The Digital Revolution and the Digital Economy represent something unprecedented: revolutionary, in fact. All sectors are involved, including the financial sector, which has seen particularly innovative phenomena, such as cryptocurrency, better known as cryptocurrency.
In this article we offer you a journey to discover what what are cryptocurrencies, from their introduction to their current operation. Curious to find out more?
What is cryptocurrency
Let's start from the beginning, which is the meaning of the word cryptocurrency. This is composed of crypto and currency; it means, simply, hidden currency. The reason for this invisibility is to be recorded in the fact that it is a currency that is only usable in a telematic circuit and not in physical, paper or even metallic form.
An interesting definition of cryptocurrency is the one provided by the Bank of Italy, which understands it as a digital representation of value that is realized either in the form of a medium of exchange or solely for investment purposes. The same source states. Cryptocurrencies can be transferred, stored but also traded electronically.
This is where one of the most important innovations of the current era comes into play: blockchain. In the next section we explain more about what it is.
Cryptocurrencies and blockchain technologies
Before we show you what blockchain is, let us briefly tell you how cryptocurrencies work, so as to give you a general framework in which to orient yourself.
Cryptocurrency: how does it work?
Crypto currencies are definitely different from other traditional currencies. When one thinks about what they are and how they work, it is important to always keep in mind their scope: the virtual one. The ways are different and specific, starting with the encryption: a real science, evolved with developments in physics and electrical engineering. The very basis of cryptocurrencies.
Cryptography, in the case of cryptocurrency operation, has two basic elements: thehashing, i.e., data integrity verification, and the digital signatures, that system that allows people to prove ownership of the encrypted information while not revealing it. The former is the basis of blockchain, and the latter allows cryptocurrency transactions to be carried out securely.
When it comes to blockchain means a decentralized public registry where the list of cryptocurrency transactions is reported. It contains both old and newer transactions: complete blocks are recorded and added from time to time.
The blockchain sees at its core a chronological type order, transformed into open, verifiable and, above all, permanent documentation. A network in which there is no hierarchy, but a peer-to-peer relationship among those accessing the crypto world and managing the blockchain.
If you are wondering how this is all possible, please note that the blockchain has at its core a precise protocol for validating new blocks. Every computer that is connected has an automatic copy of every transaction, shared equally without the need for a central core.
The blockchain Is a technology that has been in place since the introduction of the first virtual currency: the bitcoin. It is attributed to its creator as well as mentor of cryptocurrencies, or at least we could call it that. His name is Satoshi Nakamoto, a pseudonym behind which there is a still mysterious identity (there is talk of one or more high finance experts), which has given rise to further digital applications and subsequent blockchain developments.
What is mining
One of the essential processes occurring within the blockchain is mining or, to use the full name, block mining. We start, as always, from the etymological meaning of the term, of English origin, which means "block extraction".
Mining, then, is that process of combining old and new transactions into a blockchain in the form of blocks: new bitcoins are made and introduced, then added to the total number of coins in circulation.
Mining is an activity that has at its base, like everything related to cryptocurrencies, online modes, primarily of type software. In this specific case it is a program whose function is to validate legitimate transactions that then come to materialize in the generation of blocks . An extremely mathematical solution, as precise as a tetris which once solved leads to the issuance of a specific number of cryptocurrencies.
Therefore, the better performing the hardware, but also the mining software, the greater the likelihood of transaction validation and reward in bitcoin or other cryptocurrencies. Mining is a crucial, basic process when it comes to cryptocurrencies: from its efficiency greatly passes that of the blockchain itself. That is why it should not be underestimated.
What are the most important cryptocurrencies
Let's go back a bit to the time when the first cryptocurrency was introduced. The referenced name is that of Satoshi Nakamoto and we have already mentioned it to you when talking about blockchain. It was he, or rather whoever is behind this pseudonym, who created the very concept of cryptocurrency, first proposing it to the world in the 2008.
How many skeptics were there then? So many. That bitcoin, on the other hand, was a revolutionary, practically applicable concept has been proven by the facts. Since then, giant strides have been made in the cryptocurrency world. This is evidenced by the fact that bitcoin has not remained the only cryptocurrency in circulation. Let us now see which cryptocurrencies are, in the current era, the most popular and appreciated, in Italy but also abroad. After all, these are two intrinsically linked aspects, given the internationality of this currency.
The first coin, created by the mysterious as well as royal Nakamoto, was introduced in the 2009, although the first exchange (10,000 bitcoins for two pizzas) dates back to 2010. It turns out to date the most popular virtual currency, not surprisingly, its use has become over time more and more similar to that of classical currencies.
In fact, bitcoin is mainly used, rather than within transactions, for investments. There are currently about 21 million bitcoins in circulation (the maximum limit of how many there can be). These can be purchased either through exchanges, to be made through the blockchain, or through the transactions of a particular online trading: CFD trading.
The introduction of Ethereum is decidedly recent compared to bitcoin. It is an investment formula that was launched, in fact, in the 2015 and which is therefore only seven years old, not more than 10 years old as in the case of the cryptocurrency par excellence that we mentioned earlier.
Ethereum presents a operation not dissimilar to that of bitcoin. It allows, in fact, to receive and send tokens that have a specific value through an open network: they are used as a mode of payment in the network. However, this is not the use of this type of cryptocurrency, so much as the fact that it acts as a smart contract.
What are the smart contract? These are codes to be used in the ethereum blockchain. If the maximum threshold of bitcoins that can be injected into the virtual market is 21 million, the one concerning ethereum is slightly lower and reaches 18 million annually; it reaches 25% of the initial stock.
Ethereum is considered not so much a cryptocurrency as a real exchange platform. Introduced by Vitalik Buterin, while functioning similarly to bitcoin, is different in purpose and specific capability: its blockchain tracks currency at the digital level but is focused on making code work for a wide range of decentralized applications.
Last important element to know about Ethereum. The real reason for interest related to this cryptocurrency is to be found in the fact that it is the main exchange system for NFTs: the Non-Fungible Tokens, unique and unrepeatable digital works of art. NFTs are becoming increasingly popular and, according to predictions, appear to be the real driving force behind Ethereum's emergence in the cryptocurrency world.
And we come to Litecoin. Also born as a result of bitcoin's entry into the virtual market, it has a median age compared to bitcoin and ethereum, turning out to be the second of three siblings, to make a metaphor. Its creator is Charlie Lee, who wanted to propose a more efficient version of bitcoin, with faster transaction times and greater efficiency. This was in the 2011.
Did he succeed? Undoubtedly. From an objective point of view litecoin is a better innovation than bitcoin. This is confirmed by the number of transactions achievable online based on available coins: 84 million litecoins, compared to 21 million bitcoins.
This does not mean, mind you, that litecoin is more present or established than bitcoin: absolutely. Bitcoin is the virtual currency recognized as the investment with the greatest reliability.
We conclude by saying that the cryptocurrencies present are not just bitcoin, litecoin and ethereum-these are only the most common and widespread. This is a young technology that is destined to develop further, parallel to the Digital Revolution and its innovations. We have no doubt: a thousand journeys into cryptocurrencies await us in the future in which to go further into discovery.