If you haven’t heard the term ‘cryptocurrency’ in the last few months then you’ve probably been living under a rock. In the last few years, cryptocurrency has gone from being a relatively obscure term reserved for technophiles to a mainstream word that’s on everybody’s lips. Cryptocurrency is the future, they say!
But why is that? What’s so special about cryptocurrency? Is it really going to revolutionize the financial industry? These are some pretty big claims to make, and there are a lot of people who are convinced that this is what’s going to happen. We’re going to discuss these things in this article.
What Is Cryptocurrency?
Cryptocurrency is a term used to describe a number of different financial functions and assets. The crypto part of the name refers to the fact that these processes are encrypted, thereby increasing user security. The encryption protocol that cryptocurrency runs through is called a blockchain. The most popular and well-known cryptocurrency is called Bitcoin.
We will talk more about these things in detail in a bit, but for now, know that a blockchain is a decentralized hub of information that allows people to exchange information somewhat anonymously.
You’re also free to do whatever you want with your money.
There have been countless cases of people moving millions of dollars worth of cryptocurrency without having to sign anything, pay taxes, or explain who they are. This alone showcases some of the immense power of cryptocurrency and its potential to turn the world’s financial industry on its head.
However, it took people a while to recognize that. First, crypto gained a reputation as a sort of shady, back-alley internet currency for brokering illegal deals.
One of the benefits of cryptocurrency is that it is much more difficult to trace (although not impossible). Initially, this led people to believe that cryptocurrency had little use beyond the purchase of drugs on shady corners of the internet.
However, cryptocurrency has many, many uses. There are thousands of different crypto coins with their own use cases and functions.
Crazy Cryptocurrency Facts
Before we explain more about how crypto works, let’s pique your interest a little bit more with these mind-blowing crypto facts.
1. There are only so many Bitcoins
That’s right! There’s a limited supply of bitcoins in the world. Unlike traditional currency, more bitcoins can’t simply just be made out of thin air. This is part of the reason that the coin increased so much in value. If this happened with a country’s currency, the bank could simply print off an extra bunch of money and restabilize the currency’s value.
2. The first Bitcoin transaction was for pizza
A man in Florida spent 10,000 bitcoins on a couple of pizzas in what the world now knows as the first crypto transaction. That’s worth about $600,000 USD today.
3. The FBI owns one of the world’s largest Bitcoin supplies
The FBI shut down one of the most popular marketplaces in dark web history close to a decade ago, the Silk Road. What happened to all the money that was temporarily being held on that site? It’s being taken care of by the FBI now. That wallet contained close to 1.5% of all the world’s Bitcoin.
Cryptocurrency Basics: How Does Crypto Work?
Summarizing how cryptocurrency works is a bit of a challenge. For someone who doesn’t understand much about finance, computer technology, or the internet, it’s easy to get overwhelmed. And, unfortunately, there’s not really an easy way to sum things up.
We’ll do our best to outline the core components and basics of cryptocurrency so you can understand a bit about how it works.
The difficulty first arises when you realize that people aren’t even sure what cryptocurrency, or at least the major cryptocurrency – Bitcoin – should be classified as. Is it an actual currency? Is it a value token? A network? An asset?
One thing that it certainly is, however, is a piece of software. And knowing that we can explain a bit about how it works. Bitcoin operates through cryptography, and it’s the most effective and popular method for creating currency out of codes that has ever been done.
Blockchain
The blockchain is the basis of the crypto network. The blockchain was first developed by an individual or individuals known as Satoshi Nakamoto. Nakamoto is yet to have been identified, but it was the person or people using this name who first described both the blockchain and Bitcoin back in 2008.
Since then, thousands of blockchains have been built to accommodate all manner of different cryptocurrencies. Blockchain technology is no longer limited strictly to bitcoin.
The blockchain is composed of a chain of blocks. Blocks each contain information. The information, like any information on a computer, is stored in binary (1s and 0s) and could theoretically be anything. The blockchain allows for contracts to be established between two individuals who agree to exchange this information.
In doing this, the blockchain eliminates the need for a third-party broker to deal with these transactions.
Wallets
The info in the blockchain, in the case of cryptocurrency, is a series of encrypted digits that spell out the “code” to the currency. A person will also need a wallet. A wallet has an address (another encrypted string) and that is your address and nobody else’s. You store crypto in your wallet by sending it to this address.
Only you know the “code” for your wallet, so unless you give it to someone else, your money is safe. Unfortunately—or fortunately, depending on how you look at it—your wallet also functions as a real wallet in the sense that if you lose your personal key code, then you can’t get your wallet back.
This is at once the best security feature and one of the riskier aspects of crypto. Make sure to save your keys! Write them down on paper and stash them somewhere that they’ll be safe, like a safety deposit box or that box of old high school projects that you never look at but refuse to throw out. Somewhere nobody will touch it and you won’t lose it.
Peer-to-Peer
Cryptocurrency wallets are great because users can trade directly with one another without having to go through a third party, like a bank. Exchanging directly means that you’re not paying for any brokerage services. Direct dealing is known as peer-to-peer transacting.
Other Important Terms & Components
Decentralization
Decentralization is important because it means that nobody’s really in control of crypto. That means that the power remains entirely in the hands of the people.
Peer-to-Peer
Peer-to-peer transactions, or P2P, is a term used to describe when two parties exchange info or asset directly with one another.
dApps
Decentralized apps, or dApps, are apps that are operated on a decentralized system. They were first popularized by the ethereum blockchain.
Tokens
Tokens are coins built on separate blockchains that represent assets or utilities for certain projects. Tokens are generally sold when the project is first available for trade and the tokens (ideally) increase in value as the project’s worth is recognized.
DEXs
A decentralized exchange, or a DEX, is different from a centralized exchange like Coinbase. You won’t be able to actually buy crypto here with fiat (“real”) money but you can swap and exchange cryptocurrency tokens for one another on a DEX with ease.
What Can You Buy With Crypto?
What can’t you buy with bitcoin? It’s a currency. You can use Bitcoin to pay for anything that people are willing to sell as long as they’re willing to transact using it.
The early days of cryptocurrency and the dark web gave Bitcoin a bit of a notorious reputation. Because Bitcoin was the only accepted currency on many of the dark web marketplaces, the entire cryptocurrency world became linked with the shady activities of dark web customers. This reputation was hard to dissociate from.
The dark web marketplaces are a hub for people interested in buying and selling drugs, weapons, and illegal services. And, for a time, this remained just about the only reason that the average person would use cryptocurrency.
Back then there was a pretty steep learning curve for figuring out how to actually use crypto. The learning curve, coupled with the fact that most people didn’t see a reason to encrypt their spending habits, meant that most people wouldn’t really bother figuring out how to use cryptocurrency unless they were trying to buy something from one of these marketplaces.
Fast forward a few years and cryptocurrency has become a viable currency for much more than drugs and guns. Even though it might not be completely considered mainstream yet, many websites and marketplaces on the clearnet (regular internet) are starting to accept cryptocurrencies.
The fact that many clearnet websites also sell drugs legally for research purposes has allowed people who are less tech-savvy to participate in markets that were previously only available to people familiar with computers.
Banks and other financial organizations are starting to recognize and adopt cryptocurrencies as well. Crypto ATMs have actually been around for nearly a decade, but now they’re popping up all over the place. It’s not uncommon for people to use cryptocurrency transactions in their day-to-day, personal business. And one country, El Salvador, has even adopted Bitcoin as legal tender in the country so it can be used to purchase literally anything.
How to Buy Cryptocurrency
Learning to buy cryptocurrency nowadays is a heck of a lot easier than it was a decade ago. During the earlier years of crypto, it was a bit of a hassle figuring out how to buy and sell through the blockchain. Nowadays, buying cryptocurrency is simple as long as you have access to the internet.
- Register on an exchange. There are lots of different exchanges that you can use to buy cryptocurrency. For a beginner, someone who is interested in simply purchasing cryptocurrency to spend it or see what it’s all about, most people would recommend Coinbase. Coinbase has a very simple and user-friendly interface and a very short learning curve.
- Set up your payment method. Different exchanges accept different payment methods. Coinbase accepts a variety including PayPal and direct credit card purchases. Register your payment method on your account and move on to the next step.
- Buy cryptocurrency. Once your account is registered and you’ve linked a payment method to it, you can start buying cryptocurrency. This is as simple as selecting the currency that you’re interested in purchasing, pressing by, and waiting for the payment to process.
Types of Crypto
Deciding which cryptocurrency to buy is an entirely different ball game. If you’re new to the crypto space, you won’t want to overwhelm yourself. Buying Bitcoin cryptocurrency is simple and effective. Bitcoin is the most well-known cryptocurrency so if you are interested and it’s simply experimenting with crypto this is a good first choice.
However, Bitcoin has a number of flaws, not the least of which is how long it takes for a transaction to go through on the blockchain.
Numerous other cryptocurrencies have emerged to provide solutions to many of Bitcoin’s problems. Some of them are also more privacy-focused and provide complete anonymity. Certain sites will only accept these privacy-based coins to ensure the protection of both the users and the business.
If you’re actually interested in investing, spending, or saving with cryptocurrency then you might want to choose a different starting point. There are literally hundreds of thousands to choose from (thanks to the advent of the Binance Smart Chain) but several of them stand out above the rest.
- Ethereum (ETH) for example, provides a solution for the snail’s pace of Bitcoin by providing much quicker transactions. Unfortunately, the fees for moving Ethereum are prohibitively expensive for most people except for high-end investors.
- Binance Coin (BNB) allows you to utilize the Binance Smart Chain, a relatively new feature in the decentralized economy that allows for the creation of custom cryptocurrency coins by just about anybody.
- Litecoin (LTC) is often called the “Silver to Bitcoin’s Gold.” It was developed as a split from Bitcoin and originally intended to compete directly with BTC due to its faster transaction speed.
Cryptocurrency Price
Crypto is the most volatile market. Ever. Price predictions are next to impossible when it comes to crypto and the price of Bitcoin has been known to fluctuate tens of thousands of dollars in a single day. Compared to the standard stock market this is absolutely unheard of.
One of the lasting appeals of Bitcoin, in particular, is the fact that there is a limited amount of Bitcoin available. There will only ever be 21 million Bitcoins. On top of that, not all of them have been introduced to the market yet. Bitcoins are slowly released through a process known as “mining,” in which people with the proper knowledge and technology utilize blockchain code to unlock Bitcoins and move them into circulation, thereby earning a fee for themselves.
Every few years, the number of Bitcoins released into circulation is decreased by half. For example, in 2020, there were 12.5 new Bitcoins released roughly every ten minutes. After the last halving in May, that amount was reduced to 6.25.
This ensures that the value of Bitcoin will continue to rise due to its scarcity, which contrasts with typical fiat currency which declines in value as time goes on (hence the price of a burger being a quarter in the 50s and costing five dollars nowadays.
Conclusion & Final Thoughts on Crypto
Cryptocurrency is the most significant and disruptive thing to affect the global market in recent history. It has put a tremendous amount of money back into the people’s hands and, unfortunately, this has led to banks and governments becoming wary of it.
However, if people recognize the inherent power of cryptocurrency and the vast potential that it provides, this could change the world – for the better or the worse. Cryptocurrency could allow for the untraced payments of assassinations and drug deals, but it could also be used to fund operations that rescue kidnapped children, or (like many of the coins on the Binance Smart Chain) to fund volunteers or environmental movements.
In either case, crypto is here to stay. The widespread application of cryptocurrency will influence many aspects of our society. We can only hope that they will continue to be used for the benefit of the people.
