Cryptocurrency BasicsLast Updated: June 18, 2018
Partially sourced from Dan Emmons’ post on Medium.
Cryptography is the art of writing in code or solving codes, which dates all the way back to BCE – think ancient Egyptians and hieroglyphics. The purpose of cryptography has always been to protect sensitive information and in the age of Internet, data, and network security, cryptography has taken on new meaning and more value than ever before. Currency refers to a form of money like coins or banknotes used among people to exchange goods or services for payment. The combination of these two words, cryptography + currency, represents the newest form of currency called cryptocurrency or a type of ‘digital asset.’ This currency is intangible, but exists and is protected through technology.
A cryptocurrency is a digital asset used as a medium of exchange that is transferred by signing transactions and validated by nodes on the blockchain through cryptography. There is a distinction between a native cryptocurrency and tokens. One acts as the foundation of the other.
For the Ethereum network, the native currency is called Ether. This cryptocurrency serves as a unit of account, and the mechanism for how miners are rewarded for doing the expensive work used to keep the network secure and reliable. Ether is sometimes referred to as ‘gas’ with respect to the transaction fee for changing the state of data on the Ethereum blockchain.
Ethereum supports the concept of smart contracts, which are small programs that exist on the blockchain. These contracts define the rules for how to change the state of data on a blockchain associated with accounts.
A very special form of contract that conforms to the ERC20 specification is widely known as a Token contract. This specification defines a set of standards so that wallets, exchanges and tools can be built on the blockchain to support a wide variety of tokens, without reinventing the wheel every time a new token is created. These Token contracts maintain a distributed ledger that is cryptographically secure and accessible all over the world through the public, open, global blockchain. The contract is the way token value is transferred between peers.