Cryptocurrency 101: An Introduction to Cryptocurrency
You’ve probably been hearing the buzzwords “cryptocurrency” and “Bitcoin” more often nowadays.
Maybe you’re already knowledgeable about what these virtual currencies are. Maybe you’ve recently gotten interested in these things and are looking to get in on the fun.
Whatever your reasons, you’ve come to the right place. In this article, we’re going to tell you everything you need to know about cryptocurrency: what they are, what they’re used for, and much more.
What is Cryptocurrency?
Bitcoin, the first and most popular cryptocurrency in existence.
Bitcoin, the first and most popular cryptocurrency in existence.
In its simplest sense, cryptocurrency is a kind of ‘money’ that only exists on the internet.
The exact explanation is a lot more complex than that, of course. There’s a whole host of technicalities and intrigue surrounding cryptocurrency and we’re going to explain those to you in a little bit. For now, you have to be comfortable with the idea that cryptocurrency only exists in the virtual sphere.
That said, its value can be translated into the real world, as well. You can use it the same way you’d use actual money, like buying goods. However, the value highly depends on the market, which means it can change quite a lot.
This is one of its primary differences from traditional currencies, or ‘fiat currencies,’ whose value is directly backed by governments around the world.
A cryptocurrency runs on a blockchain. Simply put, a cryptocurrency’s blockchain is the crypto equivalent of the whole traditional banking structure. It keeps the records, tracks who has how many of what, and protects that information.
But unlike a traditional bank, a blockchain is not run by a single entity. Instead, they’re run by millions of stakeholders scattered around the globe. In this way, cryptocurrency is ‘decentralized,’ or in other words, owned by no one and everyone at the same time.
Important Cryptocurrency Terms
Address – The unique identification of coins in any cryptocurrency transaction. You can think of the address as a ‘path’ that your crypto will follow to a designated wallet. Any crypto transaction needs both an address and a wallet. The wallet is the destination, and the address is how your crypto will get to that destination.
Altcoins – Short for Alternative Coins. These are the thousands of cryptocurrencies that have emerged after the initial success of the Bitcoin model. This term implies that there is one “main” coin and that everything else is merely an “alternative” to it.
Bitcoin – This term can mean two different things. “Bitcoin” with an uppercase “B” refers to the ledger of the cryptocurrency, while the cryptocurrency itself is referred to as “bitcoin” with a lowercase “b.”
Blockchain – This is the system that runs a cryptocurrency. It’s a secure, immutable record-keeper that validates the whole cryptocurrency system and is run by the users themselves.
Crypto Mining – The process of confirming new transactions on a cryptocurrency’s blockchain. This is an inherent process in the blockchain. Anyone who contributes to the validation of new transactions (i.e., who ‘mines’) is typically rewarded with new crypto.
Crypto Wallet – A crypto wallet is either a physical or virtual space where your crypto coins are stored. You can store your crypto in software and hardware wallets.
DeFi – Short for ‘Decentralized Finance,’ it’s an umbrella term for any crypto-based alternative to traditional financial transactions, such as money transfers, conversion, payment processing, and more.
Key – Your crypto wallet is derived from two keys: public and private. Your private key is used to confirm your ownership of certain crypto assets, while your public key is used to verify that the transaction is signed by the private key.
Ledger – It’s the public record where you can see all the transactions validated on the blockchain.
NFT – Short for Non-Fungible Tokens, these are somewhat like an immutable, blockchain-backed proof of ownership for something. NFTs are used in transactions for things like music, art, and collectibles over the crypto-sphere.
Recovery Seed – Your recovery seed is akin to the security questions of your online accounts. It’s a series of words that can validate your ownership over a wallet in case of an emergency.
Tokens – One way to view tokens is as a currency within a cryptocurrency. They are denominations of a cryptocurrency that are created “on top” of the cryptocurrency blockchain. They are used to facilitate transactions and create or execute things such as smart contracts and decentralized apps.
Uses of Cryptocurrency
Crypto certainly does sound like a technological marvel – but how exactly can you use it? In this section, we’re going to discuss the practical applications of cryptocurrency.
100% Secure Purchases and Transactions
Cryptocurrencies by themselves are already pretty decentralized and secure, but some currencies are doubling down on privacy and security.
With currencies such as Zcash (ZEC), Monero (XMR), or PIVX (PIVX), you can have transactions in any amount without having to go through the suspicious eyes of a bank.
Plus, transactions made in the crypto-sphere are much cheaper and faster than traditional methods. You can even buy luxury homes in other countries using cryptocurrency, provided that you can find a willing seller.
These days, you can invest in cryptocurrency anywhere, anytime.
Although investing in luxury homes is a tried and true method, there’s no doubt that right now, cryptos are capturing the hearts – and pockets – of many.
That’s because you can use cryptocurrency to your advantage through passive investing. This is a way to earn interest by buying cryptocurrency when its value is low and selling when it’s high.
Decentralized investing is, for all intents and purposes, just like passively investing in stocks and bonds in the money market. But in this case, you don’t have to go through any banks or centralized financial institutions. Not to mention, investing in some platforms could get you annual rates higher than any traditional bank.
However, it’s important to note that just like investing in conventional money markets, cryptocurrency lending, investing, or trading incurs risk. More than that, investments of this nature are generally not insured by governments, unlike transactions made in banks.
Supporting a Real-World Project
Most cryptocurrencies in existence are built around a ‘project’ that seeks to make a real impact in the physical world. These projects are funded and run through their cryptocurrencies, most notably through their ‘initial coin offerings,’ or ICOs.
Notable examples of this are the Brave Browser (BAT), which seeks to make browsing more consumer-centric and privacy-conscious, and Monero (XMR), which seeks to be the most secure, untraceable, and private cryptocurrency in existence.
Oftentimes, the success of these projects is measured by their coin’s value. The more people buy their crypto, the more funding the project receives, and the more the project prospers.
Tamper-Proof Alternative Wealth Storage
You may not think about it often, but it’s very easy for your assets to be censored and frozen. This occurs more frequently than people realize, especially in locations with dubious governments.
Even if you have a well-functioning government, any suspicious financial activity, such as when a scammer or hacker gets access to your account, can potentially freeze your assets.
This is good if something really is going on, but if it’s just a false alarm and there’s really nothing happening, then you’re out of luck – your accounts will still get frozen.
Since only you have access to your crypto wallet, your crypto assets cannot be frozen by any authority, which means you can safely store your wealth in them without fear of external censorship.
Pros and Cons of Cryptocurrency
So, what exactly makes cryptocurrency so attractive? And why are some people averse to the idea of it? In the next section, we’ll weigh the pros and cons of cryptocurrency.
Convenience and Price
Cryptocurrency such as Bitcoin can be used to purchase goods like traditional money.
Transactions through cryptocurrency are already cheaper and faster than traditional banking, especially when moving money across borders.
This is because cryptocurrency is not hampered by bureaucracy. Also, there are verification systems (the miners or stakers) working 24/7 so that various transactions can be verified quickly.
There also isn’t much in the way of maintenance and operating costs – certainly not to the degree that banks have. You can buy expensive goods, including luxury homes, with crypto for a lower price due to the lack of excessive fees.
As discussed above, decentralization means that no central authority controls your money, such as banks or governments.
In an individual sense, decentralization protects you from external tampering and undue asset freezing. In a broader sense, however, decentralization gives the power of the financial industry to the users and away from financial institutions.
Decentralization also offers transparency in its operations. Transparency is a necessity because practically everyone is operating the blockchain and keeping the system running.
Improves Aspects of Our Lives
As mentioned, cryptocurrencies can be used to improve something in the physical world. Some of them, like our examples above, even reflect the people’s commitment to that particular goal. This is unlike fiat currencies that are merely a static, inert vehicle for transferring value.
The cryptocurrency market is widely known to be extremely volatile.
Unlike conventional currencies, which have pretty stable values in general, cryptocurrencies can fluctuate rapidly depending on the state of the market. Although this can be beneficial for some, an unstable currency is generally bad for business and common everyday use.
Market volatility is also often the reason why many people have some bad impressions of cryptocurrencies. It’s not unheard of to have an unpleasant experience of seeing your crypto investments plunging down the drain.
Increased Consumer Responsibility
Although decentralization and increased consumer control can both be considered as advantages, they do have a downside as well. Transferring control from an institution to individuals entails increased responsibility that not many of us are willing, or even ready, to shoulder.
For example, if you lose your crypto address or accidentally reveal your private key to someone, you can lose everything very quickly. Banks and other institutions have systems to safeguard against common mistakes like that, but since cryptocurrency places the responsibility of safekeeping to the consumer, it’s easy for things to go out of hand quickly.
Additional Facts About Cryptocurrency
Now that you know the basics of cryptocurrency, here are some miscellaneous facts about crypto that you should know.
The creator of Bitcoin is unknown
Most people know him as Satoshi Nakamoto, but nobody actually knows if he’s a real person. Some even say that the name is merely an alias for the real creators. One thing’s for sure: this mysterious persona only communicated in forums and emails. He disappeared entirely from the internet in 2010, a year after Bitcoin was first mined.
There are thousands of cryptocurrencies in existence
As of this writing, there are over 5,000 different cryptocurrencies on the market. The hype is real, and everyone with a bit of coding know-how wants to get on the crypto bandwagon. Most of these are not really worth anything, and some are even outright scams. On the bright side, there are bound to be a few altcoins that will pique people’s interests and make the world a better place.
Countries are paying attention to the crypto craze
Some countries want to tax cryptocurrencies, while a few want to ban them completely. Countries that are wary of the uncontrollable and decentralized nature of cryptocurrencies are paying more attention to this latest technological wave and are creating laws and regulations around the use, exchange, and trading of cryptocurrencies.
Investing in Cryptocurrency
There is no doubt that cryptocurrency is the next big thing, but should you invest in it? The answer to that is only up to you after your thorough assessment of your goals, capabilities, and even preferences.
Nevertheless, whatever technological wave passes us by, Brittany believes in the value of a good real estate investment. Unlike cryptocurrencies, a good luxury house and lot is an investment that you can see, touch, and even live in.
No matter the allure of shiny new things, the tried and tested nature of the best luxury homes in the Philippines that Brittany creates is itself a testament to their value. Experience beauty at Brittany now!