Cryptocurrencies are a form of digital money. You can trade them with other people or you can utilize them for what they are created for. Learning about them can be a daunting task with several informational guides out there. So, here’s what you need to know about cryptocurrencies, where they came from and why they exist. The simple way.

“I remember knowing, for a while, for a long time, that I was kind of abnormal in some sense.”- Vitalik Buterin

Cryptocurrency derives from two words; cryptography and currency. Cryptography is defined as the art of encryption protecting data from any alteration of theft. Currency as most of us understand it in its simplest form is money. We use it as a medium of exchange for buying groceries, paying rent and pretty much everything we need or want. Money has evolved from transacting through the barter system (exchanging goods as a medium of payment) to trading gold and silver and today with paper money.

Cryptocurrencies like Bitcoin and Ethereum exist for multiple reasons. They allow people to utilize them as a way to buy things, investments, performing peer-to-peer (P2P) transfers; and all the things that money we use can do today.

So, why do we need cryptocurrencies?

Soon after the chaos of the 2008 financial crisis the first cryptocurrency created by a pseudonymous person or group called Satoshi Nakamoto released a whitepaper detailing what Bitcoin was and what it was meant to fix. The whitepaper explained that Bitcoin was meant to be used as a ‘peer-to-peer version of electronic cash’ without the need of going through a middle entity like a bank to facilitate transactions from one person to the other.

Bitcoin enabled a decentralized economy by eliminating a central authority or regulator within its ecosystem. This means, there is no one person or authority that can ‘pull the plug’ on Bitcoin and seize its operations. The creator(s) used an underlying technology that was invented years before Bitcoin. The blockchain.

Although the term ‘Blockchain’ only came about a couple of years after the Bitcoin whitepaper was released, the term mentioned in the paper was ‘chain of blocks’ which referred to the workings of Stuart Haber and Scott Stornetta in the 1990’s.

Yes, you read that correctly.

Much of the world still thinks that Satoshi Nakamoto invented the blockchain with the release of Bitcoin. However, the underlying technology powering Bitcoin’s transparency and immutability has existed almost twenty years before Bitcoin was introduced to the world.

Furthermore, in order for a transaction to be added onto the Bitcoin blockchain, it needs to go through Bitcoin’s consensus algorithm (you’ll be hearing this word often). Essentially this means that It requires a participating computer to prove that the work done and submitted by them qualifies them to receive the right to add new transactions to the blockchain by using the most common consensus algorithm, the Proof of Work (PoW).

In Bitcoin’s early years, the pioneers of Bitcoin who knew much about it were the ‘nerds and the techies’ of the world. Most of them knew about Bitcoin through forums and online chat groups; and really just mined Bitcoins for the fun of it, much like the episode from The Big Bang Theory: The Bitcoin Entanglement.

Fun Fact: In 2010, Laszlo Hanyecz made Bitcoins first recorded commercial transaction from purchasing two pizza’s (at $30) from Papa John’s for 10,000 Bitcoins worth roughly $380,000,000 today at the time of writing.

Laszla’s 10,000 Bitcoin Purchase

Ethereum is often referred to as the second most popular cryptocurrency according to market capitalization, after Bitcoin. However unlike Bitcoin, Ethereum is intended to be much more than just a medium of exchange. Instead, Ethereum calls itself a decentralized computing network built on blockchain technology.

Let’s unwrap what this means.

Ethereum is a whole other behemoth on its own, it is a representation of digital money, global payments and applications. Compared to Bitcoin, we actually know who the founders and creators of Ethereum are. The Ethereum co-founder most commonly known to the crypto industry is Vitalik Buterin. He started Ethereum with an idea in 2013 and later received help from several other influential individuals in the crypto community today. In 2016 Ethereum finally found its production release and demonstrated a new ‘frontier’ on blockchain capabilities.

Ethereum was influenced by Vitalik’s idea that the blockchain could be utilized to do more than just facilitate and monitor peer-to-peer transactions.

Like Bitcoin, Ethereum’s ethos is to be open sourced and decentralized. Its platform is where like minded people come together to reach consensus. Consensus is an agreement between a network of people within the Ethereum ecosystem to prove or disprove; and agree or disagree with upcoming upgrades like the most recent one, EIP-1559 London Hardfork; more on that in future articles.

How is Ethereum different from Bitcoin?

Ethereum is unique, in the sense that anyone with experience in the Ethereum developing language, Solidity can build a decentralized application on top of the Ethereum blockchain with smart contracts. To put it simply, smart contracts are predetermined conditions that run on a blockchain to automate any processes when those predetermined conditions are met. Decentralized applications come in many shapes or forms from gaming, NFT’s (non-fungible tokens) and payment systems to name a few.