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What is Cryptocurrency? A Beginner’s Guide to Cryptocurrency

The World of Blockchain & Cryptocurrencies made simple.

Cryptocurrency 101
Photo by Twinster Photo

Are you interested in investing in Cryptocurrency? Do you wish to unravel the mysteries behind Cryptocurrency but don’t quite know where to begin? If so, then this article’s just for YOU.

We all have to start somewhere, and that is somewhere in the basics. To understand Cryptocurrency, you must first know what it is. Cryptocurrency–also referred to as Crypto– is essentially a digital currency that acts as a medium of exchange. It tends to use cryptography, which is the practice of acquiring communication via a third party, to secure and verify transactions. It even controls new units of a particular cryptocurrency upon its creation. 

In essence, Cryptocurrencies are basically limited entries that exist within a database that not a single soul can alter, unless very specific conditions are fulfilled, really. 

The History of Cryptocurrency

Now, if you’re a novice in the world of Cryptocurrency, you might think that a ton of currencies like this just sprung into action outta nowhere. While it sure might feel that way given that we live in the age of swift developments in information and the rise of new trends thanks to social media, it’s actually not the case entirely. That is to say, there is a deeper story here.

Since the rise of the internet, the ability to send and receive data has reached new, never before seen heights. As it became quicker to transfer said data, Email took the reins from physical mail and thereby paved the way for fast-paced typed interactions as well as document transfers. All of this occurred in a matter of seconds, too. Cryptocurrency is really in the same vein as that, with a focus instead on value and money. 

Online banking, web payment gateways, and credit/debit cards function with lightning speed, as is the case in this all-encompassing digital world. However, they all involve 3rd parties as well, they can be censorable and must sometimes settle on the backend on weekdays. This of course depends on the banks involved, and so on. 

While efforts towards online monetary solutions, including but not limited to DigiCash, emerged before even the year 2000, the first modern-era cryptocurrency to break into the mainstream and gain viability didn’t pop up until 2008. Nakamoto, the creator of Pseudonymous, published Bitcoin’s (BTC) white paper to describe the written concept of this asset back in 2008.

But what’s the importance of all this, you may ask? Well, Bitcoin managed to solve the little problem of users spending the same asset twice, which is known as double-spending. Bitcoin–which is built using blockchain technology–is run by numerous computers worldwide that verify transactions collectively as well as safeguards the network against hacking, due to the lack of a single point of failure.

Bitcoin saw its launch on its very own blockchain in 2009. From then on, various people and companies have created various additional crypto assets– some of which position themselves as quickly or with more private assets to boot. Further still, other blockchains like Ethereum were also created as the process expanded, giving developers a much-needed platform to build various assets and solutions. 

Major Events in the Timeline of Crypto Space 

Over the passage of many years, cryptocurrency has evolved from merely Bitcoin, its premier asset, to an industry not just full of various blockchains but solutions and assets, too. Of course, various subcategories within the industry have also taken shape, like the decentralized finance niche. DeFi aims to provide people with versions of the same financial tools they’ve grown fond of and accustomed to, plus a major boon with the exclusion of trusted third parties. This, of course, includes lending and borrowing, too.

The Use of Cryptocurrency

Now for the important question. “What can one do with Cryptocurrency, exactly?” Well, a great number of things, as it were. It just depends on which one you’re working with, of course. 

In layman’s terms, a cryptocurrency asset’s definition is that it can be used to send value between 2 people or to pay for goods and services. 

Each of these assets also holds a value, often priced in US dollars or USD, which then leads to another use: trading and investing. Apart from Stablecoins–which aim to provide stability to cryptocurrencies by way of pegging an asset into something else, like a US dollar– most cryptocurrencies frequently fluctuate in price. While you can trade between cryptocurrencies and national currencies (which are called fiat currencies) on exchanges, it all depends on the trading pairs available on the platform of choice. 

Should you be a merchant, accepting digital platforms as payment is also an option, either directly or via a payment processor or service that’s more convenient and adds more capabilities. Some services provide the option to convert paid cryptocurrencies into cash automatically using the backend, whereas other companies tend to offer crypto top-up debit cards that look a lot like any other plastic card. You can use these to pay for goods and services. 

Furthermore, you can also mine cryptocurrencies. The mining process uses your computer or designated hardware of any kind to help run the networks backing crypto assets. Running a function on your PC or equivalent automatically after the setup, mining generates revenue and helps to validate any transactions carried out on the blockchain. It’s important to note that this depends on the computer power being designated. 

People can additionally borrow crypto assets on different platforms and earn interest for loaning out assets. The niche of cryptocurrency space is known as decentralized finance or DeFi. Based on distributed ledger technology, the lending and borrowing of Crypto are facilitated by various platforms without the requirement of a user to submit to the control of any centralized entity of the sort. DeFi includes other aspects such as decentralized exchanges (aka DEX’s), as well. 

How Cryptocurrency Works

Most cryptocurrencies (excluding, of course, a select few) tend to work by operating on a blockchain. In essence, a blockchain is a network of many computers linked across the globe that pool computing power together to validate network operations.

As is part of the mining process, the first one that solves a puzzle is the one to get a reward for helping the network function. Basically, that’s called mining. Mining is integral for putting more of any asset into circulation from what’s called it’s related maximum supply. Blockchain further aids in decentralizing assets, holding important security benefits over centralized systems with but one point of failure. 

Blockchains usually function by way of proof-of-work or proof-of-stake consensus algorithms. PoW functions based on miners, who often designate very specific computing machines for their processes. 

PoS, however, functions on staking. Now, in the staking system, rewards tend to be distributed to help run the network by way of holding assets in what is basically designated wallets. A bunch of PoS assets also offer master nodes. These are a more intricate way of staking processing that usually requires a minimum number of coins. 

The Various Types of Cryptocurrency

Cryptocurrency may have just begun with Bitcoin, but the industry has come a long way since then. The evolution of crypto with countless assets, projects companies and projects alike saw several categories rise with each passing year.

Bitcoin began as more of a currency, known for being noted in its original white paper. But, the asset has taken more of a store-of-value role, much like the public’s view of gold. 

Other assets of crypto hold themselves a bit more like transactional assets that are capable of swift payments and transfers and are based on blockchain tech. Utility tokens on the other hand exist as another faction entirely within the crypto space. They play a pivotal role within a larger project, serving a function within an ecosystem that is focused on a particular solution.

Stablecoins tie or ‘peg’ their value to numerous other national currencies/assets, like gold. Most often, they’re pegged into one-to-one with the US dollar. Stablecoins give their users a method to sell into an asset that carries the same value as say, a national currency, though it’ll be still transacted and stored within a Crypto-Esque fashion…that is to say, within an ecosystem.

Nonfungible tokens, also known as NFT’s, are another example of a different type of cryptocurrency. NFT’s are basically each unique in likeness as well as value, while other crypto assets are swapped one for one with another of matching type. For instance, you can generally trade a 1 BTC for 1 BTC, though that wouldn’t make a lotta sense in many cases. Digital artwork, on the other hand, is one example of NFT.

Before you decide to interact with any asset, consider it important to research the function and type of said asset, so you can work with the one most compatible with your goals. Remember, not ALL digital assets were created for only investment purposes, so it might be good to do your research beforehand. 

Purchasing Cryptocurrency

There are a great many ways to go about buying cryptocurrency. Crypto-native exchanges offer a wide variety of digital assets for buying and selling purposes. PayPal is a more mainstream example platform on which participants can purchase or even sell digital assets. Crypto ATMs are also a thing and exist in numerous parts of the globe. 

As far as payment for assets is concerned, platforms offer crypto purchases through bank transfers, crypto transfers, credit cards, etc., depending on the platform. Purchasing crypto with cash while meeting with someone face to face is also an option should you wish to explore it. Bear in mind that the availability of buying and selling on just about any of these platforms could and does differ from region to region.

Cryptocurrency’s Position in Legality 

Regulation has increased with the growth of the industry. As the years passed, the United States has increased its overwatch. The Securities and Exchange Commission has clamped down on initial coin offerings, AKA ICO’s, after the craze in 2017 and 2018. The Commodity Futures Trading Commission and other agencies from the USA have also engaged in multiple capacities.

Moreover, crypto regulations outside of the U.S have also evolved and changed over time. This is based on the regulatory guidelines. The 5th Anti-Money Laundering Directive from the European Union, for instance, mentions that buying and selling as well as other crypto options must absolutely comply with specific guidelines within some regions.

Crypto happens to be a relatively new industry in comparison to the others, so legal clarity doesn’t technically exist in terms of requirements in all areas of space. This also includes asset clarification, as well. Bitcoin and Ether (ETH) are seen as commodities, though categorizing the numerous other assets at this moment, remains unclear.

The Impact Behind Cryptocurrency                    

An important number of figures have left an impact on the cryptocurrency industry with time. Nakamoto started the sector by creating Bitcoin. Vitalik Buterin, known for building Ethereum, has also very notably left his imprint on the cryptocurrency movement. Ethereum brought with it a whole world of extra tokens, all built on its network which was called ERC-20 tokens. A great deal of ICO’s built their offerings on Ethereum while 2017’s surge was in progress.

Jed McCaleb aided the spread of Bitcoin’s prominence in its early days, which was the result of starting Mt. Gox. Gox was a place that constantly hosted Bitcoin trading, which is interesting to note since its original function was that of a hub for fans of “Magic: The Gathering”. It ended up falling apart in 2014, and as a result of this was rendered infamous in the process.

Changpeng Zhao served to increase the crypto-asset availability being one of the founders of Binance, which has flourished into one of the biggest crypto exchanges. The co-creator of the FTX digital asset trading platform, Sam Bankman-Fried is yet another significant figure within the industry that has impacted trading, DeFi, and various other aspects. 

Various other people have also left their influence to make Crypto what it is today, some of whom even Cointelegraph lists in its top 100 people in Crypto and blockchain of 2021.

Beyond The Stars; Closing Thoughts

Having advanced at the speed of light into what we see today, it’s safe to say that Cryptocurrency has come a long way already. Value is stored and transferred in multiple ways through various assets and solutions, and DeFi has paved the way for new borrowing and lending pathways.

A couple of mainstream companies view blockchain technology with great interest as well, assessing the various uses it provides, like a supply chain. Since its inception by Nakamoto in 2008, the future of Cryptocurrency and the technology associated with it seems oh so very bright indeed. 

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