Thanks to cryptocurrencies (also called cryptos), people can now carry out financial transactions without sharing their personal information with banks. But what exactly is a cryptocurrency and how does it work? This question is one most beginners need an answer to. They hear a lot about cryptocurrency but don’t know how it works or the different types of cryptocurrency. To answer the question on the minds of most newbies in cryptocurrency is the reason for this guide. We will explain briefly what cryptocurrencies are and will then look at a few cryptocurrencies beginners should familiarize themselves with.
What are Cryptocurrencies?
Simply put, cryptocurrencies are currencies that take the form of “coins” or tokens and that exist on a decentralized and distributed ledger known as blockchain. Cryptocurrencies are not regulated by a centralized authority. They rely on encryption methods in regulating the creation of currency units and in the verification of funds transfers.
Cryptocurrencies Beginners Should Know
It is difficult to get an accurate figure for the number of cryptos that exist today; this is because new cryptos are emerging all the time. However, it is believed that there are more than 4,000 cryptos in existence today. For beginners, below are 5 cryptocurrencies you should know.
1. Bitcoin (BTC)
BTC is the oldest and most popular cryptocurrency. It is a digital currency that can be transferred to other people. Unlike physical currency, BTC does not have centralized governance. What this means is that it doesn’t rely on a third party or a bank to handle it. Each transaction with BTC happens directly between users (peer-to-peer network). This is possible thanks to blockchain technology. All information on the blockchain is encrypted, only the owners of the Bitcoin can decrypt it. Each Bitcoin owner has a ‘private key’ that can be used to decrypt the blockchain. The blockchain allows users to receive and send money without sharing their identities.
2. Ethereum (ETH)
ETH is the currency of the Ethereum platform. The Ethereum platform allows people to build tokens, dApps, and smart contracts. With smart contract technology, transactions can be automatically executed when certain things happen. Because of smart contracts, the need for a third party is eliminated.
The infrastructure to support the Ethereum project is vast already. On the Ethereum project, you have decentralized lending platforms, decentralized exchanges, digital art marketplaces, decentralized derivatives, and more than a dozen stable coins. Ethereum is currently being used by millions of people worldwide. The engagement of the platform is one that does not look like slowing down any time soon.
3. Ripple (XRP)
XRP is a cryptocurrency on the Ripple platform. It was created to facilitate cross-border payments. Based on market capitalization, Ripple is one of the biggest crypto-assets. XRP has garnered interest from traditional institutions like governments and banks, helping it to maintain a top position among the leading cryptocurrencies.
XRP is otherwise known as the banker’s coin. It was designed to make bank payments faster. Ripple is currently working on many partnerships with global banks.
4. Litecoin (LTC)
Litecoin was launched in 2011. Its creator, Charlie Lee, designed it to be an improvement to Bitcoin. It is often referred to as “the silver to Bitcoin’s gold”. Although Litecoin is similar to Bitcoin in many ways, it has some differences. For example, Litecoin has a faster block generation rate than Bitcoin. It processes transactions in seconds whereas Bitcoin transactions take upwards of 10 minutes. Litecoin uses the Lightning Network – this is what allows it to process transactions faster and also scale.
5. Cardano (ADA)
Cardona is a proof-of-stake crypto that was created with a research-based approach by mathematicians, engineers, and cryptography experts. Cardano’s coin ADA can be used in the transfer of funds digitally. The rigorous process of creating Cardano seems to be yielding results as it is standing tall among other large cryptocurrencies as well as its proof-of-stake peers. The Cardano platform has a Marlowe programming language which is a simplified language that will allow anyone to create a smart contract.
You should be familiar with the most popular cryptocurrencies after reading this article. Besides the cryptos that have been discussed in this guide, some other cryptos you should know are Bitcoin Cash (BCH), Polkadot (DOT), Binance Coin (BNB), and Sonergy (SNEGY). You can proceed to do further research and come up with your own opinion of these cryptos.