Entering the world of cryptocurrency can feel overwhelming if you’re not entirely sure what it all means. In this article we’re going to answer questions like “what is cryptocurrency?” and “why is cryptocurrency valuable?” to help you better understand the new age monetary system, as well as get you geared up and in the know. Let’s start with the basics.
What Is Cryptocurrency?
When referring to cryptocurrency, we are referring to digital assets that hold value much like fiat (normal) money used to buy goods and services. While fiat money is physical, with its value held in the coins and notes of a particular currency, cryptocurrencies are digital and exist only online. These cryptocurrencies are essentially lines of code that use cryptography to encrypt and protect them. Hence the name, crypto - currency. Cryptocurrencies have many different uses, however, most offer a medium of exchange and a store of value.
Where Do Cryptocurrencies Come From?
In 2008, an anonymous entity Satoshi Nakamoto introduced the world to this new concept through a whitepaper outlining Bitcoin and the technology behind it, blockchain technology. Bitcoin was presented as a peer-to-peer electronic cash system, a way to manage money without running it through a bank or organization. Bitcoin allowed people to send money from their account directly to their friend’s account without going through a bank, and instead using a decentralized network on the blockchain.
Blockchain technology is similar to a digital public ledger. All the transactions are verified by the decentralized nodes that connect the network and are presented in chronological order, with no way of going back and tampering with them. Once a Bitcoin transaction has taken place, it is entered into the blockchain (a transparent digital chain of blocks that each holds the network’s transaction history). Every Bitcoin that has ever been sent is stored on this blockchain and remains anonymous unless you know the address of who sent or received the cryptocurrency.
Examples Of Cryptocurrencies
Since Bitcoin was invented in 2009, a large number of cryptocurrencies have entered the market. To date, there are over 10,000 different digital currencies and counting. Below are a few examples of different types of cryptocurrencies, and ones you’ve likely heard of before.
- Bitcoin (BTC). The first and biggest cryptocurrency, Bitcoin can be used as a store of value or medium of exchange.
- Ethereum (ETC). This cryptocurrency platform allows developers to create their own blockchain platforms, building on top of the Ethereum network.
- Litecoin (LTC). Created to improve on Bitcoin’s functionalities, Litecoin is a faster and cheaper medium of exchange.
- Tether (USDT). Tether is a stablecoin, which means that its value is always pegged to the US dollar. Tether allows users to engage in the many benefits of cryptocurrency without experiencing volatility.
- Ripple (XRP). Ripple is a payment network created for banks and financial institutions in order to make faster and cheaper global payments.
Of course, there are many, many more. You can take a look at all the cryptocurrencies on offer at Oobit here, and click on each one to find out more.
Advantages Of Cryptocurrencies
Since digital currencies have entered the financial sector there is no denying that they have created an innovative and more efficient movement when it comes to transferring value. Below we’ve outlined several of the biggest advantages that cryptocurrencies bring to the space:
- Decentralized. Cryptocurrencies do not rely on a single entity to operate, instead, the networks are maintained by a number of nodes (computers) around the world who follow a set protocol. No governments, banks, or financial institutions are in control of cryptocurrencies.
- Privacy. Cryptocurrencies do not require lengthy applications or unnecessary personal information when joining the network, allowing you to keep your sensitive information to yourself and not run the risk of it becoming compromised.
- Global. Unlike fiat currencies, cryptocurrencies can be accessed and sent from anywhere in the world and are not affected by any political or government interference.
- Seamless transactions. Digital currencies can be transferred to another user on the other side of the world in minutes, for a fraction of the cost of sending fiat currencies across borders.
- Security. Most cryptocurrencies (certainly all the big ones) are secured through the use of blockchain technology. Blockchain is an immutable, decentralized network that is constantly checked and verified by a large number of computers around the world.
- Transparent. Due to the nature of blockchain technology, all transactions on each network are published in a transparent public ledger ensuring that there can be no manipulation, changes or edits made at any time.
- Safety. The Bitcoin network has never been hacked, nor has any other cryptocurrency. While you might have heard of Bitcoin being stolen, this is centred around the exchange and personal wallet security more than the network as a whole.
Cryptocurrency vs Blockchain
Different projects use different blockchains which require different cryptocurrencies to operate them. These currencies hold the value of the project, while blockchain technology is the backbone of the project. When people refer to cryptocurrency they are referring to the instrument of value, similar to the US dollar or Euro, while blockchain is simply the technology that operates the project.
Blockchain, however, has many different use cases outside of the financial sector. The technology can be used in anything from supply chain management, to dairy farming, to property management. The technology allows for a transparent logging of information that can be accessed by a private (within the company) or public (anyone within and outside) group of users.
You’ve heard about different cryptocurrencies like Ethereum, Ripple, Bitcoin Cash and Tether. Each of these is unique in their product offering, but all use blockchain technology to operate.
For example, Ethereum is a platform that allows developers to build dapps (decentralized apps built on blockchain technology) through the use of smart contracts. In order to use the services of the platform, users need to pay in Ether, which is the name of the cryptocurrency. When you see Ethereum (ETH), Ethereum refers to the platform in its entirety, while ETH refers to the name of the tradeable digital asset.
Why Is Cryptocurrency Valuable?
Since Bitcoin’s creation, many more cryptocurrencies have come into existence. According to CoinMarketCap, over 5,000 cryptocurrencies exist today, many solving useful problems within the blockchain industry.
Many cryptocurrencies are designed to be deflationary, meaning that they do not devalue as a result of inflation as fiat currencies do. Looking at Bitcoin, Satoshi Nakamoto designed it to have a maximum supply of 21 million coins. This means that once the last Bitcoin is mined (unlocked), there will never be any more that enter circulation. This in turn means that the value can only increase over time, as the supply decreases, the value increases. Unlike fiat currencies where more money is printed adding more to the system and decreasing the value.
Having said that, not all cryptocurrencies are valuable. Their values are largely connected with their use case, and how much demand there is for that particular coin. As demand increases, so does it’s value. As awareness and adoption has increased with Bitcoin, so too has its value, going from roughly $100 in 2013, to $10,000 in 2020 to $60,000 in 2021. Here are 6 other cryptocurrencies that are worth looking into.
How Does Cryptocurrency Work?
Cryptocurrency is designed to provide a peer-to-peer payment system that is not influenced by banks, borders or governments. Looking at Bitcoin for example, below is a brief explanation of how a transaction is made.
Both parties will need a Bitcoin wallet, a digital wallet that can be set up in seconds and requires no personal information. The sender will initiate the transaction from their wallet by entering the recipients wallet address and the amount. Before confirming the transaction the user will accept the proposed network fee, necessary for the execution of the transaction. The transaction will then enter what is called a mempool on the network, a pool of pending transactions.
A miner will then begin trying to confirm the transactions by solving a complex cryptographic puzzle. Miners around the world all attempt to solve the same puzzle, and the first one to do so is rewarded with the task of confirming the transactions and adding them to a block on the blockchain. In the process the miner gets to keep all the network fees paid for each transaction as well as the block reward paid by the network. The block reward is new Bitcoin being released into the system, essentially new minted BTC.
Once the miner has confirmed the transactions and added them to a block, the recipient will receive a notification to say the funds have arrived in their wallet. Typically, wallets require 3 confirmations for Bitcoin, meaning that three new blocks need to be added to the blockchain before the funds are accessible. This process can take anywhere from 10 minutes to 1 hour to 1 day, depending on how large the transaction is, how busy the network is and the network fees paid.
How Do I Get Started With Cryptocurrency?
Now that you have a basic understanding of what cryptocurrency is and how it relates to blockchain, you want to know about getting started with it. When looking at how to get started, one must understand how to buy Bitcoin and other cryptocurrencies.
You will need to decide which cryptocurrency you are interested in purchasing, it is always a good idea to understand the project behind it and its use case in the industry. Here is a great guide on how to research a new cryptocurrency. Next, you’ll need to set up a crypto wallet in order to hold this cryptocurrency.
Then you’ll want to actually purchase the cryptocurrency. There are many exchanges out there that can facilitate the practice, some more complicated than others. At Oobit we’ve created a seamless experience that covers everything from the process of purchasing Bitcoin and other cryptocurrencies to the process of storing them, designed to be as simple as using traditional money. Users can easily purchase crypto with their debit or credit card, and then store them in a military-grade crypto wallet that keeps everything safe and under one secure password. Managing your cryptocurrencies doesn’t need to be rocket science, you just need to find the right platform.
An Introduction To Cryptocurrency
In this in depth introduction to what is cryptocurrency, we’ve looked at what that means, how it relates to blockchain technology, and how you can get involved in this exciting industry. If you’re ready to jump in and take the next step, we encourage you to explore our platform and get familiar with the many streamlined features that can support your crypto journey.