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Lesson 1: Cryptocurrencies

We’re glad you want to start investing in cryptocurrencies and joining what is becoming a global movement.

What is a cryptocurrency? How does cryptocurrency work? What are the different types of cryptocurrency?

Getting started in cryptocurrencies raises many questions. And with so many options available to learn about cryptocurrencies it can be daunting to find the answers you need.

In this course, you’ll learn everything you need to know about cryptocurrencies and how to invest in cryptoassets.
 



1. What are cryptocurrencies?

In a lot of ways, cryptocurrencies have a bad name. The word cryptography often implies secret, hidden, or guarded. But in reality, cryptocurrencies are generally open, transparent, and verifiable. 

The currency part of cryptocurrency is also somewhat problematic because while cryptocurrencies can act as a peer-to-peer form of payment, they also have a wide variety of other uses. Cryptocurrencies provide a programmable financial infrastructure layer, a digital store of value, and a new form of computing.

But the reason that cryptocurrencies are called cryptocurrencies is because they all have the commonality of being digital assets or decentralized systems of exchange that use public key cryptography to create a system of wallets and private keys.

A cryptocurrency’s main objectives are to secure financial transactions, control the creation of additional units, and verify the transfer of assets.

 

2. A brief overview of the history

The crypto revolution started over a decade ago with the cryptocurrency that tops the list – Bitcoin (BTC).

Bitcoin is the first massively adopted cryptocurrency — and still dominates the maturing market.

Bitcoin was created in 2008 when an unknown person or group of people named Satoshi Nakamoto published the Bitcoin whitepaper.

Since then, many other cryptocurrency systems (including many in the rest of this list) have used Bitcoin as a model and created other kinds of cryptocurrencies based on the same concept and open source computer code (in fact, if you want to, you can also take Bitcoin’s code and build your own cryptocurrency, check it out on GitHub).

On January 12, 2009, Satoshi Nakamoto performed the first bitcoin (BTC) transaction after sending 10 BTC to a coder named Hal Finney. Shortly after that other early enthusiasts started using the Bitcoin network.

By 2010, Nakamoto was gone, with an estimated one million BTC. Bitcoin’s development and maintenance was taken over by the Bitcoin Foundation in 2012. Since then, and over the last ten years, the bitcoin price has continued to rise.

 

3. Different types of cryptocurrencies

There are different kinds of cryptocurrencies that serve different purposes. Most of the cryptocurrencies that are described below fall into the category of permissionless blockchains.

A cryptocurrency is a unit of account on a blockchain, which is like a massive ledger that is available publicly.

Cryptocurrencies have properties similar to traditional currencies – they can be exchanged or used as a means of payment, for example. They can also be used to support or incentivize a project that is built on a particular blockchain, almost like a digital version of a loyalty rewards program.

One of the main differences between cryptocurrencies and anything that has come before them is that cryptocurrencies don’t depend on a central server or computer. Instead, cryptocurrencies are part of a decentralized network of computers that anyone can join. 

The decentralized nature of cryptocurrencies makes them more private and secure than traditional, centralized currencies — and places them outside the control of governments or corporations.

 

4. What’s the purpose of cryptocurrency?

When new cryptocurrencies are created, the coins, their owners’ information, and the transaction details are stored in a public ledger. Although this ledger is public, the owners’ identities are encrypted and protected via the key system mentioned earlier.

  • Transaction legitimacy (solving the double spend problem). Before cryptocurrency can be sent, a wallet address is checked by the ledger to ensure adequate funds are owned by the sender. This digital ledger - the blockchain, maintains a record of all the transactions that take place between digital wallets. 
     
  • Instant settlement. Unlike traditional money transfer services, cryptocurrencies work more like digital cash, and the final settlement happens within minutes (the exact times are subject to the mining process described below), which is a massive financial innovation. Rather than complex and proprietary infrastructure to complete transactions, all people need to send and receive cryptocurrencies is a smart device and an internet connection.
     
  • Ownership. Permissionless cryptocurrencies are not owned or controlled by any corporation or government, although cryptocurrency use is regulated in certain countries.
     
  • Accessibility. Cryptocurrencies have the potential to increase financial inclusion by driving down the costs per transaction (especially for sending money across borders or around the world) since they do not require a bank or credit card account to use. Most times, all that’s required to get started with cryptocurrencies is a smartphone and a trustworthy cryptocurrency wallet (like Abra).

 

5. Why now is a great time to learn about crypto

Many people fear that the best opportunities to invest in cryptocurrency has already passed. But history shows us that revolutionary technology adoption needs time.

If we zoom in to 1990–1995 for the internet, and compare it to 2013–2018 in cryptocurrency:

You can see we’re actually tracking quite closely with the early days of the internet. If you think cryptocurrencies are going to follow a similar trajectory as the internet, then it appears we’re in the equivalent of around  1994.

Now is the best time to learn and invest in cryptocurrencies.

In the next lesson we’ll talk about all of the different types of cryptocurrencies.
We hope you enjoyed the first part of the series!

Team Abra


Upcoming Lesson: [Lesson 2] Types of cryptocurrency

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