πŸ”₯ What are cryptocurrencies? All information about cryptocurrency in our guide!

Cryptocurrencies, blockchain, digital money, decentralized, volatility - terms that can be found everywhere, but the necessary explanations are often lacking to begin with. Because what are cryptocurrencies anyway? What possibilities does blockchain technology offer and why is volatility both a curse and a blessing?

Different coins of cryptocurrencies are lying on a pile

In the following guide you will find countless information about cryptocurrencies and the technology behind them as well as outlooks and tips and tricks on how to deal with cryptocurrencies. Because crypto currencies are virtual money, but are also seen as objects of speculation. And if you look at the price histories of some cryptocurrencies, it quickly becomes clear why more and more speculators are concerned with Bitcoin and Co. If you buy or sell again at the right time, extraordinarily high profits are possible here.

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What is a cryptocurrency?

A cryptocurrency, which is also repeatedly referred to as cyber currency, digital or virtual money, is a currency that only exists on the Internet. That means there are no bills or coins. The name is derived from cryptography - the science of information encryption. The cryptocurrencies are also based on this principle. Because the data on the owners and movements are stored in encrypted language. Here, cryptocurrencies score with their decentralization, because there is no storage on a single server, but storage processes are documented on thousands of servers at the same time. That is also the reason why it is not possible to forge transactions - these are stored on countless servers. In this case, one speaks of the blockchain, the structure behind (almost) all cryptocurrencies.

Fans and supporters alike want to see the answer to classic, traditional finance in cryptocurrencies. Because digital money is no longer dependent on any bank or government - the owners of the digital coins become a kind of financial institution themselves. Since there is no central body that controls both the currency and the flow of money, the buyers retain control, but are also responsible for keeping their assets safe.

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How do cryptocurrencies work?

As already mentioned, this is a decentralized structure. This means that there is no central authority, such as a central bank or government, that can put crypto-currency coins into circulation or even (financially) support them. All cryptocurrency trading is only conducted over a network of thousands upon thousands of computers. It should be noted that compared to classic fiat money, cryptocurrencies are stored in a blockchain. If a user of a crypto currency wants to transfer the units, the transaction takes place between the wallets, which are digital purses. A completed transaction is then spoken of as soon as it has been verified and added to the blockchain in the course of the so-called mining process.

As already mentioned, cryptocurrencies are only available online. This means that you cannot get bills or coins and use them to pay in the store, but only pay with crypto currencies if this option is accepted by the operator of the online shop. Of course, a transfer between two people is possible - in this case one also likes to speak of the peer-to-peer currency.

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What are tokens and what are coins?

Coins are colloquially units of cryptocurrencies. It should also be noted that there are also altcoins. It is a combination of the words "alternative" and "coins", because only the units of Bitcoin are referred to as coins. All other digital coins are so-called altcoins, as these also use their own blockchain.

The token differs from the coin in several ways. Because a token does not have its own blockchain. In addition, tokens are issued via an ICO (Initial Coin Offering) or an airdrop on the blockchain with other coins. Furthermore, tokens often do not have to represent a product, part of a company or proof of ownership. The lighting of the EOS coin may be interesting here. Because this coin initially started as a token, as it was used on the Ethereum blockchain. At a later stage, however, the developers developed their own blockchain, so that EOS suddenly became an altcoin.

The fact is: The coin or altcoin is the coin or the means of payment, while a token is a product that has a higher functionality. The purpose of the coin or altcoin is to be treated like money. Coins serve as a unit of account, are used for transfers or stored as a store of value. Tokens may also have value, but are not perceived as money. This is because they are usually hosted on a different blockchain.

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What is the blockchain?

The blockchain is the technology that stands behind the cryptocurrencies, so to speak. The unique security features available here cannot be compared to any ordinary computer file. This is exactly what makes the security precautions when trading cryptocurrencies so unique.

It should be noted that the blockchain file is not saved on a computer in the network, but is saved on countless computers. For this reason, the blockchain also remains transparent and is also protected against attacks by hackers. Furthermore, the blockchain is resistant to system errors or errors that have been caused by humans.

The individual blocks are linked in the blockchain using a specific cryptographic encryption method. An attempt to change the data breaks the existing links between the blocks. An attempt at fraud is thus perceived immediately.

The blockchain is ultimately the database in which all transactions are stored. The transactions can be viewed, but there is no information about the parties between which the transactions took place.

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How does mining work and who are miners?

So-called crypto mining is a process in which the last cryptocurrency transactions carried out are checked and then added to the blockchain as new blocks.

The mining computers select outstanding transactions from a pool and then check whether the sender can provide enough credit at all to complete the transaction. Furthermore, the transaction details are checked against the transaction history. The transaction is completed with the second check, which confirms that the sender has confirmed the transaction by entering his private key. The transaction is finally completed when a cryptographic link is created between two blocks. The creation of a new block, i.e. an extension of the blockchain file, is rewarded by the network. You currently get 6,25 Bitcoin for this. However, the reward is always halved in the course of Bitcoin halving. This means that after the next halving (expected in 2024) the reward is only 3,125 Bitcoin. 

Bitcoin overview coin number for mining

Anyone can work as a miner. Due to the fact that in a decentralized network there are no instances that would then delegate the necessary tasks, a kind of device for crypto currencies is required so that abuse by the controlling group can be prevented from the start. The system would collapse, for example, if a group created thousands of peers and forged transactions and then disseminated them. For this reason, Satoshi Nakamoto, the inventor of the crypto currency Bitcoin, initiated the search for the so-called hash. This means that the miner has to search for a hash, which is a product of encryption technology, so that two blocks can be connected to one another. This proof of work is based on the SHA 256 algorithm. It should be noted that ultimately it is not necessary to understand the details of SHA 256.

At this point, however, it is fair to mention that the difficulty of the encryption puzzles is increasing and increasing - today such powerful computer performance is necessary that, in terms of effort and benefit, it is hardly in relation to mining Bitcoin as a private person. An alternative are mining pools, which you join, make your computer services available and receive a proportionate reward.

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It all started with Bitcoin - how cryptocurrencies came about!

In order to know what cryptocurrencies are all about and, above all, to be able to answer the question of how Bitcoin and Co. could develop in the foreseeable and distant future, it is important to deal with the beginnings of digital currencies.

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How long have cryptocurrencies existed?

The history of Bitcoin begins with the history of cryptocurrencies. For this reason, Bitcoin is often referred to as the mother of all cryptocurrencies. Because Bitcoin is the first crypto currency - and even today, more than ten years later, Bitcoin is the most famous digital currency in the world. At this point it must be mentioned that the idea of ​​creating a virtual or digital currency that works on the basis of cryptography was created at the turn of the millennium. Because in 1998 Nick Szabo published the idea of β€‹β€‹β€œbit gold”.

However, ten years had to pass before Satoshi Nakamoto first developed a concept for the cryptocurrency Bitcoin. The Bitcoin network didn't start until a year later. In January 2009, 50 Bitcoin were created for the first time as part of the mining process.

Over time, other cryptocurrencies have seen the light of day. Today there are around 3.000 different currencies that are available on the crypto market.

  • 2009: Bitcoin
  • 2011: Litecoin
  • 2012: Bytecoin
  • 2013: Ripple and Dogecoin
  • 2014: Dash
  • 2015: Ether

The history of Bitcoin, which began in 2009, is today representative of the enormous success of the entire market. Because anyone who invested in Bitcoin in 2009 could be a millionaire - if not a billionaire - in December 2017.

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The 2014 hype

While Bitcoin was only a kind of toy for nerds until mid-2013, slowly but surely an unstoppable dynamic developed. Because after Bitcoin was able to cross the US $ 2013 mark for the first time at the end of 1.000, more and more investors and speculators began to be interested in the cryptocurrency. In 2014, Bitcoin attracted attention, but it went back towards 250 US dollars. Suddenly there were the first critical voices saying that the bubble had burst. After the price even briefly fell below 2015 US dollars in early 200, Bitcoin has already been written off. In November of the same year, the comeback of Bitcoin could suddenly be observed: Suddenly it went towards 400 US dollars - and at the beginning of 2017 then again over the 1.000 US dollar mark.

From January 2017 to December 2017, the price rose to just under 20.000 US dollars. However, the correction followed a little later - at the end of 2018, Bitcoin was only 3.000 US dollars. But in 2019, Bitcoin, repeatedly declared dead, was able to take off again and march towards US $ 12.500. A correction drove the Bitcoin back towards US $ 6.500 (November 2019), but in February 2020 it soared again to over US $ 10.000.

Bitcoin price chart

However, the corona virus infected the Bitcoin and caused the price to drop to just under 5.000 US dollars. However, things then went up again: From March to early November 2020, the Bitcoin price rose to over 15.500 US dollars. And if you follow the forecasts, Bitcoin could still jump the all-time high from 2020 in 2017.

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What is the point of cryptocurrencies and the projects behind them?

It was the groundbreaking properties of cryptocurrencies that made it successful. A success that not even the inventor, whose identity has not yet been clarified, would have believed in. It is still unclear who is hiding behind the pseudonym - there have been some theories, but none have been confirmed so far.

The fact is: Although new digital payment systems have been brought into being again and again, Nakamoto has managed to arouse enthusiasm and fascination with Bitcoin - today Bitcoin and blockchain are almost more of a revolution than an additional option, in addition to euros and US dollars, also with digital ones To be able to pay money. After all, cryptocurrencies are ultimately referred to as digital gold, but the technology, the blockchain, may be applicable in many more areas and industries than you might have thought at the beginning. Above all, the Bitcoin is convincing due to the inflation protection. And Bitcoin is also often referred to as a crisis currency - even if a sharp correction was briefly observed in the course of the corona crisis. Because there is no other means of payment in the world that can be used everywhere, is anonymous and also incurs hardly any or no fees.

Bitcoin logo

With regard to blockchain technology, there are always new projects. This innovative technology is used, for example, in the course of smart contracts - that is, intelligent contracts. This means that with classic "if-then" programming it is possible to save time and money here. In particular in the insurance sector, smart contracts are also the key to a new system: if the leasing rate or insurance premium is not paid, the key does not unlock the car - if the rate is paid, the vehicle is released again. It all happens automatically.

It should be noted that cryptocurrencies are also perceived as pure objects of speculation. Because the price history, which could be observed with Bitcoin, for example, as well as the forecasts, which sometimes see the crypto currency at over 20.000 US dollars, especially invite risk-conscious and opportunity-oriented investors and savers who no longer want to (seemingly never-ending ) Have the European Central Bank's zero interest rate policy.

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What cryptocurrencies are there?

The top 100 cryptocurrencies (in alphabetical order):

  • 0x
  • Aave
  • Aave et
  • Aave link
  • Aave USDC
  • Algorand
  • Ampleforth
  • Aragon
  • Arweave
  • Band protocol
  • Basic Attention Token (BAT)
  • Binance Coin
  • Bitcoin
  • Bitcoin Cash
  • Bitcoin Gold
  • Bitcoin SV
  • BitTorrent
  • Blockstack
  • Bytom
  • Cardano
  • cDAI
  • Celsius Network
  • ceTH
  • chainlink
  • Compound
  • Cosmos
  • Crypto.com Coin
  • cUSDC
  • By
  • Dash
  • Decentraland
  • Decred
  • DigiByte
  • Dogecoin
  • Elrond
  • Energy web token
  • Enjin Coin
  • EOS
  • Ethereum
  • Ethereum Classic
  • Filecoin
  • FTX Token
  • G
  • Hedera Hashgraph
  • Huobi Token
  • HUSD
  • ICON
  • IOTA
  • Kusama
  • Kyber Network
  • LEO Token
  • Lisk
  • Litecoin
  • Loopring
  • Maker
  • MonaCoin
  • Monero
  • Nano
  • NEM
  • NEO
  • NEXUS
  • Nexus mutual 
  • Numeraie
  • Ocean Protocol
  • OCD
  • OMG Network
  • Ontology
  • Paxos Standard
  • Polkadot
  • Qtum
  • Quant
  • Ravencoin
  • REN
  • renBTC
  • Reserve Rights Token
  • Ripple
  • Siacoin
  • Status
  • Stellar
  • Synthetix Network Token
  • Land
  • TerraKRW
  • Tether
  • Tether gold
  • Tezos
  • Theta Network
  • Thorchain
  • TRON
  • TrueUSD
  • UMA
  • Uniswap
  • USD Coin
  • VeChain
  • Vitae
  • Waves
  • Wrapped Bitcoin
  • yearn.finance
  • Zcash
  • Ziliqa

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How many cryptocurrencies are there currently?

At the current time (as of early November 2020) there are around 3.000 crypto currencies.

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Which factors influence the price of cryptocurrencies?

The cryptocurrency market primarily responds to requests and offers. Due to the fact that it is a decentralized market, economic and / or political events are hardly decisive. This means that while US dollars, euros or other fiat currencies react to political decisions and / or events or economic development also plays a decisive role, Bitcoin and Co. are quite stable here. Even if the experts are not yet entirely sure which factors cryptocurrencies react to, there are at least a few clues:

  • Offer: The total amount of coins as well as the rate at which the coins are destroyed, lost or issued 
  • Integration: Can the crypto currency already be used in many online shops or is it an unknown currency that only insiders know about?
  • Market capitalization: The user's perception of price movements and the value of all coins actually in circulation
  • Press: The presentation of the market and the importance and staging of the topic in media reporting
  • Key events: Economic setbacks, security breaches or updates by supervisory authorities are so-called main events that have an enormous impact on the crypto market

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How can I buy cryptocurrencies?

Anyone who has dealt with the opportunities and risks and has come to the conclusion that it is now time to invest their money in crypto currencies must first find an appropriate platform in order to then be able to buy coins. The crypto exchange eToro is particularly recommended here. More information on buying cryptocurrencies can be found in the article β€œBuying cryptocurrencies - Everything you should know!”.

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Buy Bitcoin on eToro

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Conclusion: cryptocurrencies simply explained!

Cryptocurrencies are digital money. No matter whether Bitcoin, Ether or Ripple - crypto currencies can be used to pay in online shops; there is also the option of speculating with cryptocurrencies.

As long as you are aware of the risk, there is nothing to prevent you from working with cryptocurrencies in whatever way.

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FAQ

What exactly is the difference between a token and a coin? 

Probably the biggest difference between the coin and the token is ultimately the fact that coins are independent crypto currencies, for whose further execution no platform is required. However, tokens are created on platforms so that we can speak more of a digital asset than a currency.

Which cryptocurrency is the best?

The crypto currency that - according to the experts - has the greatest potential is Bitcoin. Ultimately, it was also Bitcoin that set its most impressive all-time high to date at the end of 2017, with a price of almost 20.000 US dollars.

What and where can I pay with crypto?

Ultimately, you can pay for all products with crypto money, provided the seller accepts the digital money.

Are cryptocurrencies the money of the future?

Yes. There are some predictions that Bitcoin is already so advanced in society that a disappearance of the cryptocurrency is considered unlikely.