The investor’s guide to cryptocurrency [part 3]
The rise of digital currencies
Welcome to our Investor’s guide to cryptocurrency. This third article will tell us about the different available cryptocurrencies beyond Bitcoin and how they impacted traditional industries. Continue reading to find your way into cryptocurrency investing.
Beyond Bitcoin and new solutions
After the first few years, many realized that Bitcoins’ framework also had downfalls. It was energy-consuming and relatively slow for some use-cases. These challenges initiated a phase where developers went on to create alternatives to Bitcoin. The process started with minor tweaks to increase the speed of transactions, which they implemented in Litecoin. However, these deviations started to become increasingly complex as time went on.
In essence, cryptocurrencies are digital currencies that are secured by cryptography. These currencies can be used, just like fiat money, to store value and transfer funds.
Over time, more and more deviations of Bitcoin were created, each with different applications in mind. Some focused on privacy like Monero, while others were made just for fun. A good example is Dogecoin.
Smart contracts in cryptocurrency
The biggest revolution in the crypto industry came when Ethereum introduced Smart Contracts to cryptocurrency. Smart Contracts are coded agreements that follow simple “if…then..” statements.
Whenever the predetermined conditions are met, the execution will automatically take place. The arrival of Smart Contracts rapidly expanded the use-cases of cryptocurrencies.
These are some of the Smart Contracts’ main traits:
‣ Autonomous. There is no need to rely on third parties. For instance, it could make the process of getting insurance feeless and independent from third-parties interests.
‣ Reliable. Your encrypted documents are safely stored in a shared ledger. All parties involved have access to them, making the process transparent.
‣ Fast. Smart Contracts are automatically executed following the agreement. They are precise, thereby avoiding mistakes.
Tokens in the Ethereum ecosystem
With the arrival of smart contracts, the ability to easily create representations of other assets arrived. These so-called tokens could represent anything, from real-world assets and pieces of art to shares in a company.
The possibility to create these tokens led to the enormous boom of the Ethereum ecosystem in 2017. Tokens are built upon other pre-existing blockchains and help create a diverse ecosystem of broad use-cases.
Nowadays tokens are being used to trade dollars, images (NFTs) and allow for the creation of all kinds of decentralized financial instruments.
Consensus mechanisms and new opportunities
In recent years, developers have created all kinds of different implementations of cryptocurrency.
As of 2022, there are more than 15,000 cryptocurrencies, all with unique features and applications.
Some introduced other consensus mechanisms, such as proof-of-stake and proof-of-burn. Others even built completely new blockchain structures such as a Directed Acyclic Graph. The fundamentals of Bitcoin have opened up massive opportunities for innovation. We will explain the implication of these new mechanisms in the next article from The investor’s guide to cryptocurrencies.
In short…
In this article, we briefly explained how the rise of digital currencies dramatically changed the financial system, opening new possibilities. One of the most important is the creation of Smart Contracts. They impacted traditional industries with a domino effect. In the upcoming article, The investor’s guide to cryptocurrency [part 4], we will provide clear examples of the most critical real-world usages of Smart Contracts in different financial industries.
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