What are Cryptocurrency Coins?
A Cryptocurrency coin or Cryptocurrency is basically a digital currency which relies on cryptography to perform the three main functions listed below:
- To keep your transactions secure
- To verify the transfer of your digital assets
- To control the mining or creation of the new cryptocurrency coins
It is called “virtual currency” because it doesn’t have a physical form. Unlike the fiat currencies (USD, Euros), you cannot take a bitcoin or other cryptocurrency coins and keep that in your hands. Of course, they can be used as a medium of exchange which is the most important feature of any type of currency. For example, you can use your bitcoins to book your hotel reservation through Expedia.com. Have you heard of Overstock.com? It is one of the popular online retailers in the USA. Overstock.com accepts many cryptocurrency coins like Litecoin, Ethereum, Dash, Bitcoin cash, and Monero to place your orders online.
Bitcoin: The world’s first cryptocurrency coin
Do you know which is the first ever cryptocurrency coin? I guess most of you knew the answer already. Yes. Bitcoin is the first cryptocurrency coin that was created in the year 2009 by a developer named Satoshi Nakamoto. The original identity of the creator is not known till date. Based on the official document released by Satoshi, the main objective of the bitcoin was to send electronic payments from one party to another directly without the need of third-party financial institutions like banks. It also stated that all the bitcoin transactions will be based on P2P. (Peer-to-Peer).
How does bitcoin payments work?
Let’s imagine that John wants to send 2 bitcoins to her girlfriend Mary as a gift. Do remember that the bitcoin transactions do not require any kind of personal information like name, email, phone etc. Then, how he will send the bitcoins to Mary? For that, you need to know a bit about some of the commonly used terms in bitcoin transactions as given below:
Every transaction that is made using bitcoin is stored in the transparent public ledger named blockchain. What is a blockchain? To put it simply, it is an ever-growing list where new blocks get added to the previous blocks, thus creating a chain of records.
A public key is also known as “bitcoin address”, is nothing but an alphanumeric string of 34 characters. As per the name, the public key can be revealed to anyone because it is used only for receiving payments.
Each public key is associated with another identifier called “private key”. Private keys are also alphanumeric strings with a length of 64 characters. You should never disclose your private key to anyone, including your spouse. 😊
Basically, a node is a computer that is interconnected to other nodes on the blockchain network. The main functionality of the node is to verify the validity of a transaction. Simply, they are the “judges” of the blockchain network.
Now, let’s come back to our original example. John will initiate the payment for 2 bitcoins from his bitcoin address to the address of Mary by signing the transaction with his private key. The nodes on the blockchain network will verify two things as given below:
- John has enough bitcoins to make the transaction
- His bitcoin address is completely new and it was not used in the past for sending bitcoins to someone else.
Once the above two things are validated successfully, the transaction is approved and gets added to the public blockchain ledger. And, Mary will be happy to receive the 2 bitcoins in her wallet. (Let’s not worry about the technical details of how a new block is created and added to the previous one using the hash algorithm. That’s a different subject 😊 )
What are the benefits of Cryptocurrency Coins? – H2
In the above example, neither John nor Mary have used their personal information for making the bitcoin transactions. That’s the biggest advantage of using crypto coins like Ether, bitcoin etc. When you are using a credit card for doing online transactions, hackers or fraudsters can steal your card details like card number, expiry date, CVV etc. Here, that’s not possible. Even if someone can see your bitcoin address, it is of no use to them. Because you cannot do more than one transaction using the same bitcoin address. Also, once recorded on the blockchain, the transactions cannot be altered which makes them highly secure.
Elimination of transaction fees:
Besides the sender and the receiver, you don’t need anyone else for completing the transactions using crypto coins. Only when a middleman is involved, the concept of transaction fees arise.
No middleman = Zero transaction fees.
Because of that, international merchants are considering cryptocurrency coins as the best alternative to the existing payment systems using fiat currencies.
Is it possible to access your US PayPal account when you are located in the UK? No. Because, the usage of PayPal accounts are tied to the country in which it is created. The same thing will happen to your bank accounts also. But, you can take the wallets of your crypto coins wherever you go. You can receive 5 bitcoins from someone while you are in the UK and send 2 bitcoins to someone else when you are in Australia. In a nutshell, cryptocurrency payments provide a greater amount of flexibility when compared with other payment systems.
How is a Cryptocurrency Coin different from Fiat currency? – H2
Stability: Even though, cryptocurrency coins have the keyword “currency”, they cannot replace the fiat currencies. Why? Unlike the fiat currencies (USD, Euro etc.), the value of crypto coins is not stable. Let us take the example of the bitcoins. Based on the latest price charts (March 2018), the value of 1 Bitcoin is approximately 8425 USD. In January 2018, it had crossed 10,000 USD. But in October 2017, the value of bitcoin was only close to 4500 USD. So, it is clearly understood that the value of crypto coins are not stable like the fiat currencies.
Supply: Another major difference between the cryptocurrency coins and fiat currencies is their supply. Let’s imagine that you are receiving a message on your phone that the USD currency notes will no longer be available. Will you believe this? No. Because, the fiat currencies are functioning not only as a medium of exchange but also as a unit of account and store of value. Now, is it possible to mine as many numbers of bitcoins as you need? No. The supply of bitcoins is limited. Based on the report by Coin Telegraph, almost 80% of the bitcoins are already mined out of the total supply of 21 million bitcoins. Unless the mining algorithm gets changed, it is nearly impossible to mine more bitcoins once it reaches that magic figure.
What are the different types of Cryptocurrency Coins? – H2
Can you make a wild guess about the number of crypto coins that are created so far? It has already crossed the magic figure of 1000. Coinmarketcap has listed 1489 cryptocurrency coins on its trading chart. Any crypto coin will be classified under one of the three categories listed below:
If the main objective of the crypto coins is to eliminate the intermediary or middleman, then it comes under this category. Ethereum is the popular example of the platform based cryptocurrency coins.
Here, the scope of the crypto coins is limited, because it is created for a specific task (Like a specialty store) and cannot be used as a general purpose coin (Like a Supermarket). Have you heard of Ripple (XRP)? Ripple aims to simplify the fiat money transfer so that it can be done quickly and efficiently. Many banks and financial institutions are using Ripple for money transfers.
Bitcoin comes under this category. The ultimate aim of a transactional crypto coin is to replace the traditional fiat currencies. You can use coins under this category for buying products/services, money transfer etc.
Top 10 Cryptocurrency Coins other than Bitcoins – H2
1. Ethereum – H3
Launched in: 2015
Latest price: $447
Where to buy: Coinmama, Cex.io
Ethereum is the second most popular cryptocurrency coin other than bitcoins. Even though the term “Ethereum” is often compared with bitcoins, both have many differences. For example, new bitcoins are created by mining whereas miners can earn Ethers for their valuable contribution to the platform. Simply, Ethereum is more than a cryptocurrency coin.
2. Litecoin – H3
Launched in: 2011
Latest price: $134
Where to buy: Binance, Challengely
Litecoin is very similar to bitcoin except with one main difference. It takes less time to add a new block to the blockchain when compared with bitcoins resulting in faster transactions.
3. Zcash – H3
Launched in: 2016
Latest price: $216
Where to buy: Challengely, Binance
Zcash aims to provide more security and privacy to the user’s transactions on the blockchain network. Unlike bitcoins, Zcash doesn’t allow someone to follow the transactions of a user with their address.
4. Ripple – H3
Launched in: 2012
Latest price: $0.57
Where to buy: Coinmama, Coinbase
Ripple is very popular among banks and other financial institutions. The main objective of Ripple is to simplify the process of money remittance across borders so that the processing time for the transactions are reduced to a great extent.
5. Dash – H3
Launched in: 2015 (Originally released in 2014 as Xcoin)
Latest price: $354
Where to buy: Cex.io, Coinbase
Using Dash, you can make instant payments either online or offline as it is a highly secure and open source platform for making private payments.
6. Monero – H3
Launched in: 2014
Latest price: $188
Where to buy: Exmo, Coinmama
Monero aims to provide utmost anonymity and privacy for your transactions on the blockchain network so that someone will find it extremely hard to know any kind of information about your transactions.
7. Dogecoin – H3
Launched in: 2013
Latest price: $0.28
Where to buy: Exmo, Evonax
Though the name sounds funny, Dogecoin aims to increase the speed of your transactions on the blockchain network. The ultimate goal of this crypto-coin is to use that as your everyday currency for shopping, paying utility bills and more.
8. Verge – H3
Launched in: 2014
Latest price: $0.04
Where to buy: Binance, Hitbtc
Verge focuses more on privacy and anonymity of your crypto transactions. It is a completely open source cryptocurrency coin as it is not founded by any company or individual.
9. Siacoin – H3
Launched in: 2015
Latest price: $0.01
Where to buy: Coinmama, Coinbase
You might have heard a lot of centralized cloud storage services like Amazon, Microsoft, IBM etc. Siacoin aims to provide a decentralized storage for keeping your personal and valuable information highly secure using a distributed network.
10. Cardano – H3
Launched in: 2015
Latest price: $0.15
Where to buy: Coinmama, Coinbase
Cardano aims to create another blockchain in the crypto world by competing with Ethereum. It also aims to completely eliminate the concept of ‘gas’ which is a part of all Ethereum-based transactions.
How to buy/sell the Cryptocurrency Coins through wallets/exchanges? – H2
Not only new but also experienced crypto investors find it extremely difficult to buy, store and sell the cryptocurrency coins. Because there are so many options available online to buy/sell the crypto coins and the investors could not decide which one to trust. Even though the craze for crypto coins is rapidly growing on one end, the news related to scams on wallets/exchanges is racing at a much higher pace on the other side of the world.
The best option to buy/sell bitcoins and other crypto coins is through reputed exchanges. Alternatively, you can also buy them from your friends or other people through marketplaces. Many exchanges like eToro allow you to open a wallet (web wallets) for storing your crypto coins so that you can keep your coins safe. Follow the below steps to buy crypto coins.
1. Choose a good wallet
There are many ways to store your crypto coins like web wallets, mobile wallets, desktop clients, hardware wallets, paper wallets etc. If you are new to the crypto world, then you can choose a web
wallet from Coinbase for easily storing and accessing your crypto coins. For those investors who are investing lump sum amount on crypto coins, buying a hardware wallet like Trezor or Ledger is the best buy. Given below are the some of the exchanges which provides web wallets:
If you choose a mobile wallet or a desktop client, make sure that it is compatible with your operating system. For example, if your operating system is Linux, then you should check whether the software-based wallet provides support for Linux or not.
2. Select a trusted exchange
Hundreds of exchanges are available online to buy/sell/trade cryptocurrency coins. But, you need to choose the one based the type of crypto coin you need to buy. If you are planning to buy bitcoins or Ether, then it will be available in most of the exchanges. For buying other crypto coins, you need to check out whether that coin is listed on the exchange you have chosen. You can buy different types of crypto coins from exchanges like Coinsquare, Localbitcoins, cex.io etc.
First, create a list of 5 to 10 exchanges that sell the crypto coins you want to buy. Then, compare them against the metrics like fees, withdrawal limit, processing time, supported payment methods etc. You can also read the reviews of the exchanges before making the final decision. Some exchanges will not be available in certain countries. Make sure that the exchange you have chosen is available in your country. You can also get suggestions from your friends or family members in your location who have invested in cryptocurrency coins already.
3. Choose a payment method
Now, you have finalized the wallet as well as the exchange for buying and storing your crypto coins. Great! Most of the exchanges support multiple payment options like credit card, net banking, wire transfer etc. Find out whether Bitcoin ATMs are available at your location. These ATMs allow you to buy the crypto coins in exchange for your money. But, most of the exchanges will not directly deal with cash. Except for few exchanges like Coinbase, many of them don’t accept payments using PayPal.
4. Store the coins in your wallet
Congratulations! Now, you have bought the crypto coins successfully. If you have a dedicated mobile or hardware wallet of your own, then you need to move the cryptocurrency coins to them as soon as you complete the purchase. For those who are using the web wallets, it will be taken care of by the exchanges. Make sure that the coins are secure before you sell those or use them to buy something else.
What is a token? – H2
A token is basically a digital asset that doesn’t have a blockchain on its own. Instead, it is built on the top of the existing blockchain like Ethereum or Bitcoin. The term “token” is widely popular among the crypto investors because of the ICOs (Initial Coin Offering). An ICO is a crowdfunding platform that is used by many start-ups to raise funds for their projects. Every ICO will be associated with a fixed supply of tokens that will be sold to the investors during the token sale event.
Let me explain with an example. Recently, you must have heard about the Cambridge Analytica Scandal related to stealing of personal information from Facebook. Now, let’s assume that a fictional start-up company named “FBX” proposes an alternative for Facebook and the new social media platform will be called “RealFB”. Most of the features of RealFB will be similar to that of Facebook, but the privacy rights of your data will be only managed by the owner(you). Of course, the platform is not available for free and you need a token named “RFB” to access the platform. But, you will be rewarded with few RFB tokens, if you can help the platform to grow by promoting about that on your other social media platforms. Here, RFB is an example of the token because it does not have an independent blockchain. Instead, it is built on top of the Ethereum standard ERC20.
What is the difference between crypto coins and tokens? – H2
Have you heard the term “altcoins”? It is also part of cryptocurrency coins. Altcoins are used to represent all the other crypto coins except bitcoins. Does it mean that they are completely new cryptocurrencies? Can’t say like that. Because many of the altcoins are built by using the open source Bitcoin protocol as the base and slightly modifying that to create a “derived coin”. Some examples of this type are Litecoin, Namecoin, Peercoin, Dogecoin etc. But, there are some altcoins which have their own blockchain and they are not related to the bitcoin protocol. So, this type of altcoins is also known as “native blockchain”. Ethereum, Omni, Ripple etc are the best examples of this category.
A coin is a generic term used to represent bitcoin and altcoins. At times, the term cryptocurrency is misleading because many coins don’t have the properties of a currency. Any currency should have three basic features like the medium of exchange, a unit of account and store of value. But many coins doesn’t fulfill all the three criteria, but still, they are called cryptocurrencies.
Both new as well as experienced crypto investors, find it hard to understand the difference between coins and tokens. Because they are not completely different and possess many similarities. But, the main striking difference between the two is that coins have their own blockchain, but tokens rely on the existing blockchains like Ethereum or Bitcoin.
Conclusion – H1
Some crypto coins will give you 100% growth, while some others may give 1% or even lesser than that. Alternatively, some cryptocurrency coins may fail miserably resulting in a heavy loss for the investors. Whatever the result may be, the concept of “crypto coins” are not going to vanish, but will stay here for at least a couple of decades. Because cryptocurrency coins have clearly disrupted the traditional fiat currencies and slowly paving the way for a new digital currency.