Updated: Apr 15, 2022
It's hard to say when cryptocurrency became such a ubiquitous concept. There are forms of cryptocurrency that have been around for ten years or more but have only recently become easily and widely accessible by the public. With most new things (*ahem* the metaverse), the rules aren't as well known, causing distrust in the concept. For that reason, we here at Nyla Nova STEMversity have provided a brief overview of common types of cryptocurrencies and how they work.
However, before a conversation about cryptocurrency can begin, we should start with an understanding of how it differs from the kind of money that we are most familiar with using. The dollar bill, the Euro, and most other currencies are considered "fiat" currencies. That means that the money's value has nothing to do with gold or silver. The "gold standard" ended in the U.S. in 1971. Now, the value of our money comes from two places. The first is the backing of the U.S. government. The second is how much or how little there is being exchanged. The more bills there are changing hands, the lower the value of those bills goes. Unlike fiat money, there isn't any backing from the U.S. government with cryptocurrency. Instead, value is attributed in many different ways. According to The Motley Fool, the value of cryptocurrency is dependent on six things. Cost of production, competition, availability on exchanges, governance, regulations, and supply and demand. Any one of these factors can cause the value to fluctuate. This is what gives cryptocurrency its volatile nature and can make it more troublesome to manage.
But not all cryptocurrency is the same. Bitcoin is the oldest and most commonly known type of cryptocurrency. Established in 2009, it keeps track of transactions via blockchain technology, which is a public digital record of all transactions made using Bitcoin. Though it is not subject to a bank or any governing authority, there has been a limit placed on how much Bitcoin is available. No more than 21 million Bitcoin tokens will be available to potential investors and an estimated 18.8 million are already being utilized. And since supply and demand is one of the key factors influencing the value of cryptocurrency, this is one of the ways that the value of Bitcoin is maintained.
Though Bitcoin has been the only game in town for a long while, there are many alternatives to Bitcoin (called "Altcoins" and sometimes called value tokens) that have risen to the forefront. Some commonly known ones are Dogecoin (DOGE), Ethereum (ETH), and Tether (USDT). But these are only a few in a much longer list of Altcoins with varying names and features.
Dogecoin, a currency that started as a joke but is now the 13th largest cryptocurrency, hails itself as the Altcoin of the discerning Shiba Inu (according to Dogecoin.com). In addition to an adorably furry mascot, Dogecoin also utilizes a blockchain network, like Bitcoin. One can also mine Dogecoin, like Bitcoin, if they have the equipment and patience to do so. But what separates the two is the fact that there is no cap on how many Dogecoins will be available. This will likely cause a shift in Dogecoin's value but it seems to be holding steady in the meantime.
Ethereum is another popular cryptocurrency that also functions as a software development platform. Their version of blockchain technology allows for both transactions and the development of applications that don't need to be connected to the App Store or Google Play to be distributed. Not only that, but after Bitcoin, it is the most popular cryptocurrency.
Much has been said about the value of cryptocurrency and how it can change without warning. For those who are hesitant about getting into this relatively new financial concept, it can be difficult to accept. This is where Tether comes in. It's what's called a "stablecoin". That means that it looks like a cryptocurrency but works like a U.S. dollar. It is backed by the previously mentioned fiat currency, which makes it a little less volatile. With it, there's the flexibility of crypto and the dependability of the US dollar (with its value guaranteed by the U.S. government).
No conversation about crypto can be had without discussing tokens. Unlike Bitcoin and Altcoins, tokens aren't inherently worth anything. They are more of a representation of things that are worth something. Much has been said about NFTs or non-fungible tokens being representative of digital art and other valuable items. All this means is that an amount was paid for something valuable and in exchange for that amount an NFT was granted to confirm that this item is unique and the ownership of a said item. But tokens can also be used for functionality within a given app or platform (utility tokens) or as security to ensure access to a certain app or program for a certain person or group of people (security token). And unlike Bitcoin and Altcoins, which can be bought at any time, tokens are only made and distributed through an Initial Coin Offering or ICO, similar to Initial Stock Offerings for stocks. Instead of having an infrastructure specific to them, tokens are built on top of other blockchain infrastructures and are only valid within that space.
The future of money is an unpredictable one, to be sure. Though some economists may have suspected or even suggested concepts similar to cryptocurrency, many may have been caught off guard by its rise. But this is likely only the beginning of the changes in store as technology becomes even more integrated into our daily lives. It is up to the next generation of brilliant, technology-minded innovators to bring about the future of money, banking, and everything else. We here at Nyla Nova STEMversity are excited to see what comes next.
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