Cryptocurrency has become a buzzword over the recent years, but what is a crypto, how does it work, and is it worth getting? Understanding cryptocurrency will help to know how and why it began.
There are now thousands of cryptocurrencies trading on the crypto market, which has a combined market cap of nearly two trillion dollars and rising. For many years, crypto wasn’t taken seriously, but now the world is being forced to sit up and listen. Tesla, the EV maker led by Elon Musk, purchased $1.5bn in Bitcoin. Should we be following the financial movements of one of the largest companies in the world, or is it just a passing craze?
What is Cryptocurrency?
The word cryptocurrency can be broken into two to help understand its definition. ‘Crypto’ is a Greek word meaning ‘secret’ or ‘hidden.’ Currency, of course, means money. Crypto is a “secret” form of encrypted money and is only accessible by the account holder with the correct passcodes. Without obtaining these codes, no one can take anyone else’s money, including commercial or government entities. Of course, if you lose these codes, there is no recourse or “buyer protection” to get your money back. This is made possible because cryptocurrencies are “distributed” across a network of thousands of computers, which all share and maintain their accounting information (the “ledger”).
How is Cryptocurrency Different from the Fiat Banking System?
There is no central server for cryptocurrencies, such as that which banks use to store and control a currency’s ledger. Therefore, they’re referred to as “decentralized.” Crypto is digital, physical reserves, papers, or coins to hold. there are no Because cryptocurrencies are distributed this way, no individual or body can alter the ledger without approval from the rest of the network. The network operates a “peer-to-peer” transaction system that means from one person to another, over the internet, without an intermediary. Cutting out the intermediary also cuts out the need for background or credit checks.
Cryptocurrencies are pseudonymous: anyone can use them, provided they have an internet connection.
A cryptocurrency does not have any “trusted third parties.” Instagram, for example, is a trusted third party. We have to trust them with our content to be able to use their service. Banks are another third party who we have to trust in order to spend and move money. Digital assets do not have or need any such trusted third parties (“trustless”), making them invulnerable to that trust being broken. Finally, cryptocurrencies are global. They can be quickly, cheaply, and easily transferred worldwide, which can be a laborious and expensive task with fiat money.
The Philosophy Behind Cryptocurrency
On 1st November 2008, Satoshi Nakamoto published Bitcoin’s whitepaper. Whether Satoshi Nakamoto was an individual or a team remains a mystery. A sociological and philosophical tidal wave has sprung from the relatively objective and considered language of the whitepaper. Essentially, the whitepaper dispassionately describes the practical application for Bitcoin. It is packed, however, with implications and potential inferences to be drawn. The opening lines from the whitepaper, for example, immediately point to its decentralization. This was no accident, and it is ultimately what sets it apart from its precursors, such as “e-gold”:
‘A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.’
Taking the timing of Bitcoin’s release into account (which shortly followed the greatest financial crash since 1929), there is no doubt that Bitcoin was more than just a chance creation. It was and remains to be, a reaction to the shortcomings of the traditional banking sector. Of course, not everybody who holds Bitcoin shares this view, and there is a vast range of feelings and debates ongoing as to Bitcoin’s place in the world. It has become a shining light on the flaws of the fiat banking system and a symbol of resistance. If it hasn’t brought the answer, it has certainly raised a lot of questions.
How Does Cryptocurrency Work?
Most cryptocurrencies, including the alma mater Bitcoin, use “blockchain technology.” When you spend money on your credit or debit card, the issuing bank controls the information. With electronic cash like Bitcoin and Litecoin, each transaction is recorded along with a public ledger with blockchain technology and protected by the coding technology of cryptography. Each cryptocurrency has its own slightly different technology and functionality, but most will require the use of a cryptocurrency wallet, or at least an address to receive, store and send money.
What is a Cryptocurrency Wallet?
All cryptocurrency transactions occur online because it is digital money – there are no physical “coins” or notes. Say you want to send your friend some Bitcoin (lucky them!). You would use what’s called a “cryptocurrency wallet” and transfer funds using a private password. The transaction is encrypted (hidden in code) and then recorded on the public ledger, adding a “block” of financial data to the “chain” – and adding to the overall security of the blockchain technology. You can get your coins through the ledger itself using a “full node wallet.”
Crypto Mining Explained
Remember when your friend sent you that Bitcoin earlier? All users of the blockchain received a copy of that transaction. Some users or “miners” then have to decrypt it (solving the cryptographic puzzle) to add the ledger’s block. Cryptography mining pays – whoever solves the puzzle first is rewarded with new coins (mined, not minted!) alongside any transaction fees.
Cryptocurrency Terms Explained
Each coin has a unique address that identifies it on your crypto wallet. A Bitcoin address could look something like this: 1BvBMDENstXetqTFn5Bu4n4GFg7x¡sJaBRB2. Think of your crypto address as a mailing address and the blockchain technology used to send it as the GPS.
Any cryptocurrency that does not call itself Bitcoin is an “alternative coin” or Altcoin. Some of the most significant altcoins include Ether, Ripple, Dogecoin, and Litecoin.
The database of cryptocurrency transactions, which are stored in blocks of code. Every new transaction adds a new block to the overall chain. Each block adds security to the cryptocurrency in the process.
The platform where you buy and sell cryptocurrencies. Some online brokers, such as TradeOr, operate as a crypto exchange.
Unlike a fiat currency, cryptocurrencies like Bitcoin and Ethereum do not have to go through a third party such as a central bank. They are, therefore, “decentralized.”
Want to know more popular terms in the crypto market, read our geeks glossary.
Where can you Get Cryptocurrency?
If you want to buy and sell crypto, you will need to find a suitable crypto exchange. The easiest place to buy cryptocurrency, such as Bitcoin, is through a specialized trading platform. Here at TradeOr, you can invest in Bitcoin and other cryptocurrencies within minutes of opening an account. Once you deposit funds into your account, you can begin leveraged trading using Bitcoin to invest in Forex or crypto pairs as well as stocks and shares. Our 24/7 customer support team is here to answer any questions if you are new to trading cryptocurrency. The crypto market is highly volatile, and using TradeOr’s integrated tools and market analysis will help keep your finger on that changing pulse.
Even if you have purchased some cryptocurrency, don’t throw out your old debit and credit cards just yet. Sure, the number of places that accept crypto payments is increasing – Microsoft, Starbucks, Expedia, and now Home Depot, for example. Retail giant Amazon does not accept Bitcoin (yet), but you can use crypto gift cards to purchase goods. Yet unless world governments join the crypto journey, it is unlikely coins like Bitcoin could replace the dollar as the global reserve currency anytime soon. Also, to truly compete with fiat currencies, Bitcoin would have to solve its problem of high energy consumption. For now, the best future of cryptocurrencies is as an investment. If you want to dip your toe in the cryptocurrency waters, a reliable broker like TradeOr will guide you through the process.