Blockchain for Dummies: Cryptocurrencies, digital tokens, and Smart Contracts

Pshhh, pshhh (still having some wordy problems with technology?)

An important part of understanding a process is to know the terminology, but, just a moment! We all know what the internet is, but defining it in five words seems a bit more challenging, isn´t it? Espeo Blockchain’s Mickael Costache helps us with some terms.

—How would you explain what a cryptocurrency is to a child?

 —A cryptocurrency is a digital asset aimed at working as a mean of exchange in a very transparent and secure way. Funnily enough, when I try to explain cryptocurrencies to kids (or adults ☺ ), I use this analogy that I found a few years ago: https://www.coindesk.com/bitcoin-explained-five-year-old/ Give it a read if you have 5 minutes.

— Done it. And what about smart contract?
— A smart contract helps you transact an exchange (it can be a property title, shares of an organization, money or anything else of value) without the need of using a third party or middleman, while ensuring complete transparency and security. They key differences between traditional contracts and smart contracts are the fact that smart contracts enforce themselves automatically (if X happens, then Y happens automatically). Here’s a simple example: let’s assume you’re renting an apartment. The transaction would be governed by a smart contract. After paying the rent with cryptocurrency, the amount would be kept in an escrow until you receive the keys of the place on moving day. If the keys don’t come, the smart contract would automatically issue a refund without any third party involved. The smart contract enforced itself based on its predetermined and pre-agreed rules and penalties.

—Can you help us to differentiate between cryptocurrencies and tokens (digital assets)? Not all the cryptocurrencies are token assets, right?

—The terms tokens and coins are very often, mistakenly, used as synonyms while in reality, they mean two different things. Let’s start with coins: a cryptocurrency using its own platform to operate independently is a coin (example: Bitcoin, Ethereum Litecoin). A token is a cryptocurrency that is built on top of an existing blockchain/protocol. They are usually easier to create as they are based on an existing blockchain. The most popular method to create a token is to base it on the Ethereum blockchain. It is, of course, very hard to forecast the evolution of the cryptocurrency market, but we can assume the market will go through different phases of maturation and steadily grow over the next decade.

—May I join Ninja Academy?

 —While Ninja Academy is more for local developers (it’s hands-on coding), we also organize the Poznan Blockchain Meetup which we stream online, and we sometimes speak at events. As part of our services, we also provide blockchain training (more info coming soon!). But really, it’s easiest to just sign up to our newsletter and follow our blog posts – lots of blockchain knowledge totally free. We’ve written tutorials and aids (like how to start an ICO, or Dapps Explained).