Lesson 1: What are Cryptocurrencies? Your Ultimate Guide

Lesson #1: An introduction to cryptocurrency

Undoubtedly, you’ve heard of cryptocurrencies, and that it’s going to change the world...

There’s a lot of information available, and although you’ve done some research, you still feel as if the penny hasn’t quite dropped yet.

You want to fully grasp cryptocurrencies and it’s value before giving it a shot.

We get it.

In this introduction video, we’ll discuss what exactly cryptocurrencies are, how they work, and what they’re used for.

Are you ready? Let’s go.

What are cryptocurrencies?

Cryptocurrencies can be likened to virtual currencies, or digital money, using cryptology for security. It’s really just another form of currency, but it’s not tangible because it’s digital.

Don’t think of it as the paper money you know. It’s a very different system.

This digital money isn’t money; it’s code, but it’s used like money. Its not backed by government and has nothing to do with banks.

It gets its value from demand and there are a limited amount which will ever be in circulation.

Crypto money is anonymous and works on a peer to peer basis. Its safe because the software that supplies the coins as well as the agreement between users cannot be manipulated.

Right about now, you may be wondering why people are going crazy over cryptocurrency?

It's mostly because for the first time in history, we are able to have a peer to peer digital money that does not require any middle men such as banks or governments, to work

It’s often compared to digital gold or cash. Bitcoin is the currency AND the network.

What and who are these networks?

The people in a “Peer to Peer” network are known as “nodes”.

A node is a device such as your computer, which is connected to other nodes on a blockchain network (we’ll get more into blockchain in the next video), allowing the cryptocurrency to function and keep on functioning by a certain strict set of rules.

Think of it as a verification system.

Now, there are different cryptocurrencies and each has its own nuances of course.

The purpose of the node is to propagate blocks across the network and to enforce the consensus rules of the network.

At its most simplest form, all cryptocurrency really is, is simply limited entries in a database that no one can change without meeting specific conditions; this is the same way conventional currency works.

Let’s make it real. Compare it to your own bank account.

Your own bank account is really just entries in a database that can only be changed under specific conditions.

Money - including cryptocurrency - is all about a verified entry in some kind of a database of accounts, balances, and transactions.

It is these entries into the network, which are the representation of cryptocurrency.

Nobody owns or controls cryptocurrency and no banks are involved.

Examples of cryptocurrencies are:
  • Bitcoin
  • Ethereum
  • Litecoin, and
  • Ripple

Now, cryptocurrencies are generated by the network, mostly as an incentivization to the people who work with the transactions and who secure the network, and every network, or node, has a different way of generating cryptocurrencies.

Nodes are connected to each other and make up the network. A special kind of node called a miner is rewarded for validating and including transactions in a block; this task is called “work”.

Once a miner has done the work they have to solve a mathematical puzzle and this proves they have done the work, this is called, “proof of work”.

Although every cryptocurrency works differently, most of the top ones share the following qualities. They’re:

  • Irreversible.
  • Anonymous or pseudonymous.
  • Fast, confirmed in minutes.
  • Universal and online.
  • Secure.
  • Have a controlled or limited supply.

I bet you’re wondering how people use cryptocurrencies?

Well, you can trade them for conventional money, or buy stuff online or in-store. More and more shops and online stores are accepting cryptocurrencies everyday. Cryptocurrencies are also used for money remittances instead of using expensive alternatives like Western Union or MoneyGram. People in countries with highly inflated currencies like Venezuela, depend on Bitcoin as a means to guard their wealth and also to get money in and out of their country without fear of theft or confiscation.

In the next video, we’ll discuss blockchains, how they work and how they relate to cryptocurrency.

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