What is Cryptocurrency?

Cryptocurrencies have been around for years, and they are well on their way of conquering the world. You see them everywhere — on social networks, in the news, different articles, you see crypto-related apps in app stores, and more.

But, what is a cryptocurrency exactly? What is the point? What can it do? These are some of the questions that we will answer right now. So, if you are interested in the crypto trend and you wish to know more about them — just keep reading.

What is cryptocurrency?

As the name suggests, cryptocurrency is a form of currency — a form of money. This is digital money that only exists in its digital form. In other words, cryptocurrencies do not have a physical form, such as bills or real metal coins that you can keep in your pocket.

They are a code that exists on the internet. They were imagined a long time ago, as the internet itself started to spread around the world. However, no one was able to create a working cryptocurrency for years after the concept of digital money had emerged.

Then came the financial crisis of 2006/2007, which was caused by the banks due to their greed and desire to attract more clients. The banks offered loans which eventually led to their bankruptcy, and financial issues throughout the world. However, along the way, they also inspired one individual (or a team) who called themselves Satoshi Nakamoto. Nakamoto saw that the banks had too much power over money — too much control and influence and that they were playing with forces that can cause a lot of damage to the entire world.

That is why he invented the first cryptocurrency, known as Bitcoin. If you are interested in the story of Bitcoin’s origin, you can check out our article on Bitcoin. It is also important to note that, alongside Bitcoin — Nakamoto also created the cryptocurrencies’ underlying technology, the blockchain.

Ever since then, cryptocurrencies have been evolving and emerging all over the world, and they spent over a decade fighting to be recognized, adopted and used. At the time of writing, that fight still lasts, and it is likely to remain a topic of discussions, negotiations, and speculation for years to come.

How can I use cryptocurrency?

As digital money, cryptocurrencies still aren’t recognized, and most of them are not that useful in the real world. However, this is likely to change in the years to come. After all, there was a time when cryptocurrencies did not have a single use case. The situation is a lot different today than it was back then.

The change towards digital money from the physical one that you can hold in your hand is difficult. People have learned not to trust codes and computers, as they don’t understand them and don’t know if they CAN trust them.

However, cryptocurrencies have been slowly winning them over as years went by, and there are quite a few use cases for cryptos now.

Of course, the most common use case for cryptocurrencies is investing. Simply put, investors would buy a certain amount of coins with traditional money, such as the USD, EUR, GBP, and alike. They would then store them in a safe place and wait for their prices to go up.

Thanks to the volatility of any cryptocurrency, they usually do not have to wait long. As soon as the price goes up, investors are cautiously following its progress, trying to determine when is the best time to cash out. Some believe that the key is to keep your coins locked up for years, and that price of different coins will be much higher in the future. Others tend to use any opportunity they get to sell and buy as soon as the wind changes. Some have even managed to make a career out of this.

This is one of the oldest use cases of cryptocurrencies, and you could not do much else with them back in the early days. However, over the years, a few merchants decided to try their luck and start accepting crypto payments. A few more followed their example, and they, in turn, inspired others. Over time, their numbers increased more and more, and you can now buy goods and pay for services in countless online stores.

Best of all — you can do it anonymously, or at least pseudonymously. Cryptocurrency is anonymous as long as your name and your cryptocurrency wallet aren’t connected in any way. However, the chances are that you won’t manage to stay anonymous for long, with all of the exchanges demanding that you verify your identity in order to trade on their platforms.

Of course, getting coins via the exchanges is not the only way to earn cryptocurrencies. There is also the mining process, which requires you to run a network of some crypto projects and get paid for verifying transactions. Not only that but if you run a business yourself — you can also start accepting cryptocurrencies. It will definitely help you avoid having to pay a major processing fee such as the one that firms like Visa and Mastercard are charging.

It all depends on which coin you choose to accept, its technology, blockchain, goals, and more.

What are the most commonly used cryptocurrencies?

When it comes to digital assets, everyone has their own vision regarding which cryptocurrency is the best. It depends on what you as an individual believe in, what kinds of projects you support, and how you feel about the future. In truth, most cryptocurrencies are fighting only to survive, with only a handful of them not having to constantly worry whether or not they might become irrelevant in a year, or even sooner.

Of course, there are some coins that do not have to worry about that all the time, and most of them can be found on the list of top 10 largest cryptocurrencies by market capitalization.

Bitcoin (BTC), of course, is the first and largest cryptocurrency out there. It has been for over a decade now, and it is the most recognized crypto brand in the world. Many predict that it will become a store of value — like digital gold — and that its use in everyday transactions will come to an end. That remains to be seen, but for now — BTC is the most accepted and best-known coin in the world.

Then, there is Ethereum (ETH) — the second largest coin, and the second most important cryptocurrency ever to be invented. Ethereum was launched in 2015 — over six years after BTC itself. However, its founder — Vitalik Buterin — designed it to be a development platform, rather than crypto used solely for transactions. As such, it shifted the attention from cryptos themselves to their underlying technology — blockchain — of which you can learn more about in our blockchain article What is Blockchain. Meanwhile, if you are interested in Ethereum, read more about it in our Ethereum article, where we go into more detail about this project.

Then, there are coins like XRP, which aim to be middlemen between the old and the new. XRP, and its parent firm Ripple, are working with the banks around the world to provide people with an advanced, and yet familiar, solution for instant international payments. Read more about what Ripple and XRP plan to do in our XRP article.

Then, there are coins like Bitcoin Cash (BCH), which aim to be cryptos solely dedicated to being used for transactions. Bitcoin Cash actually came from Bitcoin itself, after its blockchain split in 2017. You can learn more about it in our Bitcoin Cash article.

Litecoin (LTC) is another coin from the Bitcoin family, and it uses almost identical technology as BTC. However, it did bring forth a few changes that had made it faster and better than BTC, which is why it is often thought of as silver to Bitcoin’s gold.

There are also stablecoins, such as Tether (USDT). These are coins that do not suffer from high volatility, and their price always remains the same — usually at $1 per 1 coin.

Then, there are privacy coins, like Monero (XMR), which believe that the people’s right to privacy shouldn’t be endangered, and they are able to allow anonymous payments even with all of the governments’ efforts to prevent that.

There are many other types of cryptocurrencies, and it is likely that many more will be invented, in time. For now, however, these are some of the most commonly used coins around the world.

Why should you pay attention to cryptocurrencies?

If you were wondering why you should bother keeping an eye out on cryptocurrencies, there are a few good reasons. The first one is a high probability that cryptos are, in fact, likely to become the money of the future. They are safer, making transactions costs less, and the banks have lost the trust and support of the people.

While the shift to the new form of money is difficult, every day, more people join the crypto space, learns about them, and decides to start using them. Whether it takes another five, ten, or fifty years, cryptos are likely to rise and dominate the financial world, so learning about them now will not only allow you to watch as some of the greatest events in financial history unfold — it will also give you an advantage when the process picks up the pace.

It is also worth noting that cryptocurrencies have proven to be a valuable and functional solution for areas where civil unrest and economic recessions take place. Countries suffering from financial issues, such as Venezuela, Turkey, and alike have mostly turned to crypto as a source of more stable money.

The trade wars could also bring major damage to some regions, and the 2019 trade war between the US and China may lead to something similar if it ends up lasting for too long. Such situations often lead to wide adoption of crypto, as no government or bank controls digital coins. 

In these situations, it also pays to know your way around digital currencies and to start using them as an alternative as soon as the need arises. And, while any cryptocurrency is quite volatile, many experts believe that this will change in the future, as the industry starts getting proper regulation and adoption. So, learning about cryptocurrencies now, or maybe even testing them for a bit, could go a long way if something happens to traditional currencies in the future. It is certainly worth keeping them in mind.

Image by André François McKenzie