The meaning of cryptocurrency: Digital money in the new economy

Basic Knowledge for Every Beginner

The meaning of cryptocurrency represents a revolutionary redemption compared to the world of fiat money. These are digital assets secured by cryptography and based on blockchain technology. It is indeed possible to transfer assets directly from one user to another using a peer-to-peer method without intermediaries through a decentralized network with cryptocurrencies.

In recent years, numerous cryptocurrencies have emerged on the market. According to market capitalization, the leaders are Bitcoin (BTC), Ethereum (ETH), BNB, USDT, and Solana (SOL) – these are the most well-known and widely used digital currencies.

The concept of cryptocurrency and the basics of its operation

( What does cryptocurrency mean?

The meaning of cryptocurrency lies in the fact that it is a digital unit of value secured through cryptography. Unlike traditional banking systems, cryptocurrencies can operate globally and continuously without the need for central supervisory institutions such as banks or payment service providers.

Thanks to the decentralized nature of these tools, users can conduct transactions directly with each other without the involvement of an intermediary. People can access their crypto through wallets or trading platforms, rather than through traditional bank accounts.

) Bitcoin: the first digital currency

The cryptocurrency movement started with Bitcoin in 2009, when a person or team known by the pseudonym Satoshi Nakamoto created this first and still most popular digital resource. Since then, thousands of additional cryptocurrencies have emerged in the market, each with its own features and application possibilities.

Initially, cryptocurrencies functioned merely as exchange tools, but during their development, they gained much more diverse applications. Today, we can encounter them in decentralized finance ###DeFi(, artificial intelligence, game creation, voting systems, healthcare applications, and digital collectibles.

The Technical Background of Cryptocurrency Operations

) The blockchain network

Most cryptocurrencies are built on decentralized operation, which means that a distributed network of computers ###known as nodes( handles and records transactions in a shared ledger, which we call the blockchain.

When a cryptocurrency transaction occurs, it must be collectively verified and confirmed by the network nodes. Each node has its own copy of the blockchain, and it must update this when new information is added to the ledger. Following confirmation, the transaction is permanently entered into the blockchain database.

This distributed architecture significantly enhances the security of the system, as there is no single central point that malicious actors could exploit. If any node attempts to validate invalid transactions or behaves improperly, the network quickly excludes it.

) Cryptography and digital signatures

Cryptocurrencies use cryptographic methods to protect transactions, maintain the integrity of data, and oversee the issuance of new units. When a user performs a cryptocurrency transfer, they generate a digital signature using their private key.

The network verifies this signature, and if everything is correct, the given transaction is included in a new block. The essence of the blockchain is that all the blocks are interconnected, so each block can be considered a page of the ledger. Each block contains a unique list of cryptocurrency transactions, among other information.

What makes cryptocurrencies special?

Decentralization and self-determination

Cryptocurrencies give users the ability to have complete control over their own assets. The decentralized structure eliminates the need for central authorities. This provides greater autonomy and reduces the risk that may arise from influence or regulation by a single entity.

( Transparency and immutability

Blockchain technology registers each transaction in a public and immutable record. Once a transaction is added to the blockchain, it is nearly impossible to modify or delete it afterwards.

) Programmability

Several cryptocurrencies – such as ETH – are open source and programmable. This allows developers to deploy smart contracts and create decentralized applications ###DApps###, as well as develop other innovative solutions. Since open-source blockchains do not require permission, anyone can write code and create their own DApp.

Global availability

Cryptocurrencies can be sent from anywhere and received anywhere, making them ideal for global transactions and international money transfers.

Limited supply

Many cryptocurrencies have a limited supply. For example, the issuance rate of Bitcoin is predetermined, and its maximum amount is 21 million units, which contributes to its potential for value preservation. The finite supply helps prevent inflationary pressure and can lead to higher demand in the long term.

Market capitalization: how do we evaluate cryptocurrencies?

The term market capitalization briefly shows the relative size and value of a cryptocurrency. The calculation is simple: you need to multiply the current price of the coin by the total number of coins in circulation:

Market capitalization = Circulating supply × Price

Market capitalization is often used to rank cryptocurrencies. The general rule is that higher capitalization indicates a more stable and widely used asset. In contrast, lower capitalization often suggests a more speculative or volatile nature.

However, it is important to note that this is just one aspect among many. When evaluating the potential of a cryptocurrency, several other factors – such as the technology, the team, the tokenomics, and the practical use cases – should also be taken into account.

The five most significant cryptocurrencies today

( Bitcoin )BTC###

Bitcoin is the first and still the most popular cryptocurrency, created by Satoshi Nakamoto. It is widely used as a store of value and a medium of exchange. Bitcoin uses the Proof-of-Work ###PoW### mechanism, in which miners compete with each other to approve transactions, and in return receive block rewards. Due to its limited supply of 21 million coins, BTC is relatively rare, and many refer to it as “digital gold”.

( Ether )ETH(

Ether is the native cryptocurrency of the Ethereum blockchain. Ethereum was created by Vitalik Buterin and operates as a decentralized network where developers can build DApps using smart contracts. Ethereum originally used a proof-of-work system, but later transitioned to the Proof-of-Stake )PoS### mechanism to improve efficiency and reduce energy consumption. This transition allowed users to operate nodes by stakeling (depositing) their ETH, thereby validating transactions and ensuring the network's operation.

( BNB

BNB was launched in 2017 as an ERC-20 token on the Ethereum blockchain. In 2019, BNB moved to its own blockchain and is currently the native cryptocurrency of the BNB Chain ecosystem. Similar to Ethereum, BNB Chain provides a platform for smart contracts and DApps, typically with lower transaction fees and faster processing times. BNB has multiple use cases: it can be used for staking, payment of transaction fees on the BNB Chain network, as well as for other functionalities. The BNB Auto-burn system limits the supply of BNB and helps create scarcity.

) Tether (USDT)

USDT is a stablecoin pegged to the US dollar. It was launched by Tether Limited Inc. in 2014. Stablecoins are cryptocurrencies designed to maintain a stable value based on a reserve asset, such as USD or another fiat currency. In the case of USDT, each token is backed by an asset of equal value in the company's reserves. Stablecoins like USDT eliminate the extra costs and delays associated with converting between cryptocurrencies and fiat currencies.

Solana ###SOL(

SOL is the native cryptocurrency of the Solana blockchain. Solana is a third-generation PoS blockchain that was launched in 2020. It has implemented several unique innovations to offer high throughput, fast transactions, and low fees.

Safe Cryptocurrency Investment: Essential Information

) Do your own research ###DYOR(

Before you invest a significant amount in any cryptocurrency, it is fundamentally important to understand the basics of blockchain technology, the different types of cryptocurrencies, and the dynamics of the market. A good start is to read books, blog posts, forums, and listen to podcasts. Familiarize yourself with the teams behind the projects, the technology, and their goals, so you can make informed decisions.

) Beware of scams

The cryptocurrency world is full of innovation and interesting products, but unfortunately, cryptocurrency scams are also spreading. Do not trust strangers on the internet, and be wary of pyramid schemes and Ponzi schemes. If you need help, there are extensive customer service channels available for all reliable platforms. Be cautious of phishing attacks, as well as multisig, airdrop, and lottery scams. Thoroughly check social media profiles to avoid falling into the traps of fake accounts. Consider using a strong password manager, and store your private keys and recovery phrases ###seed phrases( in offline mode. For added security, you can even share the recovery phrase in multiple locations.

) Start small

The cryptocurrency market is volatile and often prone to unpredictable behavior, especially in the case of lesser-known coins. It is much safer and wiser to start with small investments that, in the event of a loss, will not completely burden the balance. This tactic allows for gaining experience and a deeper understanding of market trends without taking on too much risk.

Stay updated

The crypto sphere is rapidly evolving, so it is critical to continuously monitor the news, technological developments, and regulatory changes. Before taking on risk, always familiarize yourself thoroughly with the project in question.

( Choose a reliable trading platform

One of the most important decisions is choosing a well-known and secure cryptocurrency trading market. Consider aspects such as trading volume, fees, customer service, security measures, the user interface, and a wide range of available cryptocurrencies.

) Apply risk management strategies

Before making any investment, apply some risk management methods. For example, if you invest an amount that you can afford to lose, and set stop-loss orders to limit potential losses, that is already a significant step towards progress.

What do you know about white papers?

A cryptocurrency white paper is a document that details the blockchain project and its technical specifications. It typically includes the project's objectives, the principles of its operation, the technology used, the team working on the project, the tokenomics, as well as the development and implementation timeline.

White papers serve as comprehensive guides for individual projects, outlining their objectives and potential benefits. Investors and community members typically study and critically examine these materials to assess the legitimacy and prospects of the project before making an investment.

However, there are no standards or obligations regarding white papers, and they may contain misleading or inaccurate information. Crypto projects can describe almost anything, so it is the users' responsibility to critically examine them and verify the truthfulness of the claims made.

In summary

Cryptocurrencies offer a new perspective on money and the execution of financial transactions. Some believe they will eventually replace traditional financial systems, while others think they will rather complement the existing ones. One thing is for sure: cryptocurrencies are already having a significant impact on finance and technology, and their influence in the future is likely to only increase.