[Coinlive] Cryptocurrencies for Noobs Explained by a Noob

If like me, you belong to the category of crypto noobs (maybe living under a rock), then hopefully this article will bestow some sort of enlightenment on you.

If you belong to the category of “I am a crypto guru, but I stink at explaining anything crypto-related to people”, then I too hope this article will aid you on your quest to expound some basic crypto facts to crypto dummies.

I will try to omit any historical facts to avoid it being a history lesson; it will be more of a brief guide for understanding and digesting some basic cryptocurrency jargon. Everything is based on my subjective understanding as well as research done on the cryptocurrency realm.

Even though cryptocurrencies have been around for over a decade, crypto noobs are still lurking everywhere (me again), and our numbers might stun you speechless. We might live under a rock, but we have at the very least, heard of or seen terms such as “cryptocurrencies”, “Bitcoin”, “blockchain”, and the likes. There is a chance we might have even browsed through news related to them or have had someone attempt to explain this complex technology to us, but somehow it never clicks and leaves us feeling like we went through an exhausting, fruitless century-long mental battle.

A man attempting to explain cryptocurrency to his friends

Now, without further ado, let us dive into what cryptocurrencies are since that is the main topic at hand!

Cryptocurrencies are digital or virtual currencies and are defined by the use of cryptography. Before you go scratching your head, it is a system that uses mathematical concepts and techniques to secure information — crypto works on a peer-to-peer basis, allowing cryptocurrency to be decentralised. And Bitcoin (BTC) is the very first cryptocurrency created, so all other coins created thereafter are termed “altcoins”, as in “alternative coins”. So, Cardano (ADA), Ethereum (ETH), and the others are “altcoins”.

Fun fact: when Bitcoin was at its all-time high (ATH) on 10 November 2021, it was priced at $68,789.63 (see graph below), and at the time of writing, it is priced at $20,570.35. ATH is the highest point (in price, in market capitalisation) that a cryptocurrency has been in history.

Indicator on the graph shows the ATH of Bitcoin

Bitcoin is a decentralised peer-to-peer electronic network. Let me break that down for you: it means that people can send money to one another directly without relying on any third party such as the government, financial institutions or banks, hence the term “decentralised”. Cryptocurrencies are an alternative to mainstream fiat currencies so as to return the power of business back to the public. The term “fiat currencies” above, is traditional money or soft money like Euros, Japanese Yen or U.S. Dollars.

Moving on, how is blockchain linked to cryptocurrency? What comes to mind when you hear or see “blockchain”? Perhaps blocks linked by chains, literally? In layman’s terms, blockchain is a decentralised public ledger or a record of transactions. The genesis block, also known as “block 0”, which is the very first block in a blockchain, does not have any transaction. Then all the blocks generated thereafter form a chain, hence the term “blockchain”. Each block contains a cryptographic hash (like a digital signature) of the previous block, right up to the genesis block.

Picture shows how each block is chained or linked to the previous block

Let me use Bitcoin as an example to explain Blockchain. For Bitcoin, each block contains an average of 2000 or so transactions with a new block being created every 10 minutes. New transactions would require new calculations; this is where miners come in. The term "mine" or "mining" is actually a metaphor for the computational work of blockchain nodes.

Picture miners mining in a gold mine: the mining process is equivalent to the calculation process, while gold ore (physical mining) and bitcoin (digital mining) are the rewards for mining. There are millions of miners spread across the world, playing a crucial role in maintaining the bitcoin network and development. The point of mining is for security since every network requires security — it ensures that more Bitcoin cannot be created or “copied”.

Top: Miner mining for gold in a gold mine

Bottom: Crypto mining

Blockchain technology underpins cryptocurrency as it is a platform on which all cryptocurrencies are built; in general, secure transactions can be made as no one can tamper with the transaction history, plus providing complete transparency at the same time.

Then what are crypto exchanges? In a nutshell, a cryptocurrency exchange is simply a platform that enables you to buy, sell, or trade your cryptocurrencies. Some examples are Coinbase, Crypto.com, Coinhako, Binance, Gemini, and so much more — these are centralised exchanges (CEX) while decentralised exchanges (DEX) have been blooming in recent years. Well, I am not going to deep dive into decentralised finance (DeFi) as it would be another totally new topic, just bear it in mind. These crypto terms are just getting more and more complex, right?

To conclude this brief guide for crypto noobs by a noob, what I have listed is just the tip of the iceberg. As you familiarise yourself more with this cryptocurrency realm, more crypto jargon and terms will be uncovered. Best of luck to you (and me) as we take a deep breath and forge ahead!

Written by: [Coinlive] Catherine