Entering the world of cryptocurrency can feel overwhelming if you’re not entirely sure what it all means. In this article we’re going to answer questions like “what is cryptocurrency?” and “why is cryptocurrency valuable?” to help you better understand the new age monetary system, as well as get you geared up and in the know. Let’s start with the basics.
What Is Cryptocurrency?
When referring to cryptocurrency, we are referring to digital assets that hold value much like fiat (normal) money used to buy goods and services. While fiat money is physical, with their value held in the coins and notes of a particular currency, cryptocurrencies are digital and exist only online. These cryptocurrencies are essentially lines of code that use cryptography to encrypt and protect them. Hence the name, cryptocurrency. Cryptocurrencies have many different uses, however, most offer a medium of exchange and a store of value.
Where Do Cryptocurrencies Come From?
In 2008, an anonymous entity Satoshi Nakamoto introduced the world to this new concept through a whitepaper outlining Bitcoin and the technology behind it, blockchain technology. Bitcoin was presented as a peer-to-peer electronic cash system, a way to manage value without running it through a bank or organization, and rather from person to person. Bitcoin allowed people to send money from their account directly to their friend’s account without going through a bank, and instead of using a decentralized network on the blockchain.
Blockchain technology is similar to a digital public ledger. All the transactions are verified by the decentralized nodes that connect the network and are presented in chronological order, with no way of going back and tampering with them. Once a Bitcoin transaction has taken place, it is entered into the blockchain (a transparent digital chain of blocks that each hold transaction history). Every Bitcoin that has ever been sent is stored on this blockchain and remains anonymous unless you know the address of who sent or received the cryptocurrency.
Cryptocurrencies vs Blockchain
Different projects use different blockchains that require different cryptocurrencies to operate them. These currencies hold the value of the project, while blockchain technology is the backbone of the project. When people refer to cryptocurrency they are referring to the instrument of value, similar to the US dollar or Euro, while blockchain is simply the technology that operates the project.
Blockchain, however, has many different use cases outside of the financial sector. The technology can be used in anything from supply chain management, to dairy farming, to property. The technology allows for transparent logging of information that can be accessed by a private (within the company) or public (anyone within and outside) group of users.
You might have heard about different cryptocurrencies like Ethereum, Ripple, Bitcoin Cash and Tether. Each of these is unique in its product offering, but all use blockchain technology to operate.
For example, Ethereum is a platform that allows developers to build dApps (decentralized apps built on blockchain technology) through the use of smart contracts. In order to use the services of the platform, users need to pay in Ether, which is the name of the cryptocurrency. When you see Ethereum (ETH), Ethereum refers to the platform in its entirety, while ETH refers to the name of the tradeable digital asset.
Why Is Cryptocurrency Valuable?
Since Bitcoin’s creation, many more cryptocurrencies have come into existence. According to CoinMarketCap, over 5,000 cryptocurrencies exist today, many solving useful problems and some less so.
Many cryptocurrencies are designed to be deflationary, meaning that they do not devalue as a result of inflation as fiat currencies do. Looking at Bitcoin, Satoshi Nakamoto designed it to only ever have 21 million in circulation. This means that once the last Bitcoin is mined (created), there will never be any more. This in turn means that the value can only increase over time, as the supply decreases, the value increases. Unlike fiat currencies where more money is printed, therefore adding more to the system and decreasing the value.
Having said that, not all cryptocurrencies are valuable. Their values are largely connected with their use case, and how much demand there is for that particular coin. As demand increases, so do its value. As awareness and adoption has increased with Bitcoin, so to has its value, going from roughly $100 in 2013, to $10,000 in 2020. Here are 6 other cryptocurrencies that are worth looking into in the industry.
How Do I Get Started With Cryptocurrency?
Now that you have a basic understanding of what is cryptocurrency and how it relates to blockchain, you want to know about getting started with it. When looking at how to get started, one must understand how to obtain them.
You will need to decide which cryptocurrency you are interested in purchasing, it is always a good idea to understand the project behind it and their use case in the industry. Next, you’ll need to set up a crypto wallet in order to hold this cryptocurrency.
Then you’ll want to actually purchase the cryptocurrency. There are many exchanges out there that can facilitate the practice, some more complicated than others. At Oobit we’ve designed everything from the process of purchasing Bitcoin and other cryptocurrencies to the process of storing them to be as simple as using traditional money. Users can easily purchase crypto with their debit or credit card, and then store them in a military-grade crypto wallet that keeps everything safe and under one secure password. Managing your cryptocurrencies doesn’t need to be rocket science, you just need to find the right platform.
An Introduction To Cryptocurrency
In this in-depth introduction to what is a cryptocurrency, we’ve looked at what that means, how it relates to blockchain technology, and how you can get involved in this exciting industry. If you’re ready to jump in and take the next step, we encourage you to explore our platform and get familiar with the many features that can support your crypto journey.