Introduction to Bitcoin, Ethereum, Ripple and the Token Universe
To know more about Bitcoin and other cryptocurrencies, it would be better to speak about cryptocurrencies and Blockchain. You have surely heard about cryptocurrencies, but you might not know exactly what cryptocurrencies mean. In 2008 someone named Satoshi created Bitcoin to be used in trades. In order to do these trades, you need a network which is called “Blockchain.” In a normal trade (e.g., fund transfer to another card), all transactions are controlled by a central system, but it is not the case about cryptocurrencies; all trades are controlled in a decentralized infrastructure and each system in this network has access to all transactions, and in order to do each transaction, all the systems are included in this process. In fact, in each transaction related to cryptocurrencies, there are miners to do the transaction and receive the reward (such as Bitcoin) as per the job they do. There should be some complex calculations for mining each Bitcoin. These calculations are actually those who solved the main problem of digital money and minimized the probability of error and fraud.
How Was Bitcoin Created?
The first Blockchain of the world was Bitcoin. Bitcoin was made by one or some anonymous persons named Satoshi Nakamoto, and the identity of this person or these persons has been kept hidden. He first published an article and explained how Bitcoin was supposed to work. Bitcoin is actually a borderless currency. In a decentralized system such as Bitcoin, the money is not controlled by the government, in the traditional financial system money is dependent on the government, and if a government destroys, its money will be lost too. In the article published by Satoshi, a new database called Blockchain was introduced to the world. Each block in this database stores a chain of transactions. A chain of Blocks is called Blockchain. Each block is recognized with a number (that each time a number is added to it), and SHA256 hash code is recognized. This code is calculated and decoded via transactions placed in it and its previous hash code. The data in this database are secured by an algorithm called proof-of-work. This algorithm avoids double-spending. It refers to using money which doesn’t exist. Each person can mine in this network and about every ten minutes a new block is generated wherein the last specified transactions have been registered. The first version of Blockchain had been in C++ language.
What Is the Difference between Cryptocurrency Coin and Token?
Bitcoin and Litecoin and Counos coin are some types of coin, and the token is everything other than those. However, how do coin and token differ in trades? The coin is a cryptocurrency which acts independently from any other platform. Tokens, however, need another platform to run. Ethereum is one of these platforms. Of course, there are other platforms like Omni and NXT too. Tokens are made on these platforms. If you visit cryptocurrency exchange markets, you will see that both token and cryptocurrency coin can be traded. In fact, the manner of trading these two is the same, and the only difference is in their nature. Making a token is much easier than making a new cryptocurrency. Since there is no need to code it from the beginning and you make it on another Blockchain. The concept of the token is very wide and can include everything from a new digital currency to an economic good, which is tradable.
Initial Coin Offering
Tokens are offered in an Initial Coin Offering (ICO). The companies increase their capital through different methods to develop their businesses. For example, a startup might decide after some years to sell some of its stock to develop its business. ICO’s purpose is the same too. The companies which want to make new tokens acquire the costs of making and developing them by preselling coins. The participants can preorder these tokens by the currency or other cryptocurrencies and hope to benefit from it in the future.
Ethereum and Ripple
We made you familiar with the general concept of cryptocurrency and Blockchain database. However, Blockchain and cryptocurrency are not limited to Bitcoin. After introducing Bitcoin, some other cryptocurrencies came into existence and introduced themselves to the world of cryptocurrencies. Ethereum and Ripple are among well-known cryptocurrencies in the world of Blockchain. Blockchain technology has other applications other than Bitcoin, which have a concept beyond merely a cryptocurrency. One of them is Ethereum. You had to spend much time and money to generate a cryptocurrency before Ethereum, but Ethereum (as pointed out above), helped developers to create their programs in a shorter time and using Ethereum platform through creating a platform. Although Bitcoin and Ethereum are, to a large extent similar, the focus of bitcoin is one creating an online p2p payment method, while the aim of Ethereum is creating a platform for decentralized programs. “Ether” is a cryptocurrency used in Ethereum. Those who run their codes on Ethereum platform spend their costs via Ether. However, what are these codes? They are idiomatically called smart contract. The smart contract refers to any program which is applied for trading a value or property.
Ripple is the other famous digital protocol which runs in a p2p network called RippleNet. The cryptocurrency which is traded in this network is XRP. The computers in this network are the gateway. Your trades are done through the gateway you have assumed secure. All cryptocurrencies are traded in the Ripple network, but if your transaction is with XRP, it will be conducted quickly; otherwise, some other stages should be passed. At first, your gateway calls an IOU.
What Is IOU?
Everyone in Ripplenet network can request any currency except XRP. However, currencies which are not XRP are requested through IOU. IOUs are actually tokens through which even dollar can be traded. In order to do that, in the first stage, the person trusting you and is sure you can trade your aimed currency asks you to pay him/her that amount.
For instance, suppose that A owes $10 to B and wants to send this amount to A in Ripplenet network. At first, A asks for an IOU, and on the other hand, B knows that A is reliable and affords paying $10. Therefore, B accepts dollar from A too. Meanwhile, there is a third party (C) that B is supposed to give him/her $5. The third-party, too, trusts A and knows that he/she is able to pay $10 dollars. Therefore $10 A wanted to transfer in this network is distributed between B and C, and each one has $5 now.
In the above article, all important points in the field of cryptocurrencies and famed cryptocurrencies have been mentioned. If you intend to invest in this field, which one will you choose? A deeper study on the market seems a priority in this regard.
Written by Dr. Pooyan Ghamari
Founder of Counos Platform
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