What is Cryptocurrency? Learn the basics about Cryptos

What is Cryptocurrency?

Cryptocurrency (Bitcoin, Ethereum, Litecoin etc) is basically digital or virtual money and/or assets that are stored online and can be used  for multiple different different reasons, such as  making payments to friends or companies, store of value (like gold, silver),  digital artwork or a range of different uses that are growing rapidly.

Crypto Digital Money Phone

Cryptocurrency Definition

A digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority.

Cryptos are stored and managed on a blockchain, which is a decentralized, public ledger. Decentralised means that multiple people and companies ( we call them miners, nodes in crypto terms), provide computers to verify a transaction through code,  for which they take a small fee for the effort. This means that cryptos not rely on banks or central authorities  to store the assets, verify transactions and provide a history of your sending / receiving, but are rather recorded on the blockchain - which is a public ledger (record keeper) of those transactions.

Cryptocurrency  is a type of virtual or digital currency that can be used for buying, selling, trading, investing  or for a multiple other uses for multiple different industries and markets. Cryptos are secured by "cryptography" (secure communications techniques) and blockchain technology (a digital ledger of records called blocks), which makes them nearly impossible to hack and manipulate.

It is basically a peer-to-peer system that allows people to pay each other anywhere in the world without the need for third-party systems like the central banks. Your cryptocurrencies are stored in digital wallets which can be installed on your mobile phone, computer, tablet or just  remain in the cloud for later access - either with your email address, phone number, backup phrase. [mfn]www.investopedia.com[/mfn]

Cryptocurrencies can similarly be compared to your normal Fiat money (Dollar, Pound, Euro etc) and or shares investments in companies that you would buy. There are many different types of Cryptocurrencies which are discussed below.

Essentially, you can think of cryptocurrencies in the same way as

  • Your local FIAT currency (dollar, pound, euro),
  • Shares in a company (Tesla, Canon, Google)
  • An investment into something like property
  • A Medical Aid platform
  • Financial Options (borrowing, lending, staking)

depending on which cryptocurrency you choose. Just like the "real" companies, the risk of liquidation, collapse projects are a risk and everyones is always advice to DYOR - Do Your Own Research.

The vast majority of cryptocurrencies are decentralized using blockchain technology, which is a a distributed record of transactions enforced and secured by a huge network of interconnected computers. Esssentially, its a network of computers run by different companies, groups, individuals that keep a copy of the ledger. Nothing can be changed as there are multiple computers that are needed to approve one transcation. The defining feature of cryptocurrencies is that they are usually not issued by a central authority, therefore making them immune to government interference and manipulation.

The first cryptocurrency based on this blockchain technology was Bitcoin, which to this day, remains the most popular and most valuable crypto on the market. Today, there are more than 15 000 alternate cryptocurrencies with many different functions and unique specifications.

Some of these are based on Bitcoin, such as in the case of clones or forks, while many others are new currencies that were built from scratch, using similar technologies and systems as Bitcoin.

Following Bitcoin’s success, many cryptocurrencies have begun popping up everywhere. These cryptos, often referred to as “altcoins,” include EthereumCardanoXRPBinance Coin, and Litecoin. Today, the total value of all the cryptocurrencies in the market is worth around $1.5 trillion, with Bitcoin currently representing more than 60% of the total value.

Different Types of Cryptocurrencies

The world of cryptocurrencies is growing and evolving at a constant and rapid rate and there the categories for different types of cryptos keep expanding. Here is a list of MAIN crypto categories that you should know about:

  • Payment Coins
  • Privacy Coins
  • Stable Coins
  • Utility Tokens
  • Meme Coins
  • NFTS

We have a more comprehensive list that We Know Cryptos community constantly added to as the market evolves - View ALL Types of Cryptos

Cryptocurrency ADVANTAGES

      • Cryptocurrencies make it easier to transfer funds directly between two parties, without the need for banks or credit card companies to oversee the transaction. These transfers are instead secured by the blockchain and crypto network itself.
      • Cryptocurrencies are decentralized and are therefore not controlled by a central authority. This means that the likelihood of being targeted for hacking is extremely low. It also means that no one has access to the crypto blockchain and therefore, it is impossible to manipulate or be controlled by any one individual or by any government or organization. 
      • Cheaper transaction fees are an added benefit of cryptocurrencies being decentralized, as we do not need to pay banks or other authorities to oversee the transfer and so the fees are heavily reduced.
    • Transactions are also speedy, taking only mere minutes to approve and secure the transaction. This is much faster than most transactions between banks or other organizations. Some cryptos are faster than others and are constantly being improved on.

Cryptocurrency DISADVANTAGES

      • Due to the nature of cryptocurrencies being semi-anonymous, it can make them well-suited for a host of illegal activities, such as money laundering and tax evasion. However, there are also many benefits for those who are attempting to avoid repressive governments. 
      • Since prices for cryptocurrencies are based on supply and demand in the market, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate immensely, since the design of many cryptocurrencies ensures a high degree of scarcity.
      • There is concern that cryptocurrencies like Bitcoin are not rooted in any material goods or any tangible product. Some research, however, has identified that the cost of producing a Bitcoin, which requires an increasingly large amount of electricity to mine, is directly related to its market price.
    • Cryptocurrency blockchains are highly secure, but user accessed wallets and other aspects of a cryptocurrency ecosystem, including exchanges, are not immune to the threat of hacking. In Bitcoin’s brief 10-year history, there have been a few online exchanges that have been the subject of hacking and theft, sometimes with millions of dollars worth of “coins” stolen.

Where Did Cryptocurrencies Originate?

There are many interesting stories that circulate about where cryptocurrencies began, but the most interesting is the story of Bitcoin and Satoshi Nakamoto. In 2008, a the first cryptocurrency was created by an unknown person or company, that went by the pseudo name of Satoshi Nakamoto. In 2009, Bitcoin was released as an open source software that rewarded "miners" in BTC for helping process transactions, almost like a transaction fee at the bank.

In 2009, the price per Bitcoin was $ and shot up to 0,09$ in late 2009 after a few purchases of the coin. It was then that Ethereum and other cryptos came onto the market, harnessing the power and ideology of cryptocurrencies and evolved in different different directions to tackle different problems.

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