{"id":3157,"date":"2022-12-07T19:06:08","date_gmt":"2022-12-07T18:06:08","guid":{"rendered":"https:\/\/nicholasidoko.com\/blog\/?p=3157"},"modified":"2023-05-09T17:36:05","modified_gmt":"2023-05-09T16:36:05","slug":"all-you-need-to-know-about-cryptocurrency","status":"publish","type":"post","link":"https:\/\/nicholasidoko.com\/blog\/all-you-need-to-know-about-cryptocurrency\/","title":{"rendered":"All You Need To Know About Cryptocurrency"},"content":{"rendered":"\n

A friend introduced me to Bitcoin in 2016. Certainly, most people who are aware of cryptocurrency got to know about it through a friend. I really did not understand what Bitcoin was at the time. He said: “People invest in Bitcoin using US Dollars and when it is high you can convert the Bitcoin to US Dollars and make a profit.” It all sounded like a very big gamble to me and kind of like a Ponzi scheme. I kept on asking him if there was no way to make use of Bitcoin to pay for services without the need to convert it to US Dollars. His answer was not convincing at all.<\/p>\n\n\n\n

I am sure most of you would have had a very similar experience when introduced to cryptocurrency. In a broad scheme of things, Cryptocurrency is a very fascinating concept. However, I have always wondered when would the time come for it to not always be compared to fiat currencies. It seems as if anyone I discuss cryptocurrency with is always telling me the US dollar equivalent and I really do not think it would have that much effect with such comparisons.<\/p>\n\n\n\n

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What is Cryptocurrency?<\/h2>\n\n\n\n
\"What<\/figure>\n\n\n\n

Simply put, Cryptocurrency<\/a> is a digital currency that is used to carry out transactions on the blockchain. <\/p>\n\n\n\n

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What is a blockchain?<\/h4>\n\n\n\n

A blockchain is a ledger that records all transactions in a decentralized network.<\/p>\n\n\n\n

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What is a decentralized network?<\/h4>\n\n\n\n

A decentralized network is a group of multiple servers, computers, machines, or devices acting as the main system.<\/p>\n\n\n\n

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What is a centralized network?<\/h4>\n\n\n\n

Well, a centralized network is a group of multiple servers, computers, machines, or devices relying on the main system.<\/p>\n\n\n\n

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What is the major difference between a centralized and decentralized network?<\/h4>\n\n\n\n

The centralized network has only 1 main system and if you cut off the system, the entire network is down whereas for the decentralized network, each of the servers, computers, machines, or devices is the main system, and cutting off 1 of the system would not bring the network down. To bring down a decentralized network, you would need to cut off all the machines. This is not entirely impossible but it can be very difficult to achieve.<\/p>\n\n\n\n

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How does this relate to the real world?<\/h4>\n\n\n\n

Let’s first take a look at the US dollar. The US dollar is majorly controlled by the Federal Reserve and the US dollar is a fiat currency. If the Federal Reserve is attacked and all its machines destroyed. The US dollar loses all of its value. All the banks, businesses relying on the US dollar, hedge funds, and the government would break down. <\/p>\n\n\n\n

As you can see, the only system that was attacked was the US Federal Reserve and the entire US dollar crumbled. This can be extended to companies as well. If the main executive of a company or the main system of a company is attacked, in most cases, the entire company falls apart.<\/p>\n\n\n\n

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What does fiat actually mean?<\/h4>\n\n\n\n

I am certain you hear a lot about fiat and may not even know what it means. Trust me, I used fiat a lot in my discussions without even knowing the true meaning for a while. So you might not be alone.<\/p>\n\n\n\n

Fiat simply means something that does not have value in and of itself. <\/p>\n\n\n\n

Now, Fiat Currency<\/a> actually has no value in and of itself. It is just printed paper or numbers on the screen. However, it has government backing from its nation which inherently gives it value. The US dollar is strong today because the government is strong. That is a simple takeaway. The Nigerian Naira is weak because the economy and government are weak.<\/p>\n\n\n\n

As such, fiat currency is directly dependent on its government and policies (especially economic policies).<\/p>\n\n\n\n

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Is Cryptocurrency not also Fiat?<\/h4>\n\n\n\n

In a way, cryptocurrency is also fiat, since bitcoin (for example) does not have value in and of itself. However, the major difference is cryptocurrency is not directly dependent on government backing and policies. It is actually dependent on the market which is basically everyone in the world.<\/p>\n\n\n\n

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Why is there Crypto in Cryptocurrency?<\/h4>\n\n\n\n

In layman’s terms, it is because the currency is digitally encrypted using both simple and advanced cryptography.<\/p>\n\n\n\n

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What is a Cryptocurrency White Paper?<\/h2>\n\n\n\n

I am pretty sure if you have dabbled in the cryptocurrency\/blockchain space you might have come across a document called a White Paper<\/a>. A Cryptocurrency White Paper is simply a document that details the technical and financial properties of a cryptocurrency. It is also a legal document showcasing the rules and how issues are to be resolved.<\/p>\n\n\n\n

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Do I need to read a cryptocurrency white paper?<\/h4>\n\n\n\n

It would certainly not hurt to read the document. It might give you more information about the cryptocurrency. Having said that it is not compulsory to read the cryptocurrency white paper.<\/p>\n\n\n\n

If you intend to mine a cryptocurrency, you definitely need to read the white paper about the cryptocurrency. The technicalities, proof of work, proof of stake, rules, and guidelines on how to mine a cryptocurrency are and always should be in the white paper.<\/p>\n\n\n\n

If you intend to invest in a cryptocurrency, it is not compulsory to read the white paper but you definitely should try to do so, you can know its circulation, legalities, the amount released, smart contracts (if any), etc which would give you great insight on how to participate.<\/p>\n\n\n\n

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Should I trust a cryptocurrency white paper?<\/h4>\n\n\n\n

No. Please do not fully trust any cryptocurrency white paper you see out there. Remember it could be written by anyone and some might be malicious. View the white paper as a handbook or guide and not as law.<\/p>\n\n\n\n

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How are Cryptocurrencies Created?<\/h2>\n\n\n\n

I am pretty sure you would like to know how to create a cryptocurrency. Well, creating a cryptocurrency requires technical skills and a very good understanding of how blockchain works.<\/p>\n\n\n\n

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How does blockchain work?<\/h4>\n\n\n\n

Blockchain<\/a> is simply a ledger or database distributed across various networks (decentralized networks as discussed earlier) that are used to store records. These records are called blocks.<\/p>\n\n\n\n

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What is a ledger or database?<\/h4>\n\n\n\n

A ledger or database in this case is simply a collection of records.<\/p>\n\n\n\n

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Read: What does a Distributed Ledger mean in Blockchain?<\/a><\/strong><\/p>\n\n\n\n

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What is a record or block?<\/h4>\n\n\n\n

A record or block is data consisting of the transaction hash of the previous transaction which is encrypted, the timestamp, and details of the transaction.<\/p>\n\n\n\n

To create a cryptocurrency, you would definitely need a network to process and verify all transactions which is the blockchain<\/a> and if you are not a blockchain developer, you would definitely need a blockchain developer<\/a>.<\/p>\n\n\n\n

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Read: Blockchain Vs Database: Similarities and Differences<\/a><\/strong><\/p>\n\n\n\n

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At this point, you have selected your preferred blockchain platform and you now have a blockchain developer (if you are not one).<\/em> The next step is to select the node on the blockchain platform.<\/p>\n\n\n\n

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What is a node on the blockchain platform?<\/h4>\n\n\n\n

A node is a supercomputer that connects to the blockchain platform or network to verify and process transactions.<\/p>\n\n\n\n

You can decide to make the node publicly accessible, private, or restricted.<\/p>\n\n\n\n

At this point, you have a blockchain developer, you have selected your blockchain network or platform and you have a node connected to the blockchain network. <\/em>The next step is to select the blockchain architecture.<\/p>\n\n\n\n

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What is blockchain architecture?<\/h4>\n\n\n\n
\"Centralized,
Centralized, Decentralized, and Distributed Blockchain Architecture
<\/em>Source: MLSDev<\/a><\/figcaption><\/figure>\n\n\n\n
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Blockchain architecture is a design structure in which the nodes communicate with the blockchain network. The blockchain architecture can be centralized, decentralized, or distributed (publicly or privately). You can also learn to build your own blockchain architecture<\/a>.<\/p>\n\n\n\n

At this point, you have a blockchain developer, selected your blockchain network, connected your node to the blockchain network, and decided on your blockchain architecture.<\/em> The next step is to set up the APIs.<\/p>\n\n\n\n

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What is an Application Programmable Interface (API)?<\/h4>\n\n\n\n

An API is an interface, code, or script used to connect the node of the network to the client network.<\/p>\n\n\n\n

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What is a Client Network?<\/h4>\n\n\n\n

A client network in the simplest of terms is a tool used to receive and display data to humans or machines. An example of a client network is a web browser. We use our smartphones to communicate with various servers in the world via a web browser.<\/p>\n\n\n\n

You now have a blockchain developer, and blockchain network, connected your node to the blockchain network, decided on your blockchain architecture, and your APIs are ready.<\/em> The final step is to set up the UI and UX.<\/p>\n\n\n\n

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What is a User Interface (UI)?<\/h4>\n\n\n\n

The user interface is the means by which a user interacts with your server. For Example, a web page is a user interface.<\/p>\n\n\n\n

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What is a User Experience (UX)?<\/h4>\n\n\n\n

The user experience is the overall experience of a user interacting with the user interface of your application.<\/p>\n\n\n\n

In summary to create your own cryptocurrency, here are the steps:<\/p>\n\n\n\n

    \n
  1. Select the Blockchain network or platform for your cryptocurrency<\/li>\n\n\n\n
  2. Find a Blockchain Developer for the selected blockchain<\/li>\n\n\n\n
  3. Select and Set up the Node on the Blockchain network<\/li>\n\n\n\n
  4. Decide on the Blockchain Architecture for the cryptocurrency<\/li>\n\n\n\n
  5. Set up the APIs for the Node and Client Network communication<\/li>\n\n\n\n
  6. Set up the User Interface and User Experience for miners and users to communicate, use, trade, and store the cryptocurrency.<\/li>\n<\/ol>\n\n\n\n
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    Even though there are a few restrictions and legalities in the cryptocurrency space, it is always best to consider the legalities of creating a new cryptocurrency. If possible, set up an LLC, acquire an adequate license, and register with the appropriate groups.<\/p>\n\n\n\n

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    What is a Cryptocurrency Token?<\/h2>\n\n\n\n

    For some people, all cryptocurrencies are the same. However, that is not the case, there are cryptocurrency coins and cryptocurrency tokens. A cryptocurrency token is a virtual currency that is issued on top of an already existing network. In order words, they do not have their own blockchain.<\/p>\n\n\n\n

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    Is there an example of a cryptocurrency token?<\/h4>\n\n\n\n

    Yes. A perfect example is Ethereum. Ethereum (Ether) is a coin for the Ethereum Blockchain and ERC-20 is a token on the Ethereum Blockchain.<\/p>\n\n\n\n

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    Can multiple tokens be created on a blockchain?<\/h4>\n\n\n\n

    Yes. You can have multiple tokens on a singular blockchain. The Ethereum blockchain does this very well with the use of smart contracts.<\/p>\n\n\n\n

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    What is a smart contract?<\/h4>\n\n\n\n
    \"Smart<\/figure>\n\n\n\n

    A smart contract<\/a> is a program that self-executes the terms of the agreement between buyer and seller. It is used in the development of tokens, DApps (Decentralized Applications), and DeFi (Decentralized Finance)<\/a>. <\/p>\n\n\n\n

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    What are DApps?<\/h4>\n\n\n\n

    DApps (Decentralized Applications) are like your everyday applications situated in a blockchain through the use of smart contracts. If you develop an app that would likely run on a web, android, or iOS platform on a blockchain it automatically becomes a DApp. <\/p>\n\n\n\n

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    What is DeFi?<\/h4>\n\n\n\n

    DeFi which stands for Decentralized Finance is the running of financial transactions on a decentralized network such as the blockchain. Creating, distributing and trading of tokens can be considered to be DeFi. You can read more on <\/strong>Centralized Vs Decentralized Finance Applications<\/a>.<\/p>\n\n\n\n

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    Read: The History and Evolution of DApps and DeFi<\/a><\/strong><\/p>\n\n\n\n

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    Can a cryptocurrency token be stored and traded?<\/h4>\n\n\n\n

    Yes. You can actually store and trade cryptocurrency tokens. It is actually widely recognized as a digital asset. In fact, there is a larger percentage of cryptocurrency tokens than coins. Some of the most popular digital assets are actually tokens such as BNB, ADA, Dogecoin, etc.<\/p>\n\n\n\n

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    Are there any other differences between a cryptocurrency coin and a token?<\/h4>\n\n\n\n

    Most people interchange coins and tokens. However, there are still differences between cryptocurrency coins and tokens<\/a>. Here are a few differences<\/p>\n\n\n\n