Cryptocurrency explained for beginners
There is so much information, a ton of jargon, buzzwords and hype on cryptocurrency. Someone who is just starting out as a complete beginner could feel easily overwhelmed and confused on the topic. Thus, I decided to write a series of articles about cryptocurrency and anything relevant to the topic. I am going to do my best to explain and break down everything in a simple and digestible manner. So, let’s start at the beginning and explain what does cryptocurrency actually means?
What is it and how does it work?
Cryptocurrencies don’t have a central issuing or regulated authority, like governments or central banks. Instead, it’s a decentralized peer-to-peer payment system which allows anyone to send and receive payments. To do so, it operated on a blockchain, which is a distributed ledger. This is basically a decentralized database which is designed to record and hold all transactions.
To put it plainly, think of a blockchain like a giant spreadsheet spread across a network of computers in the whole world. Everyone has a copy of it and whenever a change is made, it tracks and records this information as a permanent record in which everyone can see. For example, if I were to buy two Bitcoins and I would give one Bitcoin to my friend, “the spreadsheet” would track and record this transaction and we both can see that we own one Bitcoin each. Essentially a blockchain records every single transaction made by whoever bought and sold it.
Now, to verify if any transactions between sender and recipient are delivered securely, cryptocurrencies use cryptography. This is the study and practice of securing communication through cryptographic methods that only allow the sender and recipient to view its content. Some of these methods include hashing and types of encryption like, symmetric and asymmetric encryption. The purpose for this is to conceal sensitive data and keep transactions private and secure for the intended recipient. For example, if I were to send 1 Bitcoin to my friend, it would conceal this transaction through various methods keeping this information private and secure. So, once my friend receives the Bitcoin i send her, only she can verify and receive this transaction.
Satoshi Nakamoto came around and built the first cryptocurrency, called Bitcoin. However shortly after, other cryptocurrencies started to pop-up and may have heard of names like Ethereum, Solana, Cardano, etc. They are all built on blockchain technology, meaning all own their native blockchain and also use cryptographic methods to verify and secure transactions. But what makes them unique from one another, is that all have their own code, set of rules and technological functions which solve certain types of problems.
The hype culture behind cryptocurrency
Since it’s an innovative technology and considered an intangible asset, It operates rather differently than anything else. The market is often influenced by factors like, supply & demand, new developments, government regulations and media speculations. In consequence, it makes cryptocurrency in fact a high risk investment due to its volatile nature of the market.
This is why you may have heard stories of people claiming to suddenly become millionaires overnight because they 10x their investment, whilst others losing all their money and drowning in debt. This ‘hype’ culture around cryptocurrency is what grabbed a lot of attention, and is also the reason why you might be reading this article because you’re curious what cryptocurrency actually is once and for all!
What is my opinion on all this?
Initially, It grabbed my attention because of the hype around cryptocurrency which made me extremely skeptical. I had zero interest in it whatsoever and I wouldn’t take my chances gambling my money and what I thought was another scammy, ‘get quick rich scheme’. However, eventually I wanted to understand what everyone was making such a big deal about, so I started to investigate and educate myself on the topic as much as possible. To my surprise, as soon as I grew an understanding of its technical functions, the problems it’s solving, and observing big institutions and governments taking it seriously — I quickly realized I was wrong on my initial impression on cryptocurrency. Thus, giving me the confidence to get involved and share everything I learn on this topic.
If you liked this article and my story resonates with you, please share it with anyone else who has a curiosity and is just getting started with cryptocurrency.