Understand Cryptocurrency Basics

Basic Cryptocurrency Definitions

Cryptocurrency- Cryptocurrencies in simplest terms are limited entries into a database which no one can change without fulfilling specific conditions. These digital currencies use cryptography and transaction ledgers to create a secure, anonymous, traceable, and secure monetary system.

Cryptography- A method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it. This practice is essential for security of cryptocurrencies, and without it Bitcoin and other cryptocurrencies would have no value or security.

Ledger – A database where every transaction of a cryptocurrency is recorded. For example, Blockchain is the ledger for Bitcoin transactions.

Blockchain- The global ledger where every transaction of bitcoin that has ever happened is recorded. The complete ledger is well over 100 GB in size, and is growing every day. Bitcoin does not have a central authority to update the ledger and to ensure its accuracy, so the ledger is kept up to date by trustworthy individuals across the world.

Bitcoin- The most secure and well known cryptocurrency. A bitcoin is an entry on a huge global ledger called the blockchain.

Altcoin- All the non-Bitcoin cryptocurrencies in existence. Ethereum and Litecoin are the most well known and trusted altcoins, but there are thousands of other much smaller cryptocurrencies.

Here is a simple metaphor to help you visualize how cryptocurrencies work:

Imagine you are playing poker with a group of people without any chips, and no one has any money on them. In order to keep track of all the transactions, everyone writes down on paper how much they are betting, who wins, and who lost x amount of money. At the end of every hand, everyone compares what they wrote down that hand to make sure everyone has the amount of money they are supposed to have. The list of transactions grows significantly as the game progresses. Each page you fill up, with the written transactions, can be thought of as a block of transactions. Eventually you will have pages and pages of transactions, which will become a chain of those blocks (why the global ledger for cryptos is called blockchain).

There are thousands of people separately maintaining the bitcoin blockchain. For cryptocurrencies, picture the same metaphor, except at this poker table there are millions of people. Some of these people are just exchanging money, but lots of volunteers are keeping ledgers to ensure everyone has the amount of money they are supposed to have. When you want to send or receive money, you have to announce it to everyone at the table, so the people keeping track of the ledgers can keep them up to date and accurate.

For more information and expert analysis of cryptocurrencies:

The Future of the Cryptocurrency Market