Cryptocurrencies and Tokens - what are they and what are they for?
The number of different cryptocurrencies and tokens is already over 5000 and is constantly growing. Developers are outdoing themselves in coming up with new applications for them, but the most common is to use them for payments. In this article you will learn what cryptocurrencies are, what their uses are and how they differ from tokens.
Digital currencies as an alternative to traditional payment systems
Cryptocurrency is a modern and innovative cryptographic currency based on a distributed accounting system. All information about the status of possession of the contractual units and transaction history are stored in the blockchain network.
Cryptocurrencies are stored on digital wallets, which can be accessed using an encrypted private key. Unlike traditional bank payments, transfers between users are carried out without involving third parties. Thanks to decentralization, we can be sure that nobody will suddenly block access to our funds. This raises the need to take full responsibility for securing your wallet. No one will come to our aid when we lose access to it.
In the case of a distributed accounting system, there is no “Central Bank” that affects the amount of a given cryptocurrency in circulation. Supply is predetermined by the creator at the stage of its creation and is not subject to change in later functioning. Limited supply means that digital currencies are deflationary, where in the case of traditional currencies it is the Central Banks that can decide to “print” the money.
Cryptocurrencies are often much cheaper and faster in transfer compared to fiat currencies. An example is the digital currency “TRX”, the transmission of which takes only 7 seconds and costs on average 1 cent. The transaction system is available 24/7 so that even on weekends we can make transactions. The above advantages are prompting more and more people to use cryptocurrencies in payments for purchases.
Bitcoin is the father of cryptocurrency
An article about digital currencies would be incomplete if we did not mention Bitcoin – the first cryptocurrency in history created in 2008 by an anonymous person (or group of people) using the nickname “Satoshi Nakamoto”. The launch of the Bitcoin network has initiated a great technological revolution in many industries. Today, cryptocurrencies and various blockchain networks are full of mass.
The mechanisms that occur in the network during the transfer and production of new bitcoins to novice users may seem complicated. Information about transactions is collected and placed in blocks that subsequently connect to the previous block in the chain. Each such block requires confirmation by network users, which are commonly called “Miners”. After confirming all transactions, the Miners receive a prize in the form of BTC. The mining time for one block is 10 minutes. Bitcoin supply is limited to 21 million pieces, while the smallest part of btc is called “Satoshi”.
Satoshi Nakamoto has created another very important mechanism limiting the circulation of new bitcoins to exclude inflation. Namely, on average every 4 years the prize awarded to Miners for confirming blocks is reduced by as much as half !. This phenomenon is called “Halving” and last occurred in May this year. Considering this mechanism, the time of extraction of one block and the fact that btc is divisible to 8 decimal places, it is estimated that the last BTC will be mined approximately in 2123.
The difference between a token and a cryptocurrency
When browsing industry portals, you can often come across a digital currency token. This is not a synonym for cryptocurrencies that can be used alternately, they are two separate assets.
Cryptocurrencies such as Bitcoin, Ethereum and TRON have their own blockchain network. Tokens are created on the existing blockchain of another cryptocurrency. An example would be the “MONx” token, which was created based on the TRON network. For tokens, there are many applications besides payments.
The cryptocurrency industry is growing month by month. The market capitalization of this market is currently around USD 260 billion. Therefore, it is worth acquiring knowledge at a relatively early stage of development.