What is Cryptocurrency? A beginner’s guide
You might have stumbled on popular cryptocurrencies like Bitcoin, Ethereum, etc.
They are becoming quite popular as an alternative to online transactions and payments.
Knowing how this technology works will help you understand the hype behind it.
First, let us know what cryptocurrency means.
What is cryptocurrency?
Cryptocurrency, often called Crypto or Crypto-currency, is a form of currency.
A cryptocurrency is a digital or virtual currency that doesn’t have any parts that exist in the physical world.
These cryptocurrencies run on a technology called blockchain. A decentralized ledger to verify and secure transactions.
It also uses cryptography to secure the blockchain network.
They do not need central authorities like banks to serve as intermediaries.
OR
Cryptocurrency is an online payment system that runs on a decentralized platform. It does not need a bank for regulations. It is also secured by a technology called cryptography.
According to Investopedia, cryptography exists for multiple purposes. Security, verification, control, etc.
Fun fact: the first cryptocurrency created was Bitcoin. Founded in 2009, Bitcoin remains the most relevant cryptocurrency.
Experts have named this cryptocurrency “digital gold.”
How does cryptocurrency work?
Let us start from the ground level. Every cryptocurrency runs on a technology called blockchain.
A blockchain is a distributed ledger containing lists of transactions shared among nodes of a computer network.
On Bitcoin’s blockchain, records of transactions are available for anyone to view. It makes the blockchain more secure.
Cryptocurrencies are also referred to as digital coins.
To create new coins on a blockchain, a popular method called Mining comes into play. Mining is the process of creating new cryptocurrencies and verifying transactions.
The network or networks that take part in this process are miners.
Miners are a vast network of computer nodes that solve complex mathematical encryptions. They solve these encryptions to verify transactions on the blockchain.
The first miner to verify a transaction gets the new cryptocurrency in the form of a reward.
Since mining produces the new cryptos, miners get to keep them as a reward.
Examples of cryptocurrency
There are thousands of cryptocurrencies out there that serve different purposes. Let us take a look at some of them.
Bitcoin
As you may have seen above, this is the first cryptocurrency. An anonymous person or entity known as Satoshi Nakamoto founded Bitcoin.
The only purpose of this cryptocurrency is to serve as a peer-to-peer payment system.
Fun fact: Any other digital coin apart from Bitcoin is an Altcoin. It means an alternative coin to Bitcoin.
Ethereum
Ethereum is the world’s first programmable blockchain. It gained popularity because decentralized applications can be built on top of it.
This has opened the doors to another wave of new technologies.
Tether
This is a stablecoin. A stablecoin is a cryptocurrency tied to a fiat currency, in this case, US dollars.
Stablecoins hedge cryptocurrency holders against the volatility of cryptocurrencies.
This stablecoin is backed by a 1:1 ratio to USD.
Fiat currency is another way of saying traditional currency. Examples of fiat currency are USD, EUR, NGN, etc.
Binance Coin
Binance Coin is the native cryptocurrency of Binance’s trading platform. It serves as a fee paid for using Binance’s trading platform.
It also serves as the fee that powers Binance’s decentralized exchange.
Dogecoin (DOGE)
Dogecoin is a meme coin. The founders created this coin as a joke, to make fun of the wild speculation of the crypto market.
Some companies accept this cryptocurrency as a method of payment.
How to buy cryptocurrency?
Now that you have understood what cryptocurrency is, let’s take a look at how you can buy cryptocurrency.
You can either buy your cryptocurrencies from a cryptocurrency exchange or a broker.
What is a cryptocurrency exchange?
Cryptocurrency exchanges, or CEXs, are cryptocurrency exchanges that ease trades made by users.
CEX does this by maintaining an order book, which is a collection of buy and sell orders posted by users of the exchange.
Orders are requests made by users to buy and sell a specific amount of a particular cryptocurrency. Exchanges use software to match these buy and sell orders and execute them.
For example, if you put in a buy order of $100, the CEX’s software will match your order with someone else’s sell order of $100.
Some of the known Centralized exchanges are Coinbase, Kraken, Binance, and Gemini.
What is a cryptocurrency broker?
A cryptocurrency broker is an individual or firm that helps beginners ease their journey into crypto. They serve as a platform that helps beginners buy Bitcoin, Ethereum, and other cryptocurrencies.
While they offer an easy-to-use interface, their charge is quite higher than that of CEXs.
You must be careful when you are dealing with brokers.
Some trustworthy crypto brokers include Robinhood, Webull, and eToro.
How to store cryptocurrency?
After you have bought your crypto, you should store them somewhere safe. This is where crypto wallets come in.
Fun Fact: Your cryptocurrencies are not stored in your crypto wallet. These crypto wallets only give you private keys, which prove you own a certain amount of crypto on the blockchain.
Cryptocurrencies always live on the blockchain.
What are crypto wallets?
Crypto wallets are private keys that help you interact with the blockchain. They help you buy, send, pay fees, and trade.
Some Central exchanges provide you with wallet services, but not every exchange does that.
There are two types of wallets, they are Hot and Cold Wallets.
Hot wallets: This is a wallet that is always connected to the internet. They allow you to facilitate transactions. When you get a hot wallet, you will be provided with both public and private keys.
Examples of hot wallets include Metamask and Trust Wallet.
Cold wallets: also known as hardware wallets. They are the opposite of hot wallets; they function offline. This is done to maximize the security of your cryptocurrency investment.
Examples of cold wallets include Ledger and Trezor.
What can you buy with crypto?
The first cryptocurrency, Bitcoin, was created for the sole purpose of becoming a technology used for daily transactions.
From 2009 till date, we have seen a massive adoption of this technology by major companies.
These companies have implemented Bitcoin as one of the means of payment.
That’s not the end. More institutions are planning on making better use of this technology in ways we can’t imagine.
- Several companies, like Microsoft, AT&T, and eBay, all accept bitcoin.
- News outlets accept cryptocurrency for payment of subscriptions and other services.
- Luxury retailers have begun to accept crypto as a method of payment. BitDials is one of them. They offer Rolex, and other expensive jewelry in exchange for cryptocurrency.
Some other things you can buy with cryptocurrency include cars, tech products, and insurance.
Is cryptocurrency a safe investment?
The cryptocurrency market tends to be more volatile than any other market. The market is quite unstable.
This has brought different opinions from people on whether it is a safe investment or not.
Although cryptocurrencies offer more security than our fiat currency, they are still risky.
Most experts advise you to only invest money that you can afford to lose. Also, you should do enough research before you buy any cryptocurrency.
Conclusion
Cryptocurrency is an emerging space, which you should understand.
There are more things to know apart from knowing what cryptocurrency is all about.
There are risks and scams involved when it comes to crypto.
Don’t worry too much about it. I will write about it soon.
If you enjoyed reading this article on cryptocurrency, kindly follow me.
Don’t forget to give me your claps.
Do you have any questions? Drop them in the comment section.
New to trading? Try crypto trading bots or copy trading
