Let’s get back to basics and discuss some aspects of crypto in simple terms. So what is cryptocurrency? Cryptocurrency is currency in the form of a digital file. It gets “crypto” in its name by the transaction validation method used.
Each transaction is cryptographically secured on the public blockchain ledger (more info on that momentarily). If you’re wondering how a digital file can be worth anything, check out our article on other strange currencies throughout history that were much more “creative” than cryptocurrency.
With cryptocurrency, you can buy items, services, and can also invest in it. Bitcoin in particular is most famous for the lucrative investment returns it has created. It was also the first cryptocurrency created and launched successfully. It was developed by the mysterious Satoshi Nakamoto in 2008, as outlined in their whitepaper for Bitcoin.
But there are many other cryptocurrencies besides Bitcoin. And there is so much more to crypto than just how transactions are secured. Here are the 10 most important things you must know about cryptocurrency.
What’s the Point of Cryptocurrency?
Cryptocurrency was envisioned by a group of individuals called cypherpunks who opposed government-controlled currency. To address this issue, crypto is decentralized and isn’t affiliated with a government. The point of cryptocurrency is to bring the power back to the people. The idea of decentralization is that there is no one entity that has control over anything. What that means for cryptocurrency, is that it is a currency that can not be manipulated or controlled by a government or institution, since it is owned, controlled and verified by every individual and miner on the network.
How Cryptocurrency Works
All cryptocurrency is logged on the blockchain, a public ledger whose purpose is to mimic a physical ledger where you record transactions. While the blockchain is public, your name is not attached to transactions recorded there. That’s part of the appeal of crypto: It offers more privacy than typical currency while being transparent due to its public nature.
While the transactions are logged on the blockchain, every individual on the network has a cryptocurrency wallet. This is where your cryptocurrency is stored. Crypto is not physical, so the wallet basically tells the ledger that you own “x” amount of that cryptocurrency.
The blockchain is a series of nodes that verify updates (transactions) to the public ledger. By solving complex mathematical equations, the ledger is kept updated and secured, and the computers that solve those problems are rewarded with Bitcoin. There are two different methods of solving these problems: Proof of Work and Proof of Stake
Proof of Work
Individuals decide to join the network and mine for crypto. Their computing power is then used to solve the problems and keep the ledger updated and accurate. This is where traditional Bitcoin mining falls.
Proof of Stake
Where Proof of Work has individuals decide to mine, this version is based on the cryptocurrency you own. The same process is followed, but instead of miners being rewarded, it is those who “stake” their cryptocurrency. By doing so, you’re becoming a node and helping verify and update the ledger. This option is much less energy intensive, and much better for the environment. Ethereum 2.0 is one example of a cryptocurrency using the proof of stake model.
Why Is Cryptocurrency So Popular?
Cryptocurrency has become increasingly popular over the past few years. Two major contributing factors to the popularity of cryptocurrency are its lucrative returns and disruptive technology.
Bitcoin tripled its value in 2020 alone, and many other cryptocurrencies grew even faster. Crypto is an extremely volatile asset, and can swing very high, very fast. Because of this, it has created thousands of millionaires, and a few billionaires. There are over 75,000 Bitcoin wallets that are worth over $1,000,000. And several people have become billionaires by building upon the new crypto industry.
The blockchain infrastructure that cryptocurrency is built on is a game changer across the board, especially in the financial sector. Decentralization is paving the way for entirely new ways to offer goods and services. On Ethereum, many decentralized applications have already been built, challenging the need for traditional banks. Whenever a technology is invented that challenges the old way of doing things, it creates a space that is ripe for innovation and attention.
What are the most popular cryptocurrencies?
You’re probably familiar with Bitcoin, the most-traded cryptocurrency. Other cryptocurrencies making their mark include Ethereum, Litecoin, Cardano, Polkadot, and Bitcoin Cash, which resulted from a split in Bitcoin. The total cryptocurrency market cap has briefly reached over $2 Trillion. The top 6 cryptocurrencies account for 50% of that total. There are currently over 4,000 cryptocurrencies and more get created every month. Just a few short years ago Bitcoin was the only one.
What Can I Use Cryptocurrency For?
Through exchanges or other means, you can buy practically anything with Cryptocurrency. Here are just a few things you can buy:
- A Lamborghini
- Anything from Overstock
- Coffee at some local coffee shops
- Select cars through some dealerships
Learn more about crypto purchasing power here. Of note: This list will only grow as Bitcoin continues to gain acceptance.
Can I Buy Cryptocurrency With Cash?
You can buy cryptocurrency with your digital cash and physical cash. In fact, buying with physical cash is a specialty of ours. Go to one of our Bitcoin ATMs to convert your spare cash into Bitcoin and watch it grow!
What is Cryptocurrency Mining?
Think of crypto mining as gold mining without physical labor. Instead, crypto miners work on their computers, verify the transactions and, in turn, receive an award in crypto tokens. The transactions they are verifying is what keeps the public ledger so accurate and true. With Bitcoin, the reward for solving these problems is halved every few years to keep supply steady.
What Cryptocurrency Terms Should I Know?
There are many terms that every crypto enthusiast should have in their toolbelt. Here are some of the most important terms to know:
HODL (Hold On for Dear Life)
This simply means to hold on to your cryptocurrency, regardless of what the markets are doing. If it rises high or plummets low, you hodl when you refuse to sell.
NFT (Non-Fungible Token)
A token with an inherent quality that cannot be exchanged for another token. This is a serious simplification, as there is much more that goes into these.
DeFi (Decentralized Finance)
A new sector creating financial services in a decentralized manner through the blockchain network. We’re experiencing a shift from centralized services (banks) to open-to-all, decentralized services.
Check out these 80+ other crypto terms you should know!
What is the Future of Cryptocurrency?
The future of cryptocurrency looks bright. Over the past year it has seen a massive growth in adoption, and enjoyed a lot of attention from the media. As inflation rates are rising, more investors are turning to Bitcoin as a hedge against inflation. Younger generations are adopting crypto. Coinbase became a publicly traded company. Bitcoin ATMs are surging in popularity. Tie this with more investment institutions allowing their customers to invest, and it is clear that the cryptocurrency industry is just getting started.
Should I Invest in Cryptocurrency?
At the end of the day, this is a question only you can answer. Cryptocurrencies are extremely volatile, and still have speculation involved too. As with any investment, make sure you do your own research first. In addition, analyze the level of risk you’re comfortable with taking. Don’t invest any money that you’re not willing to lose.
What other crypto questions do you have?
We’re here to help you answer those burning cryptocurrency questions you have. Ask us in the comments!
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