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What is cryptocurrency? Why do you need them?

Cryptocurrencies are digital currencies secured by cryptography and blockchain technology to prevent double-spending and tampering. Okay, so why do we have to go through all the trouble to use digital currencies? This question will open a whole can of worms.


What is Cryptocurrency

It is best to understand cryptocurrencies through the OG, Bitcoin. We had an article detailed how Bitcoin works, so let’s do a short recap here. Bitcoin was initially designed as a peer-to-peer electronic cash system that is decentralized, transparent, and immutable. Why are we so fond of Bitcoin and treat it as a store of value, like gold?



Immutable

Bitcoin is built upon blockchain, and blockchain is inherently immutable. Blockchain is a database storing data blocks chronologically where one block is linked after another using cryptography. If they want to alter the data in a block, they will have to rewrite the entire data strain in the blockchain. The Bitcoin network utilizes this technology to store immutable transaction records. Therefore, in the world of crypto, we do not entrust a third party to execute our transactions on our behalf. Instead, we trust the protocol to maintain transactions for us. No manual error; No human tampering; No middleman.


Unique

On top of its immutability, the Bitcoin network is also decentralized, where no single authority has the right to issue it or prohibit one’s usage of it.


How decentralized is it, you ask? The Bitcoin network is secured by multiple nodes simultaneously across different geographic locations and in the hands of different individuals. Therefore, no one could tamper with the transaction records of Bitcoin.



That is why, unlike a bank that could freeze your savings to look for “suspicious activities,” no one could stop you from receiving and sending Bitcoin. Since Bitcoin is a digital coin without a physical form, you could send & receive it across the world via your smart devices without the need for intermediaries.


It Holds Value

In our modern society, the idea of money revolves around using fiat currency, which is a representation of value, to exchange goods and services. The problem is that the supply of fiat currency is increasing exponentially, which means the same 1 dollar in your hand will not carry the exact value of 1-dollar next year.


People treat Bitcoin as a store of value because it has a finite supply of 21 million BTC. Only so many BTC could be ever mined into circulation. The scarcity and usage made Bitcoin the “Digital Gold” in the eyes of many. Although not every cryptocurrency has a finite supply, the inflation rate and supply in circulation are often taken very seriously in the realm of crypto.

Other cryptocurrencies have alternate, practical mechanisms to counter inflation, such as Burning, making fiat currency look like money created in thin air.



Moreover, the security and value of the Bitcoin network only grow over time as the network expands. With more nodes joining the network, it is harder for bad actors to tamper with the data as every network change should have the majority consent of the network.

In other words, more decentralized; more secure. With its value and decentralized feature, no one could stop you from sending and receiving cryptocurrency in exchange for goods and services in this world. That is also why Bitcoin is called the “Sound Money”.


Institution Is Buying In

If you are reading this article, you have already heard of some giant institution going into the crypto space, and they are not wrong. More leaders in different industries have been jumping into the crypto space recently. Not only banks and institutions are thinking of ways to connect with crypto, but countries are also struggling to get in too.



Countries with more lenient regulation on crypto are winning the tug-of-war of talent population as there is a talent vacuum in the crypto industry. Some countries go as far as considering Bitcoin as legal tender. In short, cryptocurrencies started to receive massive adoption, and we know the sky is the limit from here.


Beyond Bitcoin

It is hard to believe, but there is more to cryptocurrency than Bitcoin. Every crypto aside from Bitcoin is called “Altcoin,” and the greatest altcoin of all is Ethereum.


Ethereum has something a little more than Bitcoin, called Smart Contract. Smart Contract is a program on blockchain that will execute automatically when certain predetermined conditions are met. This feature transformed blockchain from a mere ledger of transaction records to a virtual computer. That is why Ethereum is also known as the Ethereum Virtual Machine.



Alright, it is a virtual computer, now what? Well, it is everything. Smart contracts enable blockchain to push a database into a machine that could execute predetermined commands. Many buzzwords we heard in the crypto space like Defi, Dapp, and DAO all required smart contracts.



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