Determine the Characteristics of a Cryptocurrency in these unique steps
Before we jump into the juicy part, I believe by now you have come across the word Bitcoin / Crypto / Blockchain. On this guide, we will touch on the basics of Cryptocurrencies and take a deep dive into their characteristics. This should help you identify a real Cryptocurrency. Welcome to the world of crypto.
What are Crypto Currencies???
From the term, cryptograph comes the name, crypto in Ancient Greek “Kruptos”, which means hidden. Currency is a system of money, legal tender, cash, digital asset accepted in use as a medium of exchange or a store of value.
Both terms combined bring forth the term, Crypto Currency, which in simple terms is a digital or virtual currency, that uses cryptography encryption techniques to secure and regulate the generation of units and regulate the transfer of funds operating independently of a central bank.
The very first invention of a Cryptocurrency was Bitcoin, a well-known coin that has been hitting adoption, leading to the rise of its value over time, from $0.06 in 2009 to $1600 in 2017, and today, March 25, 2021, $52426. An anonymous figure, Satoshi Nakamoto invented Bitcoin whose primary aim was to disrupt the financial sector in the world.
And to be honest, this aim was a success since the underlying technology he also invented, Blockchain, the public ledger on the internet, has changed the world of finance. Blockchain brought about the innovation of other currencies with added special features, such as Ethereum (smart contract). Ethereum (Erc20 wallet) supports all tokens and you can send and receive them from this specific wallet. Best examples:
Characteristics of Cryptocurrencies
Cryptocurrencies have a set of traits that make them unique and by rule of thumb, a growing number of people and businesses prefer them to fiat currencies. Let’s go through the unique traits, which are crucial before investing or buying any cryptocurrency.
- Decentralized: By decentralized, we mean there is no center of control, no centralized organizations controlling how they operate. People get to decide as they are in charge of governance.
- Anonymous: Shall we start with an example? If Bellah in China wishes to send Samuel in Germany, some crypto coins or send some private information as a message, it will delight her to do it without filling or disclosing her identity for the transaction to take place. Not unless she opts to disclose her credentials on the Memo/Tag/Message center. Once there’s a confirmation of the transaction, it will register on the blockchain / public ledger. To trace the transaction’s status, Bella or Samuel will use the specific block explorer of the specific coin.
You can either track Ethereum transactions on the Etherscan Explorer using the transaction hash or the wallet address, which you feed on the search engine of the explorers’ page. Belle or Samuel will see how many minutes remain for the transaction to be completed, how many confirmations on the blockchain, how much money sent, from which wallet addresses, not forgetting the time and date. Ethereum block explorer shows the gas that would steer the transaction through; the more the Gas, the faster your transaction becomes. N/B: not all coins maintain anonymity.
- Blockchain: As you’ve read above or from our other articles a couple of times, let’s take a deeper dive into what a blockchain is? It is a digital public ledger with recorded transactions. Blockchain continuously grows because it records more linked and secured information in blocks using cryptographic language. Each block contains a hash of the previous block, a timestamp and transaction data. It is inherently resistant to any modification of the already recorded data, for example, bank and medical info, etc. All Cryptocurrencies run on a blockchain.
- Peer-to-peer: Blockchain allows for transfer of data or Cryptocurrencies from one person to another from anywhere to anyone in the world for as long as the subject has access to their crypto wallet and the internet. i.e., John sends 100 Xend to Bellah. Bellah has to provide John with her Xend wallet address (a long code of numbers and digits) where John will feed the provided wallet address on the ‘send’ option in his wallet. Some wallets require the recipients’ memo or tag, especially if you are dealing with an exchange. If that’s the case, Bellah should send it to John along with the wallet address and differentiate the two to avoid confusion. The peer-to-peer network has proven to be an efficient way of sending cash since it takes a shorter period and has low transaction fees. N/B: Every coin has its own wallet and its wallet address. Never send a coin to another coin’s wallet address as you risk losing your coins. Only send Erc20 coins to an Erc20 wallet.
- Wallet: A digital wallet is software, which interacts with the parent blockchain. The owner of the wallet has access to his crypto holdings through the wallet. It simply comprises a public key, a private key, and some extra features, such as ‘send’ and wallet balance and its equivalent in the selected fiat currency. The private key acts as a signature and approves any changes done on the blockchain, for example, withdrawing Cryptocurrencies from one wallet to another.
Keep your private keys safe at all cost and back them up in different ways before depositing money into any wallet. It’s important to note that private keys are normally used to back up / recover wallets, so it wouldn’t be a good idea to go showing off your private keys. Storing them online isn’t the best method to save your private keys as well. Each coin has its own wallet with its own wallet address. Synchronize most of the downloaded versions of desktop wallets to the blockchain before use.
- Algorithm: Each coin must use an algorithm equation to function. Different proof types categorize the algorithms, i.e., Proof-of-Work for Ethereum, which uses Ethash algorithm. Another example is ZCash using the Equihash as an algorithm, which is an asymmetric memory-hard Proof-of -Work algorithm based on the generalized birthday problem. It relies on high RAM requirements to bottleneck the generation of proofs and make ASIC development unfeasible.
- Bitcoin (BTC) Bitcoin (BTC) SHA256; PoW
- Ethereum (ETH) Ethereum (ETH) Ethash; PoW
- Litecoin (LTC) Litecoin (LTC) Scrypt; PoW
- DigitalCash (DASH) DigitalCash (DASH) X11; PoW/PoS
- Monero (XMR) Monero (XMR) CryptoNight; PoW
- Nxt (NXT) Nxt (NXT) PoS; PoS/LPoS
- Ethereum Classic (ETC) Ethash; PoW
- Dogecoin (DOGE) Dogecoin (DOGE) Scrypt; PoW
- ZCash (ZEC) ZCash (ZEC) Equihash; PoW
- Bitshares (BTS) SHA-512; PoS
- Community: Individuals interested in an organization’s roadmap and invested in the coin, including the development team, see that everything runs smoothly.
Before investing in any coin, do your due diligence by checking their social media forums such as Reddit, bitcointalk.org, Twitter page, Telegram group and channels, Discord, Slack, etc.
Research on some of these characteristics for any cryptocurrency, though I am sure there are other variables that I might have missed. Please comment on the chat section below and let us know how you feel about crypto. Thank you for reading.
Please feel free to comment on the chat section below and let us know how you feel about crypto . Thank you for reading.