What is Cryptocurrency? — Your Questions, Answered.
In 2021, cryptocurrency became a global phenomenon. It is worth billions of dollars and it’s not slowing down anytime soon. The hype around cryptocurrency is only going to grow as more people invest in it and learn about its benefits.
However, there are still many misconceptions about what it actually is so I’m going to answer all your questions (to the best of my ability) right now.
What is Cryptocurrency?
Cryptocurrency can be defined as a digital medium of exchange that is designed to work in much the same way as a traditional currency such as USD or EURO. It uses cryptography and encoding techniques that allow for decentralization which means there isn’t any central authority controlling the currency.
It is also an encrypted, decentralized form of currency designed to operate as a medium of exchange using cryptography to secure the transactions and control the creation of additional units.
Cryptocurrency uses blockchain technology which was first introduced by Satoshi Nakamoto with his invention in 2008: Bitcoin. Blockchain creates a public ledger that records all transactions chronologically, publicly, and permanently.
It is also considered to be a peer-to-peer digital currency because it isn’t issued or controlled by any central authority which means that the transactions are direct between users without having to go through an intermediary party. This makes cryptocurrency decentralized meaning there are no governing rules within the protocol of these currencies.
Conversely, traditional forms of currency are issued by a central authority. This means that the government controls its supply which can lead to inflation or deflation within an economy.
The whole point of using this cryptocurrency was to create something completely decentralized, meaning no government or central authority is controlling it.
There are many different types of cryptocurrencies out there with Bitcoin being the most valued currency! There are currently around 13 million Bitcoins in circulation and each coin has eight digits after the decimal point.
Another popular cryptocurrency that you may have heard of is Ethereum, it was launched in 2014 and is currently the second-largest market cap behind Bitcoin.
How Does Cryptocurrency Work?
There are many different types of cryptocurrencies out there with Bitcoin being one of the most popular ones! There are currently around 18 million Bitcoins in circulation and each coin has eight digits after the decimal point.
Currently, there are two main types:
Proof-of-work (POW) and proof-of-stake (POS).
Bitcoin uses POW while Ethereum uses POS.
Proof of work is a system that requires some work to validate a transaction. This work is usually done by computers who are solving difficult mathematical problems. The first computer to solve the problem is rewarded with new cryptocurrency tokens which incentivize people to mine.
Proof of stake is a system that requires some investment in the cryptocurrency to validate transactions on the blockchain. This means you have to “stake” your tokens which acts like having money deposited at a bank, it gives you access to participate within their services (in this case validating transactions). The more tokens staked, the higher chance of being chosen to validate a transaction.
Why Is Cryptocurrency So Popular?
There are many reasons why it is becoming more and more popular!
Some of the benefits include:
- Decentralized — There is no central authority controlling it which means that it cannot be shut down or manipulated by governments or financial institutions. This also makes it more secure as there is no one point of attack.
- Anonymous — Transactions are done anonymously which means you don’t have to provide any personal information like your name, address or credit card details.
- Secure — Cryptocurrency is encrypted and therefore much harder to hack into than traditional forms of currency.
- Global — It is a global currency that can be used anywhere in the world.
It is also growing rapidly due to meme tokens and NFTs.
Meme tokens are cryptocurrencies that are created for the sole purpose of being traded and used as a joke. They usually have no real-world value but people invest in them because they believe they will be worth more in the future.
In 2021, we saw how Dogecoin became worth over $84 billion because of the hype around it. All thanks to the Dogefather, Elon Musk. The volatility saw it crashing after Musk’s SNL appearance though. But the whole up and down of Dogecoin left a bigger impact — more people are now aware of cryptocurrency.
NFTs (non-fungible tokens) on the other hand are digital assets that are one of a kind and cannot be interchangeable.
Each NFT is a unique token with its specific value and characteristics. These tokens can be traded between players, bought or sold just like traditional currencies but they cannot easily be replicated to create more supply — this is what makes them so valuable.
This means that they can be used to represent physical or digital assets. For example, you could use an NFT to store the deed for your house on Ethereum’s blockchain instead of writing it down in a traditional paper format which makes it more secure and traceable.
How To Get Started With Cryptocurrency?
Getting started with cryptocurrency is easier than you think!
There are countless resources online like crypto discord groups where people discuss everything about cryptocurrencies. You can also join local meetups or attend events hosted by different companies which will help broaden your knowledge.
One of the easiest ways to get started is through Coinbase or my personal favorite, Crypto.com. You can make a free account and buy cryptocurrencies using your fiat money. Crypto.com also has a DeFi wallet for you to keep your tokens and coins safe.
To buy and sell you will need to use exchanges, most of these are free but some do charge a fee.
Popular exchanges include:
- Binance
- Coinbase Exchange
- KuCoin
- Huobi Global
- Crypto.com Exchange
You can find out more about top exchanges on Coinmarketcap.
What Other Benefits Are There To Cryptocurrency?
There are many other benefits to using cryptocurrency!
Some of these include:
Faster transactions — Transactions are processed much faster than traditional methods like PayPal or bank transfers.
No chargebacks — Once you’ve sent a payment there is no way for the receiver to “reverse” the transaction and get their money back. This makes it a safer option for merchants.
Cheaper fees — Cryptocurrency transactions are usually much cheaper than traditional methods.
Accessibility — Cryptocurrencies can be used by anyone regardless of location, age, or credit score.
There are many other benefits to cryptocurrency that I haven’t mentioned here, but these are some of the most popular reasons why people are choosing to invest in it!
What are questions do you have about cryptocurrency? Let me know in the comments below!
Turning Thinkers To Money Makers Helping overthinkers like myself become creators making money online through my newsletter.
Sign up here if you’re one of them.
Want to enjoy more stories like this without restriction? It’s $5 a month, giving you unlimited access to all stories on Medium. If you sign up using my link, I’ll earn a small commission at no additional cost to you.