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What is Cryptocurrency or Crypto?

May 30, 2023

Cryptocurrency and crypto are two terms that are often used interchangeably. The latter is a shorter version that is also used to refer to the industry as a whole. Cryptocurrency is a specific type of digital asset that exists within a particular blockchain network and is issued directly by it. That is why it is also called native coins or simply coins. 

Cryptocurrencies serve multiple purposes, including trading, storing value, and acting as an exchange medium. They are also used to pay transaction fees on their respective networks, incentivizing users to participate in network development while ensuring security and sustainability.

It is essential to note that the term digital assets refers to any assets that exist in digital form, including cryptocurrencies, different tokens, digital stocks, NFTs, loyalty points, airline mile rewards, and more. While all cryptocurrencies are digital assets, not all digital assets are cryptocurrencies.

It is crucial to differentiate between cryptocurrencies and other digital assets we encounter daily, such as loyalty points. These programs are managed by central authorities like companies, whereas cryptocurrencies have no primary issuer. Instead, they use a unique type of database known as blockchain, which is essentially a public spreadsheet in the cloud. To maintain the network's security and functionality, different computers, called nodes, run software that adds transactions to the blockchain.

How Did Crypto Start?

In 2009, the first-ever cryptocurrency, Bitcoin, was introduced to the world by an anonymous developer or group of developers under the name Satoshi Nakamoto. The purpose behind its creation was to establish a payment system that did not depend on financial institutions. To achieve this goal, they created a peer-to-peer network that enables decentralized transactions. Bitcoin is widely recognized and has inspired the development of many other blockchains and cryptocurrencies. While some of them aim to replace Bitcoin as a payment system, others function as utility or security tokens in new emerging blockchains or financial technologies.

Ethereum, the second most popular cryptocurrency, was introduced in 2015 and gained rapid acceptance due to its usability. It provided a standard for developing custom tokens. This standard, referred to as the ERC-20 Token Standard,  enabled companies to create their own tokens and raise funds through Initial Coin Offerings (ICO), the crypto equivalent of IPOs. As a result, many projects opted to use Ethereum as their blockchain for business development, contributing to its worldwide success.

Although Bitcoin and Ethereum are still the most prominent cryptocurrencies, the crypto industry continues to evolve, with new blockchains appearing on the crypto market and building their own ecosystems.

The Main Characteristics of Cryptocurrencies

One of the most distinctive characteristics of crypto is decentralization, which sets it apart from traditional fiat currencies controlled by governments and financial institutions. Instead, cryptocurrencies rely on a global network of nodes that use cryptography to process and validate transactions and record them on a blockchain, a publicly distributed ledger accessible to everyone. Such a system eliminates the need for a third party to be trusted, as all transactions are replicated and spread across the network within seconds, ensuring its security.

Another dominant characteristic of blockchain technology is immutability, which means that once a transaction is recorded on the blockchain ledger, it cannot be deleted or altered in any way. Thus, users can be assured that their data is unalterable and, consequently, cannot be falsified or manipulated in other ways. In combination with the decentralized nature of blockchain, immutability allows users to avoid trusting some financial institution or its employees with their funds.

The third characteristic is anonymity. When using cryptocurrencies, users do not have to identify themselves, as the decentralized network will verify and record transactions on the blockchain using a system of private and public keys to authenticate these transactions. As a result, users can create anonymous digital identities and transfer their assets securely.

Finally, most cryptocurrencies have a predetermined and limited supply. This is in contrast to fiat currencies, which can be issued in unlimited quantities by central banks, leading to inflation and a decrease in the currency's value over time. The limited supply of cryptocurrencies removes the risk of inflation and positively affects prices, as an increase in demand or adoption of the cryptocurrency will correspondingly increase its value.

Final Thoughts

The popularity of cryptocurrencies continues to grow as more people invest in crypto and new DeFi (Decentralized Finance) projects emerge on the market. Big corporations also explore cryptocurrency and blockchain technologies to help their businesses evolve and grow.

The Kinetex team has been involved in the crypto industry for many years, developing solutions to enhance network interoperability and make blockchain technologies accessible to everyone. Their work resulted in the innovative Kinetex dApp with two modes. The Liquidity Aggregation mode combines liquidity from over 200 sources, enabling users to swap over 5,000 tokens in one place. The upcoming Flash Trade mode uses zero-knowledge proofs to address cross-chain security concerns and allows users to make direct swaps with market makers. 

Kinetex Network: Website | Kinetex dApp