Cryptocurrencies are currencies that are not emitted by central banks or backed by gold. In turn, they are generated by a computer protocol, which establishes a set of governing rules for an independent market.
The best-known and most successful cryptocurrency is Bitcoin. It is well worth it to look at what bitcoin does right in order to understand how a cryptocurrency can become successful, how it works and what are the things to look for in this market.
Bitcoin started out as an economic experiment. Under the pseudonym Satoshi Nakamoto, an individual released a computer code setting the rules for what he thought was an ideal economy. Read more about bitcoin here.
Satoshi Nakamoto created a precedent. He created a secure means to make transactions, or more precisely to send secure, unique messages that cannot be duplicated. The bitcoin blockchain is a protocol that is tamper-proof, fast and efficient. Along with creating this new technology, he created a coin that is based on it, with a type of market that has its own rules. For example, bitcoin has to be deflationary and has limited the ammount of bitcoins that can be generated on the market, in total, to 21 million coins. Other rules observe the consensus protocol (the means by which changes can be made to the code), the mining (how bitcoins are generated) and the way the blockchain records the transactions.
Many people were inspired by Nakamoto’s project. Some thought the currency sounded good, but needed different features, like increased (or decreased) anonimity, different means of consensus, mining based on other principles etc. Overall, many people around the world took some principles or others from bitcoin and created their own cryptocurrency, that covered different needs on the market.
Others decided to use the code or parts of the code for different use cases, that were not related to the financial market (securing the copyright, smart contracts, IoT, data transfer and the list can continue). As long as they use tokens for exchange they can be considered cryptocurrencies, even if the spectrum of some of them might be broader.
The cryptocurrencies that covered a real need on the market thrived, those who didn’t died along the way.