From Bitcoin To Dogecoin: Cryptocurrency Explained.

Just how many times in your life have you nodded along with something just to avoid further confusion?

How many times has the topic of discussion been Cryptocurrency?

Consider those days behind you, because even though it may sound like a Spider-Man villain, crypto is easy enough to understand. Crypto has changed the game and brought us into a sci-fi-like state of possibility. The Star Wars universe may have galactic credits, but we have… Doge...

Before we dive into how exactly a meme became money. It’s important to understand the concept that supports crypto — the blockchain. We highly recommend that you read our explainer on blockchain first to get a better idea.
Now assuming that you’re up to speed, let’s cut to the chase

What Is Cryptocurrency?

Money has taken on very different forms over the years. From gold to currency notes to numbers on your screen, the world of money is vast.

But one concept has never changed — it is only valid if people agree to make it valid. (If you want to understand the concept of money in its entirety, read our explainer on What Is Money? and The Ascent Of Money) This is what the early digital currency makers had in mind. They wanted to create a hassle-free, government intervention free way of exchanging money.

By this yardstick, cryptocurrency can be considered a digital and decentralised medium of exchange that is derived from the cryptographic nature of blockchains. Instead of a central bank, the sanctity of the system is preserved by its decentralised community of nodes and miners.

As of date, there are about 4000 different cryptocurrencies — such as Bitcoin, Ether, and Dogecoin (it’s a multi-trillion dollar market!!)

Note: Many countries don’t recognise crypto as a currency but as a financial asset. So before dabbling in it, be sure to check the regional laws!

Almost all cryptos have the same fundamentals but naturally have some different features. They even have some very interesting ethos behind them, only going to show how diverse the crypto world really is.

Bitcoin

It all started with someone named Satoshi Nakamoto — whose real identity remains unknown.

In the year 2009, they released a paper titled ‘Bitcoin: A peer-to-peer electronic cash system’ (which you can still find here). This paper had a link to the domain www.bitcoin.org.

Before Nakamoto, many had tried to create a digital form of money, without success. By using the concept of blockchain and hashing, Nakamoto had, for all intents and purposes created the world’s first legitimate cryptocurrency

So now that we know that Bitcoin is a cryptocurrency, the question remains: how are Bitcoins created?

Mining

Bitcoins are created by a process known as ‘mining’. Miners are the people who use powerful computer systems to verify transactions on the blockchain and ‘mine’ them into blocks by solving complex cryptographic problems. The miners generally compete to verify transactions and mine blocks, with the system that does it first being rewarded a specified amount of Bitcoin as an incentive. This system of incentives ensures there are always miners available to verify transactions and keep the blockchain functioning.

However, this is a painstaking process that uses a mind-boggling amount of computational power and energy. Since only the system that eventually solves the problem and mines the block is awarded Bitcoin, the computational energy used up by others who also attempted to do so is essentially wasted, which has in recent years raised doubts about how energy-efficient Bitcoin is. The crypto community is however working on alternate solutions and chains that can serve the same purpose while being more efficient.

Fun Fact: Bitcoin actually has a predetermined limit. There will only be 21 Million Bitcoins in circulation. And about 83% of them have already been mined. Every four years, the amount of Bitcoin given out for mining a successful block gets cut in half, an event known in the crypto community as ‘halving’.

There’s no doubt that Bitcoin has some big trump cards over conventional money, but it is still very volatile as many institutions and governments haven’t legitimised it. The environmental cost of mining is also a growing cause for concern.

Doge Coin

Who could have ever predicted that one of the most beloved memes on the Internet would one day become actual money? Doge Coin founders Billy Markus and Jackson Palmer did (sort of). The duo created Dogecoin as a satirical take on the hype in the crypto space. Despite its humorous origins, its impact in recent years has been enormous (Elon Musk’s vote of confidence certainly didn’t hurt!)

Doge Coin has accumulated a huge market, especially amongst social media users. Its mining works the same way as Bitcoin. However there is one difference, Doge’s limit on mining is very vague, as compared to Bitcoin’s clear 21 million limit.

How Are Crypto Prices Determined?

Well, the same way all prices are: Supply and Demand. Let’s say you have a lovely apple orchard and have 100 apples to sell. But your apples are so sought-after that over 150 people want them. So the price of your apples will increase as people keep bidding higher. So the prices increase when the demand is high, and decrease when the demand is low.

This is a very simplistic way of explaining the intricacies of supply and demand, but this is how prices of pretty much all tradeable goods are determined, and cryptocurrencies are no different.

Hope this post helped improve your knowledge of cryptocurrencies. Next time someone nods along with a blank look while you and the gang discuss Doge going to the moon, share this with them!

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