Cryptocurrency has gone mainstream in the past few years and everybody seems to be talking about it. Government parastatals, investment bodies, companies, and individuals are investing in it and it’s dubbed the “new oil” of the 21st century.
The hype surrounding cryptocurrencies is inevitable and as it seems, you could seem odd if you don’t gain interest in it. However, the world of cryptocurrency spins fast and not everybody can catch up with the waves of this ever-evolving sector.
This article will be your guide on the basics of cryptocurrency, how it works, innovations, the investment opportunity, and the entirety of the blockchain sector.
If you find this interesting, read on as we bring you up to speed in the world of Cryptocurrency.
What Is Cryptocurrency?
Cryptocurrency, mostly called “crypto,” can be defined as any decentralized digital currency or assets based on Cryptography.
Ok, let’s break down those terms into pieces.
Cryptocurrencies are digital in the sense that they are only traded on the internet or in digital format. The value is not pegged to any fiat or government-issued currency such as dollar, pounds or euro nor is it determined by precious metals such as silver or gold.
They are decentralized currencies meaning they are not issued, supported or controlled by any central authority such as government agencies or banks.
Cryptography is the mathematical principle used to secure an individual unit of cryptocurrency to ensure it can’t be copied.
Bringing everything together, we can define cryptocurrency as an online form of currency or assets which isn’t controlled by any central authority and can be used as a form of payment or store of value.
They are created, traded and managed by a distributed peer-to-peer network that enables anybody anywhere around the globe to send and receive payment without verification or permission from banks or government bodies.
To fully grasp the concept of cryptocurrency, we must travel back to the origin
Origin of Cryptocurrency
The Origin of Cryptocurrency can be traced back to the 1980s when the idea developed. The idea was to create a currency that could be traded untraceable and without the control of any central authority.
American Cryptographer, David Chaum designed Digicash, an anonymous cryptographic electronic money in 1995. That was the first form of cryptographic electronic payment but it required user software for withdrawal from a bank coupled with particular encrypted keys before sending to the recipient.
In 2008, Satoshi Nakamoto dubbed the “father of cryptocurrency” published a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”. The paper outlined the system for creating digital currencies without depending on any third party.
With Nakamoto’s paper, The cryptocurrency revolution began and Bitcoin, the first cryptocurrency was launched. Bitcoin has become a popular means by which people send and receive money across money in a secure manner without government or bank interference.
Consequently, thousands of cryptocurrencies including Ethereum, Solana, and Ripple have been created under numerous blockchains for different purposes particularly to trade for profit.
So, you might be wondering, if central authority isn’t involved in cryptocurrency transactions, how is it secure?
Cryptocurrency operates through distributed ledger technology, known as a blockchain and all transactions are secured by it.
Read on as we discuss Blockchain Technology.
The Blockchain Technology
Blockchain is a digital, public ledger that is used to track or record transactions on any form of assets such as goods, smart contracts and more. Blocks are transparent so all the transactions are accessible and visible to anybody.
Think of Blockchain as cryptocurrency’s bank balance sheet or ledger except that in this case, the transaction record is designed to be permanent and immutable unlike the physical system of keeping records.
Blockchain records are unchangeable because its system is designed from blocks of data which are chained together sequentially so all transactions are visible to anyone on the network.
The technology depends on cryptography(remember it?) to secure transactions and in some cases, mine coins and tokens. Each crypto has its blockchain for re-verifying the record of every transaction made with the currency.
Rather than being fiat or physical money that you carry around, cryptocurrencies payment exist mainly as digital entries to an online database representing specific transactions. Any transaction of cryptocurrency is recorded in the public ledger(Blockchain).
The name was derived from its ability to use encryption to verify transactions. What does this mean? Advance coding is involved in storing and transferring cryptocurrency data between public ledgers and wallets. It is encryption that provides necessary safety and security.
How does cryptocurrency work?
Crypto use the public-private key cryptography to transfer the ownership of a coin on blockchain. The private key is an ultimate secure passcode that you don’t share with anybody. It’s what you use to send value on the blockchain network.
However, you can share the public key safely and freely with a third party to receive value on the network. Your private key can not be guessed or determined from the private key you shared.
Units of Cryptocurrency are created through a process called mining. What does it entail?
Crypto Mining is a process of using computer power to solve rigorous mathematical problems to generate coins and usually as a reward for making successful crypto transactions. This means that exchanging cryptocurrency often means the creation of more cryptocurrencies.
The process known as Proof of Work” (PoW) requires miners to complete billions of complex problems or calculations to verify a block of transactions.
If you own a crypto asset, you don’t own any tangible asset. You only own the key that ensures the movement of record or units of measure between two persons without a third party.
How Does Cryptocurrency Get A Value?
Similar to any goods or services, cryptocurrencies get their economic value through demand and supply. You sure have heard about these terms right?
Demand simply means how well people desire to own that particular currency perhaps because of its benefits(low fees? Fast transactions?) and the supply means the availability of that cryptocurrency. I.e how many new coins are being mined or how many owners wish to sell their coins. The higher the demand, the higher the price and vice versa.
Furthermore, a crypto value could be from using it. For instance, some people like shopping with bitcoin because of its low fees.
You now understand how cryptocurrency works and you’re interested. So how do you buy cryptocurrency?
How To Buy cryptocurrency
You can buy cryptocurrency in two possible ways, either through a traditional broker or any crypto exchange platform such as Binance, Coinbase and Exodus.
When you want to pick an exchange platform to buy your crypto assets, Ensure you consider what types of crypto coins are available, what fees they charge, savings and withdrawals options and security options.
A platform that successfully passes all these questions is the Exodus platform. They allow users to buy, sell or hold crypto assets in an easy, safe and secure environment. Their app is available on iOS and Android.
To buy crypto, you’ll need to open an account, deposit money through bank transfer to a credit card and place your buy order. If you want more exposure, you can also buy an Exchange-traded fund[ETF], buy a crypto-focused mutual fund or buy a company’s stock.
You’ve now bought your desired crypto assets, how do you store them?
How To Store Cryptocurrency
It is important to store your crypto assets to protect them from theft or hacking. Crypto wallets are the most popular way of storing crypto and they are usually online software and physical devices. Some crypto platform such as Exodus provides wallet service you can use to store crypto directly on their platform.
Generally, Hot wallets and cold wallets are the terms used concerning storing crypto. A hot wallet is a storage system that uses online software in protecting the private keys to your crypto assets while a Cold wallet uses offline electronic devices to store your private keys securely.
What can you buy with cryptocurrency?
Bitcoin and many other cryptocurrencies were created to serve as a means of buying and selling in everyday transactions. While the concepts have not been widely accepted or materialized, some companies are already adopting crypto cryptocurrencies as a means of transacting. You can now use cryptocurrency on many technology and e-commerce websites to buy numerous things including cars, pieces of jewellery, gadgets and other luxury goods.
Investing In Cryptocurrency
Over the years, cryptocurrencies have become a good source of investment because of their volatility. Many companies, traders and government bodies are now investing in them by buying low and selling high to make a substantial profit.
As a beginner, you don’t want to jump right into it because of the risk that arises from the volatility. Don’t fret, below are the key points to note before investing in cryptocurrency so you won’t get burnt.
Understand the coin you’re investing in
There are thousands of cryptocurrencies and they all have different use cases and functions. Understand each coin before you put your money by doing due diligence to understand the investment cases.
Past is Past
In cryptocurrencies, note that past or present performance is not an indication of future performance. Because a coin is worth a fortune now does not mean it will continue to grow in the future.
Consider The Volatility
Cryptocurrencies are very volatile. Prices can quickly drop or rise because of a rumour or news. Keep that in mind before investing so you can manage your risk accordingly. Lastly, remember to invest only what you can afford to lose. Do not put all your money on speculative assets.