in 2009. It is known as Bitcoin and its inventor remains anonymous to this day under the pseudonym Satoshi Nakamoto. In recent years, many more cryptocurrencies have been created, all of them having unique characteristics.

            The most popular type of cryptocurrency, Bitcoin is also the oldest one. They are also called coins or digital currency. Some other terms for cryptocurrencies include virtual currency, altcoins (alternative coins), digital money, internet money/cash, digital cash, electronic currency/funds, etc… Cryptocurrencies can be used to buy things electronically, just like any other form of money. However, they are limited because they cannot be used in physical stores or for other types of transactions where a third party needs to be involved. This is due to how Bitcoin was created, which sets the stage for our next point…

            Bitcoin was created to have fast transactions with low fees (better than credit cards) and an immutable public ledger (no double-spending). The record of all Bitcoin transactions is stored on the Blockchain. Since all computers in the Bitcoin network store this blockchain, it is impossible for someone to go back and change their transaction history. Because of its decentralized nature, there are no governments that can control these crypto currencies like they do normal currencies. Instead, Bitcoin uses cryptography (the use of codes) to create new coins and verify transfers between wallets. Bitcoins are mined by solving increasingly difficult math problems which are solved through computing power. This is called Bitcoin Mining. For this reason, Bitcoin has become less practical for regular transactions, but can still be used to purchase things electronically.

            A new type of cryptocurrency using Blockchain technology is Ethereum, which uses it for more than just currency. Users create smart contracts (like an online contract) and applications (like a program). Any decentralized service that needs trust between parties without third-party involvement can use Ethereum. Users pay ‘Gas’ fees for any operations made on the network, including creating smart contracts or apps. The Gas also prevents spamming the Ethereum network with bad code. Ether is mined similarly to Bitcoin, but other cryptocurrencies can be mined as well by joining mining pools.

            Litecoin was created in 2011, inspired by Bitcoin itself. It was seen as the silver to Bitcoin’s gold because it is faster and has lower transaction fees. It uses the Scrypt algorithm (a sequential memory-hard function requiring asymptotically more memory than an algorithm that is not memory-hard) for its proof of work (PoW), which means that miners cannot use ASICs (Application Specific Integrated Circuits). Litecoin can be used like other cryptocurrencies; buying things electronically or for investment purposes.

            Dash, known previously as dark coin, appeared in 2014. It aims to be a more secretive version of Bitcoin with improved anonymity features (like making it nearly impossible to trace transactions back to the user). It uses a hash algorithm known as X11 for its proof of work function. Users are able to make instant transactions through masternodes , which are computers running the Dash software with a minimum of 1000 DASH. This makes it more practical to use Dash for everyday transactions, similar to how one would use an online banking account.

            Ripple is different from other cryptocurrencies because it was created by a private company. It is still open source though, meaning that anyone can contribute to its development if they want while remaining in full control of their funds. It still uses mining like Bitcoin and other cryptocurrencies, but it has no limit on the number of coins that can be mined, unlike Bitcoin. Other cryptocurrencies have daily limits on how many coins can be mined, but Ripple does not. It uses a consensus ledger to process transactions, meaning there is no proof of work involved, and anyone who wants to help verify transactions can do so. As such it has fast transaction speeds and relatively low fees.

            Monero, another cryptocurrency with zero-knowledge proof, appeared in 2014 as well. This means that the sender and receiver are kept hidden from each other (unlike Bitcoin where you know who sent you bitcoins). It also has global verification which makes it more secure than Bitcoin. The downside is that everyone must download the entire blockchain before they can start mining for coins (not just join a pool like Litecoin ).

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