What is Cryptocurrency: a Beginner Guide

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Estimated Reading Time

5 min.

Blog Post Difficulty

Easy 🟢

Publishing Date

8/03/24

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Table of Contents

Introduction

You probably heard of it already: Cryptocurrency. Digital money without banks, operating on a technology called blockchain. It's like a digital ledger that tracks transactions and assets. But what exactly is it, and what is there to uncover about the phenomenon called crypto? That’s what this blogpost will explain to you, the reader.

Understanding Cryptocurrency

Firstly, let’s explain that Cryptocurrency, or crypto, is digital money that you can't touch. It’s mainly used for online transactions, on a technological platform called blockchain. Unlike regular money, several companies make cryptocurrencies. These digital coins always have the same value when you buy, sell, or trade them. They're not like NFTs, which can change in value. For example, one dollar in crypto is always worth one dollar. Even though there are no strict rules for crypto, it's still taxable. You have to tell the tax agency about any money you make or lose.

Creating Cryptocurrencies

Cryptocurrencies are made through a process called mining. It validates transactions and creates new coins using special tools. Some cryptocurrencies are made differently, not through mining, but through something called a hard fork. Mining is done through the means of very powerful computers that perform complex math equations, the first computer that solves this equation gets a reward in the form of a particular crypto coin.

Cryptocurrency vs. Regular Money

Regular money is made by the government and is supported by banks. Cryptocurrency doesn't need a government or a bank. Regular money can be kept in banks, but you store cryptocurrencies in digital wallets. Banks insure regular money, but if you lose cryptocurrency, there's no one to help. Cryptocurrency is mainly used for trading digital assets right now ( beginning 2024 ), but in the future we will see more and more use cases for crypto. Especially in the means of regular payment, like in stores, webshops and restaurants. This is not a regular occurrence, but it is available in some specific locations around the globe. By the time that this is a normal thing, crypto will rise to new heights and maybe even take over normal currency like the Euro or the Dollar.

Benefits of Cryptocurrency

Cryptocurrency has some advantages over regular money. One is privacy – you don't need to share personal information when you use it. Also, your investment stays safe, no matter what the government does.  Another interesting thing about cryptocurrency is the decentralization. This is because everything goes through the blockchain, which doesn’t have a centralized authority controlling and approving your transactions. That way, a centralized authority, like your bank, can’t freeze or keep your money. You have full control over your assets and funds.

Types of Cryptocurrency

Cryptocurrency comes in two types: coins and tokens. Coins are like regular money, while tokens are assets on a digital system. Bitcoin is the first and most common cryptocurrency, followed by Ethereum. Other types, called altcoins, include Cardano, Solana, Dogecoin, and XRP. All these cryptocurrencies have their own blockchain where all the transactions of that specific coin gets stored. Tokens on the other hand get created on top of an existing blockchain. You have tokens built on top of Ethereum and Solana, which are the most popular at the moment. But they are not the only blockchains that support token distribution. 

Summary

So in general, cryptocurrencies are digital money that you can use for trading, buying or investing. It is a worldwide phenomenon that runs on a technology called blockchain, which makes crypto assets a decentralized way of trading money. There is no centralized authority that controls your money, or has to approve transactions. This is what makes cryptocurrency a potential threat to the future of centralized authorities like banks.

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