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In every corner, everyone is talking about cryptocurrency and bragging about owning one coin or the other, and there is “you” who knows nothing about it.
But, guess what? We were all once newbies!
That’s why I wrote this article to get you up to speed on what cryptocurrency is all about. So follow my lead as we explore this mystery together.
The origin of cryptocurrency dates back to the 1980s when humans sought out an alternative to paper money. The popular cryptocurrency, Bitcoin, sprang to life in 2009 after Satoshi Nakamoto, a computer scientist and mysterious hero built the block chain. The block chain was created to establish a system that removes control from the government and gives it to the people.
This blockchain technology records, stores and secures transactions with a cryptography hash. It was on this premise the first successful digital currency was built. However, prior to Bitcoin, other digital currencies existed, but they were unable to tackle the problem of double spending.
Double spending occurs when a trader spends the same money twice.
Picture this: Let’s assume I want to send $5 to you and I only have $5, I send it to you and also send the same $5 to another reader. This was the challenge with early digital currency.
However, with block chain technology in place, it will scan the transactions and obtain information on how much money I have in my wallet, how much money I want to transfer, and the reminder I would have after the transaction. If I am left with $0 after paying the $5 to you, it will cancel any subsequent transactions.
Now let us discuss this currency in detail, what really makes cryptocurrency different from money?
Don’t let this complex word scare you. The term cryptocurrency simply refers to digital currency. But what exactly do I mean by “digital currency”?
Cryptocurrency is a type of currency that only exists in electronic form and cannot be handled, seen or printed. It is a digital decentralized currency used for payments which is secured with a cryptographic hash.
All fiat currencies, such as the Naira, Dollar, and Euro, are administered by a centralized entity known as the government. This money is issued and regulated by them, implying that all fiat currencies are centralized.
However, decentralization is the opposite of centralization, and it is the foundation upon which cryptocurrencies are built.
Someone awoke one morning and decided that, “No, I don’t want the government to control my hard-earned money, dictate what I do with it, or how it is created. I want complete control over my money.”
On this basis, the notion of decentralization arose, with the goal of taking authority away from the government and delivering it to the common man.
Here, Cryptocurrencies operate on a decentralized technology called the block chain technology. This technology processes and stores crypto transactions, giving total control to the computers on the network put in place by humans.
This method goes back all the way in history and was used in 1900 BC during the reign of Julius Caesar. In this era, the only means of long distance communication was through written notes. The method of cryptography was however employed to encode and decode letters in a message with a special number, say 2. This number was known by both parties (sender and receiver).
For example, Mr. A agrees with Mr. B that the encoding and decoding number is “2”.
Mr. A sends a text in the form
“` “DJCC DPMK RMUL LMU”
On reaching Mr. B, having the decryption number as 2, He reads the letters 2 spaces forward.
“` “FLEE FROM TOWN NOW” “`
This was a very effective method used to communicate sensitive and important messages.
Bringing it home to cryptocurrencies, why do we need to encode messages? What messages are we encoding?
It is slightly different in cryptocurrencies, here, we encode transactions and not messages.
In the banking system, there are personnel in place to monitor transactions and verify that no account is compromised.
This is not possible with cryptocurrencies because it is founded on a decentralized network. This highlighted the necessity for cryptography, but in a more advanced manner. This cryptography is made up of binary numbers that are created by a Hash. This hash, known as SHA-256, takes transaction information and encodes them in 0’s and 1’s, making it difficult for hackers to modify.
Yes! Yes! But No!…Hear me out
The block chain technology works in conjunction with computers known as nodes that perform validation tasks. When a block of transactions is delivered to the network, these computers scan the transactions to ensure their authenticity; demonstrating that this technology relies on computer integrity to validate transactions.
From the whitepaper (information about the blockchain) written by Satoshi Nakamoto, he stated there is a flaw in this system: if more than 51% of the computers fake a transaction, the transaction will be changed.
The principle of block chain works on the longest chain of blocks. What do I mean?
Blocks are containers that hold a specific number of transactions on the network; for example, 500 transactions per block.
That first completed block (block1) will be secured with unique numbers generated by the previously stated SHA-256 algorithm. Let’s assume the unique numbers were “00000111.”
After the next block (block2) is completed, the hash number for block2 would be generated through the same process of SHA-256, in this case let’s say “00000001111.”
For block2 to be marked as completed, block1’s hash number of “00000111” and block2’s hash number of “00000001111” would be stamped on block2.
This cycle continues with the next block taking on the previous block’s number and its own hash number; this whole process is called Mining.
So for a block to be altered, it would have to generate a new hash for block(1), go and change the stamped block(1) hash in the next hash of block (2), then repeat this same process for block3 until the hacker meets up with the longest trusted block.
Doing this process alone is very impossible as the blockchain only trusts the longest chain. And as more computers are added, more blocks are created faster making it harder for the hacker to catch up.
But however, if 51% of the computers decide to cheat the block chain, they would be able to meet the trusted chain faster. But still a slim chance as more computers are added to the network and thus, making it hard to accomplish.
Primarily, cryptocurrencies are used for payment. Users make purchases and pay with Bitcoin or other crypto coins. However, this is not a generally accepted means of payment yet due to its volatility. In the near future, there would be more use cases for cryptocurrencies.
Cryptocurrencies are stored in wallets just like money and gold is stored in the bank.
There are two types of wallet:
This is an online wallet that exists on either an app or a website. This wallet helps secure your funds using a recovery phrase and a private key. Eg Trust wallet and Metamask
Note: Do not ever disclose your recovery/ seed phrase or private key to anyone!
This is an offline wallet that exists in a hardware form either on paper, hard drive or ledger.
Important info: Any currency apart from Bitcoin is called an Altcoin; meaning Alternative coins to Bitcoin.
Where do I even start from, I’m so emosh🥺
Cryptocurrencies have finally liberated us, Yaaay!!
Let’s get into it…
“Nobody knows me; you can’t see me, finally!!!!!”
Cryptocurrencies allow you to have $500billion dollars in your wallet without the police or financial agents kicking down your door. Your identity is unknown. All they can see are just letters in the form of wallet addresses, no name…ha-ha!
“Bye to banks and their age rules, and transaction limits, tch!”
With cryptocurrency you can open a bank at any age, make thousands of transactions in a day and have no one pointing suspicious binoculars at you. No government or banks can seize your money, you are free!!!
“Hey Collins, I am in planet Mars now, can you send 100 Bitcoins to my wallet, need to bribe this dinosaur to leave me alone”
“Sure, send me your wallet address”
Just like that, you can send money to any part of the world without going through bank and native currency conversion….Smooth!
“Breaking news: The price of Ethereum went over 100% in the last 24hours, and surged to $4000.”
Crypto has the power to make you an overnight millionaire. They have a good side to investment, just like stocks, they can be traded to get future returns when the price goes up.
- Low Transaction Fees and No Transaction Limit
“What? $10,000 fee to transfer $1 million to my cousin’s bank, no way!”
Why will you settle for such an outrageous bill when with Cryptocurrencies, transactions fees are not dependent on the amount transferred, and are low compared to banks?
For example, Solana takes up less than $1 to send transactions, and bitcoin transaction fees range from $20- $200 regardless of transaction size. And no transaction limits with large transactions which occur in minutes compared to weeks when using banks.
Yikes! can’t there be good without evil?
Here we go anyway…
- Scammers and Criminal Activities
And they sure didn’t leave cryptocurrencies out, tch! Scammers send malicious software to devices, hacking wallets and stealing funds. Be very careful of sites you connect to and don’t give up your private key or seed phrase.
“For behold brethren, it is finished.”
Once you lose your wallet — your seed phrase or private key, or your hard drive or ledger gets destroyed — you will kiss your funds goodbye. There is no recovery system in place to retrieve and get back your seed phrase, so do ensure your seed phrase is safe.
What if I am lost in the desert? Or maybe I am dropped in an unknown place with no access to my phone or internet connection, would I still have access to my wallet? The answer is no. Without access to the internet , crypto transactions are impossible as they only function online.
Today: “The price of Bitcoin attained an all time high of $70,000”
Tomorrow: “Due to the attack on the blah exchange the price of bitcoin dipped to $45,000”
This shows the volatile nature of Cryptocurrencies. While others advice this is the best means of making quick money, it is very advisable to be cautious as you can lose all your pension and life savings in one night.
Some crypto currencies have posed a threat to climate through mining activities. Bitcoin is said to consume up to the entire electricity of a nation to mine and process transactions. This has negative effects on the climate as poisonous carbon gases are released to the atmosphere during this mining activity.
Legality of cryptocurrencies differs from country to country. In Nigeria, cryptocurrencies were banned with the excuse they were an illicit source of unstable income, and could lead investors to lifetime debt.
Even In the US and UK, stringent laws have been placed on cryptocurrency to regulate its use and save investors from losing money.
However, countries like Russia, and South Korea have embraced cryptocurrency with open arms and look forward to making it a legal tender in the country.
So the legalization of crypto differs from country to country.
*Takes my pair of binoculars and looks into the future. Ha-ha…bad joke.
*clears throat
It is very uncertain what the future of Bitcoin holds, but to me, it is a promising future and I can’t wait to experience it. A future where seamless transactions will be carried out in minutes from anywhere in the world with just the click of our phones. A future where creative minds would rise up and build coins with innovative utilities that can address many other pain points in the monetary system and other areas as well.
A big congratulations to — — — (*insert your name) because you just advanced from newbie to beginner🤩.
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