Crypto

What is Cryptocurrency?

A beginner's guide

Cryptocurrency, and the blockchain technology behind it, have taken the world by storm since their inception a little over a decade ago. But what is cryptocurrency? And where exactly did it come from?

We’ll dive into the technology’s history and try to break down where and how it all started. While the technologies associated with cryptocurrency can be complex and certainly deserve their own series of articles breaking down all of the jargon that comes with each, we will try to give you a pared down version of how each works. 

If you’re already familiar with cryptocurrencies, this article may not be for you. But you can still check out our other resources, like how to navigate the NFT marketplace or set up a crypto wallet.

So, Where Did It All Start?

Like most things, there really is no straightforward answer to the question of when the technology was first conceived and by who, (the latter question is one of curiosity, but we’ll get into that in a bit). But it is widely accepted that there were theories for financial systems and ideas that preceded and laid the groundwork for what we know as cryptocurrency today. However, the virtual tender we call cryptocurrency really began to take shape in 2008. 

During that year, a white page was published by someone — or a group of people — under the pseudonym Satoshi Nakomoto. The paper was titled Bitcoin, (ring a bell?), and it laid out the process by which a decentralized version of electronic cash could be viable on the back of a technology called blockchain. 

It is still not known who Nakomoto really was, but the paper he released laid the groundwork for cryptocurrency’s introduction.

That introduction would come a year later, in 2009, when  Bitcoin software was released and the process to make Bitcoin — mining — began. This was also the first implementation of blockchain technology, which while wildy associated with cryptocurrency, has found uses in other industries since its inception.

Okay, So What Is Blockchain?

You can imagine blockchain as a kind of virtual ledger. As more transactions are recorded and an asset — in this case a Bitcoin or other form of cryptocurrency — changes hands, any block added to that chain contains the information associated with that transaction. 

These blocks contain information like who the previous owners were, time of transaction, etc. They are also decentralized and available for view.

In order for a new link to be created within this chain, a computer must crack a complex math problem, which is called mining. Without getting too in the weeds, these all combine to make fraud or tampering with a block extremely difficult and sometimes virtually impossible. 

We have another article in our blog that lays out the basics of blockchain and the security it offers.

Great, But What Is Cryptocurrency and How Does This Relate?

To understand cryptocurrency, it is essential to understand the technology behind it. Without one, the other does not work. Think of cryptocurrency as basically a virtual asset only made possible by the security offered by blockchain, which is essentially a ledger containing information. 

Cryptocurrencies can be bought or mined, and since the inception of Bitcoin, many other cryptocurrencies have been created. Most of these were created with their own caveat or spin on the original methodology used by Bitcoin. 

Why Was Cryptocurrency Created?

The first cryptocurrency, (Bitcoin), was created in order to offer a secure, peer-to-peer digital transaction. The idea was to cut out the middleman, or banks in many cases, as well as centralized regulation. To take from Nakomoto’s original paper, “Commerce on the internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments.”

This means that banks play the role of mediator if there happens to be a dispute. This also causes problems with non-refundable services. While cash eliminates many of these problems, there was no way of making digital transactions without a third party. 

Bitcoin was meant to solve this through the use of blockchain to record information and ensure double spending did not occur. The system is based on proof instead of trust, and that proof is stored as data inside each block. 

After Introduction

The same year as its introduction, the first transaction took place using Bitcoin when Nakomoto sent Hal Finney, a cryptographer, 10 coins. 

A year later, and now famously, the first real-world transaction took place when someone decided to swap their Bitcoin in 2010 for two pizzas. At the time, his 10,000 Bitcoins were valued at around $40. Today, a single bitcoin is worth over some $35,000.

In 2011, the first “altcoin” emerged. (An altcoin is basically just any other cryptocurrency besides Bitcoin.) These mostly tried to improve upon the original formula by offering something new such as better security or faster transactions.

The following years were followed by wild fluctuations in the price of the currency and gradual acceptance among some institutions and companies. 

More recently, El Salvador became the first country to announce that it would adopt Bitcoin as legal tender in 2021, marking a stark and meteoric rise from its introduction a little over a decade ago. 

Want to Learn More About web3?

For the first time ever, top experts have come together with Nas Academy to form a web3 learning community – and you’re invited!

Whether you’re launching an NFT project, investing in Bitcoin or NFTs, or are curious about how web3 works, you’ll discover that “community” is the foundation of the web3 space. And now, you can join a vibrant and supportive community full of web3 enthusiasts like yourself.

This community offers a safe space to network, learn, and collaborate with some of the most innovative thinkers around the world. On top of that, we’ve pooled all our resources to give you access to thousands of dollars worth of Nas Academy resources (including our best-rated classes) all under 1 subscription.

By subscribing to the Nas Academy Web3 Community, you’ll also be invited to join exclusive events and workshops with the world’s leading experts – an opportunity that you won’t easily find anywhere else. So, if you’re looking to learn more and discuss web3 with others who share your interests, subscribe today and join the movement that’s changing the Internet.