What Are Cryptocurrencies: The New Era of Money

Understanding Cryptocurrencies   

Cryptocurrencies, in simple terms, are digital or virtual currencies. They exist purely in digital form and can be used to make payments or transfer value without the need for banks or other traditional financial institutions.

Every crypto currency out there operates on blockchain, and they are secured by cryptography. Blockchain is the technology where cryptocurrencies reside in, and cryptography is a mathematical and complex way of securing information.

To remember and understand this, think that your sweet home is the blockchain, the rooms inside your house are crypto currencies and all the locks on your doors symbolize cryptography.

There are more than 1000s of different crypto currencies, we have Bitcoin, Ethereum, XRP, Cardano, Solana etc. These are among the top crypto currencies we currently have.

But wait a minute, you might be wondering if all are digital currencies, why do so many of them exist in the first place? To understand this let’s go back to the previous analogy, since your house has different rooms for different purposes, different crypto currencies also exist to serve a different use case or a different purpose. 

In simple terms they are not only a form of payment or store of value, but many crypto currencies also now solve real world problems in many industries and has the potential to revolutionize the way we conduct businesses and manage our finances, thereby gaining a monetary value, determined by free market forces supply and demand.

They can provide faster transactions, lower fees, and increased accessibility for people around the world. Below are five notable cryptocurrencies, each with unique utilities that showcase their potential in the real world.

Different Crypto Currencies and their unique utilities

1. Bitcoin (BTC) - Founded January 2009

Utility: Digital Gold

Bitcoin is known as the father of all crypto currencies. Why? Because it was the first crypto currency or digital currency created using the blockchain technology utilizing cryptography for security.  

Bitcoin first came as a peer-to-peer digital payment excluding banks or any central authority and is now also being classified as a valuable asset class.

Key Features:

Store of Value: Just as gold is valuable, the unbeatable blockchain technology used in bitcoin has gained a significant interest thereby gaining a huge monetary value.

Scarcity: Gold is valuable because it is scarce and hard to mine, and Bitcoin shares this characteristic. There will only ever be 21 million Bitcoins created, which is written into its code. 

This fixed supply creates scarcity, similar to the finite supply of gold, making Bitcoin potentially valuable as demand increases.

Decentralization: Just as gold is not controlled by a central authority, neither is bitcoin. Bitcoin is not controlled by any government, central bank or institution.

Durability: Both gold and Bitcoin are durable assets. Gold doesn’t tarnish over time, and Bitcoin, being digital, can’t be physically destroyed. Bitcoin’s network is maintained by hundreds of thousands of miners, and as long as even one miner remains, Bitcoin will continue to exist.

Hedge against inflation: Bitcoin can be also considered as a way to combat inflation just as gold. Only a few people understand the reasons behind how money is losing its value overtime. But not bitcoin and gold. Bitcoin, which had a value of $0.01 in 2009 is now worth over $60,000 in 2024.

 

2. Ethereum (ETH) - Founded in 2015

Utility: Smart Contracts and Decentralized Applications

Ethereum is more than just a cryptocurrency; it's a platform that allows developers to create decentralized applications (dApps) using smart contracts. 

Decentralized applications (dApps) are apps that run on a blockchain network instead of a single computer or server. 

Unlike regular apps, which are controlled by a central entity like a company, dApps are decentralized, meaning they are operated by a network of users (nodes). 

For example, Facebook is a centralized application, meaning it is fully controlled by the Facebook company. But dApps are controlled by a network of users. No single entity control dApps.

A smart contract is a self-executing contract with the terms directly written into code. Smart contract is like a vending machine. When you put in the correct amount of money and select a product, the machine automatically dispenses it without needing a cashier. 

Similarly, smart contracts automatically execute transactions when conditions are met, removing the need for intermediaries. 

3. XRP- Founded in 2012

Utility: Fast and low-cost cross-border international payments.

XRP is a digital asset designed for the financial sector, enabling fast and cost-effective cross-border payments. It is widely used by banks and payment providers as a bridge currency, allowing seamless conversions between different fiat currencies.

Key Features:

Bank Partnerships: Strong relationships with numerous financial institutions. (over 1000 financial institutions – Santander, SBI holdings, American Express, Money gram, Standard Chartered, Bank of America).

 Speed: Transactions are processed in seconds, making it ideal for real-time payments.

Regulatory Compliance: Actively engages with regulators to ensure legal adherence.

 Efficient Operations: Reduces the time and cost of traditional international transfers.

In my personal opinion, XRP will play a significant role in the new financial system as a bridge currency and even has the potential to surpass Bitcoin. 

Mark my words, 'XRP IS GOING THE DISTANCE.' However, this is not financial advice so please do your own research.

 

4. ChainLink (LINK) – Founded in 2017 

Utility: Connecting smart contracts to real world data.

So, you now know that smart contracts run on dApps, but for any application to function or provide a service we need data, for example Uber uses external data like traffic data, user location, weather data etc. to provide a good service for the user. 

ChainLink is a cryptocurrency oracle project that provides real world data into smart contracts in dApps. LINK basically acts as a bridge between real world data and decentralized applications which run in blockchains.

For example, assume we have a decentralized weather app, Chainlink has the capability to provide various types of weather information such as temperature, Precipitation, Wind speed and Direction etc. to this weather dApp enabling the dApp to make decisions based on accurate real world weather data.

 

      5. VeChain (VET) – Founded in 2015

Utility: Supply chain management

The primary purpose of VET is to enable supply chain transparency, VET helps businesses to track and verify the origin, journey, and authenticity of products through every step of the supply chain, from production to the final consumer.

By using VET, companies can assign unique identifiers for their products allowing customers to verify the authenticity of goods.

Real-World Use Cases:

Luxury Goods: VeChain is used to track the authenticity of luxury goods, ensuring customers are buying genuine products.

Food Safety: The platform helps track the origin and handling of food products, providing transparency about food quality and safety.

Healthcare: VeChain is used to verify medical records and track pharmaceuticals to prevent fraud and ensure patient safety.

Walmart China, BMW, Louis Vuitton, H&M and UFC all use VeChain supply chain management services.

 

There are many other crypto currencies with different use cases (Purposes), you can search them online, just go to their website and read the White paper. A White paper is a brief document that outlines the purpose, technical details, and goals of a cryptocurrency project. 

It typically includes information on the problem the project aims to solve, the technology behind it, the team involved, and how the cryptocurrency will be used. It provides an overview for potential investors and users to understand the project.

 

Coins Vs. Tokens

When you step into the cryptocurrency world, you’ll often hear about coins and tokens. Don’t worry—they’re both types of cryptocurrencies that operate on a blockchain and are secured by cryptography.

The main difference is that a cryptocurrency coin has its own blockchain - like XRP, Bitcoin, and Ethereum - which are all considered Layer 1 blockchains. 

In contrast, a token is a crypto project that operates on someone else's blockchain, designed to enhance the existing blockchain. Tokens are often referred to as Layer 2 solutions, meaning they are built on top of Layer 1 blockchains.

 

Analogy to Remember Coins and Tokens

Think of a cryptocurrency coin as a house built on its own land, like XRP, Bitcoin, or Ethereum. The house has its own structure and rules. Now, a token is like the improvements or upgrades you make to that house, such as adding solar panels or a new security system. 

These upgrades depend on the house’s foundation (the Layer 1 blockchain) but enhance its functionality and efficiency. Both the house and the improvements contribute to your living experience, just as a token (Layer 2) built on a coin (Layer 1) enhances the value of that cryptocurrency project to the users.

A great example of a token that improves a Layer 1 blockchain is Polygon (MATIC). It works with Ethereum (Layer 1) to make it faster and cheaper to use. This helps users interact more easily with apps on Ethereum, making the overall experience better.

Final thoughts

Different cryptocurrency projects serve various purposes. Some are designed to solve real-world problems and revolutionize industries, while others aim to compete with existing solutions. There are even projects created just for fun, like meme coins.

In this blog, my goal was to provide a brief and straightforward understanding of cryptocurrencies without going in too deeply into technical details. 

I believe in the KISS principle (Keep It Super Simple) to ensure that anyone can grasp these concepts. That’s why I use analogies throughout my blogs, it's a way to make complex ideas more relatable and easier to understand for everyone.

If you found this blog helpful and want to learn more, explore my other posts or do your own research. Cryptocurrencies are a journey with endless discoveries, and they’re here to stay - offering many financial opportunities along the way!

Disclaimer: The contents of this article are for informational purposes only and are not financial advice. The views here are just the author’s opinions. The crypto market is volatile, so be sure to do your own research before investing.