Crypto Vs Cryptocurrency
What Is Crypto?
The word “crypto” is related to the term cryptography, and it has its root in the Greek language. In Greek, the word “Kryptos” means hidden, which explains a little about the meaning of cryptography.
What Is Cryptography?
Cryptography is a study of providing secure communications methods between two people: a sender and a recipient. The idea is to “hide” (as its origin word, Kryptos, says) or protect the content from any third parties. The key thing is that the content shared can only be viewed between the two parties involved.
During the transmission of electronic information, the message or plain text is encrypted and decrypted. The easiest method uses a “secret key.” Therefore the encoded content or message is sent to the receiver, and the secret key is used to decrypt it.
However, the message can still be intercepted by third parties. This is why Cryptologists create an asymmetric means or a “public key” system. Now every receiver or sender of data has two keys to themselves. A receiver will share the public key with the person they are expecting messages from, and the sender will use that to encrypt the data or content and forward it. The receiver will get the messages and use their private key to decrypt or decode them.
This way, it is more difficult for third parties to decode or decrypt the information shared between the two without having the receiver’s private key.
Cryptography makes sharing information possible using computer systems and algorithms rather than through trusted parties. In the context of blockchain, the information shared started mainly as transactions and then evolved to “Smart Contracts,” encompassing everything from an NFT to token to the metaverse. The process protects both the receivers and the senders from malicious outsiders.
Cryptography technology is the pillar that led to the Distributed Ledger Technology “DLT”, which refers to a system in which the data is simultaneously held on multiple computers or servers. The information is distributed and each participant in the system has the same copy of the data. It also means that all the people involved can see what’s going on in the system anytime changes are made.
DLT paved the way for Blockchain technology. A blockchain uses the same mechanism as DLT to ensure the system is distributed, but also adds a crucial aspect, which is the creation of Blocks of Information, aka “Blocks”, and linking them together in a chain, using hashing algorithms.
Blockchain — Coins (Bitcoin)
Around 1998, a cryptographer called Nick Szabo originated the idea of using cryptography to create a digital currency. He called it Bit Gold. Although the digital currency was never implemented, it was a direct precursor to the Bitcoin architecture.
In the first phase, blockchains used cryptocurrencies, aka coins, as the native currency of the blockchain, and the first coin created was Bitcoin. Cryptocurrency is a term used to describe the native coin of a blockchain.
Blockchain — Smart Contracts (Solidity — Ethereum)
The next evolution in the crypto space came in the form of smart contracts.
These are automated types of contracts (or “programs”) deployed to make transactions smooth and self-executed. Once the details or clause are triggered, the smart contracts complete the task it’s designed or programmed to carry out. The Ethereum blockchain was the first to develop smart contracts, using a new programming language called “solidity”. This was the key to unlocking the entire crypto ecosystem, as people could now share contracts and applications on the blockchain.
Blockchain — Smart Contracts — Tokens
Using Smart contracts, one of the first innovations was the creation of crypto-tokens. These are often confused with cryptocurrencies, but their code and purpose are very different. Crypto-tokens are created on top of an existing blockchain, using smart contracts.
Blockchain — Smart Contracts — NFT -
Then came NFTs — Non Fungible Tokens.
They are a method of identifying a digital object. Because digital items can easily be replicated, it was impossible to distinguish between the many copies.
NFT is a system that gives each of these copies their unique identity.
Similar to crypto-tokens, NFTs are also Smart Contracts, in which the creator encodes specific rules and mechanisms.
Now that you understand the basic evolution, let’s go deeper
What Is a Cryptocurrency?
Cryptocurrencies & CryptoTokens have grown in popularity over the last several years, with over 14,000 of them in circulation as of today. It’s critical to understand that cryptocurrencies and crypto tokens are fundamentally different.
Cryptocurrency is a digital currency that serves as a medium of exchange, just like the traditional money issued by banks and approved by the government. However, this type of currency is decentralised. This means it operates independently of a bank or a central authority.
The term cryptocurrency stems from the encryption used to safeguard networks. Cryptocurrency is a blockchain network’s native coin that can be traded and used as a store of value. Characteristics of a cryptocurrency include:
- Its core structure and network are secured by cryptography
- It is built on blockchain technology.
- Cryptocurrency gives its users pseudonymity.
Popular examples of cryptocurrencies include BTC (the first to be created), ETH, LTC, LUNA…
Crypto tokens are built on top of an existing blockchain. Unlike cryptocurrencies, tokens are generated by smart contracts, which keep track of the token’s units.
To transfer tokens, an account must sign a transaction instructing the smart contract to debit a specified number of tokens and credit the same number of tokens into another account. Most tokens adhere to the ERC-20 token standard making interaction with them easy for users, wallets, and exchanges.
Most tokens are created using the Ethereum blockchain. ERC-20 and BEP-20 (Binance Smart Chain) enable the creation of tokens that can interact with Ethereum and Binance Ecosystem.
Tokens have similar characteristics as cryptocurrencies, in that they are programmable, trustless, permissionless, and transparent. They can be exchanged and used as a store of value. Some tokens can also be used to represent tangible assets like art, real estate, etc.
Many people use the word “crypto” wrongly. They think it means the same as cryptocurrency. However, the word is associated with cryptography, a concept used to develop the technology that protects the privacy of people sharing content with each other on the internet. Cryptocurrency, on the other hand, is a digital currency, used as a medium of exchange.