A guide for beginners in cryptocurrency – Part I

In the past years, a new industry slowly emerged into our lives. You might have heard of it from mainstream media, online advertising or even from some of your friends. Until recently, it was considered to be a joke without a future, a scam, where you could lose all your money, a bubble that many were curious when it would burst. Government officials from all over the world issued warnings to their citizens to be careful of this new industry they did not understand, while entrepreneurs and well established economists and Nobel Prize winners mocked it every time they got the chance.

However, in the past few months, things started to chance. Governments started to discuss how to regulate it, while the richest families on earth reconsidered their position and decided to enter the game, bringing in their rich friends with them.

Bitcoin – The First Cryptocurrency

The story begins with an unknown programmer (or group of people) that goes by the name of Satoshi Nakamoto who designed Bitcoin and created its original reference implementation along with the first blockchain database. Because any great innovation meets a lot of resistance at first, he chose to remain anonymous to this day. Back in 2008, Nakamoto  published a paper on the cryptography mailing list at metzdowd.com describing the Bitcoin digital currency.

A few months later, in January 2009, Nakamoto released the first Bitcoin software that launched the network and the first units of the bitcoin cryptocurrency, called Bitcoins. The innovation behind Bitcoin was that it enabled anonymous and secure transactions between people from all over the world without the need of a middleman, exchange commissions or taxes paid to the Governments. This parallel virtual currency was the first one of what today we call “cryptocurrencies”.

The safest and easiest way is to buy Bitcoin from a trusted exchange, like CoinBase or Bitstamp. You can also acquire Bitcoins through a transfer from another person that already has Bitcoins in his electronic wallet. However, some people prefer the third option: mining Bitcoins by using their computers to solve complex math puzzles. Basically, this is how Bitcoins are created.

Like all other cryptocurrencies, Bitcoins are safely stored in a “digital wallet” that acts like a virtual bank account that allows users to send or receive Bitcoins, pay for goods or even save money, which exists either on the cloud, in an user computer or even on a USB drive.

Blockchain Technology

Because cryptocurrencies are decentralized, meaning they do not use a central server, all transactions are recorded through a system that makes sure that every transaction is unique, anonymous and secure.

All transactions are arranged into pieces of data called blocks, that link to one another forming a chain of blocks, or a blockchain. Each transaction is verified, recorded and stored by computers from all over the world that belong to volunteers, also called “miners”.

In the case of Bitcoin, computers need to solve math problems using their computing power, that in return, earn Bitcoins, thus making this a win-win relationship. It is impossible to hack Bitcoins’ blockchain, because it would take a hacker more than 51% of the network to manipulate the blockchain and get a hold of their funds.

In the case of Ethereum, for each transaction, you need to pay Gwei and GAS. There is a strong bond between these two, because GAS is needed by miners to execute a transaction. The more complicated a transaction is, the more GAS it will need. Gwei is how much you are willing to pay per unit of GAS.

There is a wide range of applications for the blockchain technology. It can be used to keep records of events, medical records, identity, transaction processing, documenting provenance, food traceability, voting and many others than can be safely and publicly stored.

Ethereum – The Second Most Popular Cryptocurrency

After Bitcoin entered the scene, there was a chaos between Governments that wanted to shut it down, because they considered it dangerous and illegal to allow parallel decentralized currencies to exist. They searched for a long time for the founder of Bitcoin, in order to execute him as a public example. On the other hand, most people started to mock Bitcoin, because they believe its existence to be a ridiculous scam. However, developers saw the potential of the blockchain technology and an became really excited about it. They started investing, mining and buying Bitcoins when its value was really low and most people did not believe in it. Some of them even borrowed money to do that, and now, most of those people are billionaires. Some developers took the source code of Bitcoin, modified it and created their own cryptocurrencies, such as Litecoin.

However, the problem was that creating, securing and maintaining an entire blockchain network is not an easy task. The solution to this problem was offered in 2013 by the Russian Vitalik Buterin, who created a new blockchain, called Ethereum. Unlike Bitcoin, which is just a virtual parallel cryptocurrency, Ethereum has an entire ecosystem behind it. The genius behind it is that it allows anyone to create blockchain applications on top of it, without needing to have blockchain network themselves. Ethereum has its own build-in programming language that is turing-complete, meaning you can write software with it that can solve any computational problem.

With Ethereum’s language called Solidity, a contract-oriented programming language for writing and implementing smart contracts on various blockchain platforms, anyone can create smart contracts.

Basically, Ethereum elevated the crypto market to the next level, by introducing smart contracts, protocols that defines financial rules with a clear cryptographic way of verifying transactions in a decentralized way. Ethereum has its own token, called Ether (ETH), and, like Bitcoin, it also contains a log of transactions and events, with the difference that it can be filled with a wider variety of event information. As stated above, Ethereum transactions are verified, recorded and stored with the help of miners, that are rewarded in Ether for their services.

NEO – The Ethereum of China

NEO, the largest competitor of Ethereum, is a next generation smart economy platform (formerly Antshares), and means new and young in Greek. NEO is known for having an incredible rise to fame after its explosive growth. Founded in 2014, it was a real-time open source on GitHub in June 2015. NEO functions similar to Ethereum, but there are lots of differences between these two. NEO is a place where you can build decentralized applications and smart contracts on top of the NEO blockchain. Unlike Ethereum, where you need to learn a new coding language to be able to utilize Ethereum blockchain, NEO is significantly easier to use, because you can write code in Java script, C#, and other already existing code languages. One of the drawback of NEO is that it is still pretty new, and that Ethereum had the head start, and has a lot of startups. NEO has two native tokens, NEO (abbreviated symbol NEO) and NeoGas (abbreviated symbol GAS). Holding NEO in your Wallet  makes you GAS overtime.

The Future of Cryptocurrency

In the past year, the crypto market has reached another level. There are too many investors, traders and miners, spinning huge amounts of money, that the Governments are seriously considering to implement Blockchain technologies into different fields, entrepreneurs has seriously started to turn their attention towards this, and programmers have started creating more constructive projects. The best part is that these three entities have started to work together, and solid crypto projects started to appear.

We have decided to make a series of articles about Cryptocurrency and Blockchain for beginners. Stay tuned for more!

YOU MIGHT ALSO WANT TO READ:
Ethereum mining – A guide for beginners in cryptocurrency – Part II

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