Cryptocurrency: one of the biggest buzzwords of the last decade. Most have either heard of it, know someone who has invested in it, or have joined the crypto space themselves. People from all around the world are now consistently talking about Bitcoin, Ethereum, NFTs, tokens, alt coins, and a whole list of associated crypto terms. But…what exactly is crypto? What makes it different from a regular currency?
Cryptocurrency is a digital currency that is fundamentally just like regular paper currency. Each bill has a serial number that corresponds to when and where it was printed. Each crypto coin also has a digital serial number that contains that same type of information:when it was made, where it was made, etc. With typical paper currency, a record of all bills is kept by the central bank and the government that shares information with other banks, including all info about your debit cards and bank accounts.
In the crypto world, the address number for a crypto wallet is similar to a bank account number. The main difference is that a crypto wallet is completely anonymous because your personal info is not linked to your wallet. Your crypto wallet is also completely under your control which means that no one can shut down your wallet or alter it unlike a regular bank account. Because you are the sole proprietor of your crypto wallet, this also means that maintaining access to your wallet is your responsibility. If you lose access to your wallet or forget your recovery phrase, you will lose the funds in your wallet forever.
Instead of banks keeping track and monitoring transactions like a typical bank account, crypto info is stored across all the computers connected to the crypto network. This allows transactions to be viewed by anyone by using the blockchain explorer. This also means that no single person, institution, or power has complete control over the entire crypto network, making crypto like Bitcoin more secure because there is no single point of failure in the network.
There are two types of crypto: coins and tokens. Although you may hear these two phrases being used synonymously, there are differences between what makes a crypto coin, and what makes a crypto token. Coins belong to networks that were built from the ground up, meaning that someone put together a secure code to create a safe and reliable currency. Crypto coins are typically rewarded to computer slash miners when they process a transaction, and these computers can earn crypto by processing transactions which incentivises other computers to join the network, creating a more secure coin. Only a few dozen cryptocurrencies are actually considered native coins due to the difficulty of creating a truly secure code for the currency.
Tokens on the other hand are much easier to create, and are the main type of crypto that are easily created and put into circulation. Tokens are dapps built on top of a blockchains that inherit the blockchains properties without having to build a new network from the ground up. There are currently tens of thousands of different tokens built on Ethereum alone, These include, defi coins, meme coins, and NFTs.
Are cryptocurrencies safe?
Security can depend on the context of the currency. Not all cryptocurrencies are created equal. Some are created with speed as a priority instead of security, which typically does not play out well, because of the decentralized nature of crypto security should hold priority due to the constant threat of hackers. chains are made up of hundreds, sometimes thousands of computers that are spread out around the world that are constantly checking transactions and account balances. To corrupt a secure crypto network like Bitcoin for example, you would have to hack more than half of all the computers in the entire network at the same time,, which is near impossible. Even if someone is able to exploit a major currency, most cryptocurrency coins have publicly viewable transactions which makes them easy to track and trace by anyone even more so than a regular currency such as the dollar.
Why are cryptocurrencies so volatile? What gives them value?
A currency like the dollar or the Euro’s value was originally based on the price of gold, but now, currency value is based on the trust we have in the governments that issue the currency. Crypto value is based on what that specific currency can do (its utility). Bitcoin’s value comes from the fact that it has an economic profile similar to gold and only a small amount is created every day and most importantly the FREEDOM and ease to send and receive to anyone anywhere without permission or a middle man. Many investors see Bitcoin (or cryptocurrency in general) as a safe place to put your capital outside of the current financial system. Most crypto is correlated to Bitcoin, meaning that their prices are reliant on what Bitcoin (BTC) does. Some cryptocurrencies have massive value due to the utility that they provide. Ethereum on the other hand is used as a platform to facilitate the creation of multiple other cryptocurrencies and Dapps (Decentralized Apps), sort of like the Decentralized internet.
Why do the prices fluctuate so much?
Simple answer…No one knows what the prices of these technologies are actually worth, meaning that; depending on the coin or token utility, along with a multitude of other factors including the state of the overall crypto market, causes the prices to be in constant flux. The same goes for regular currency and the price of gold, but for crypto, they are much more volatile because they are still relatively small in comparison however they are growing fast and due to their revolutionary potential will eventually take over.
Cryptocurrencies make it possible for people to lend, save, and borrow funds without having to go through a bank or worry about a credit score. You can conduct business transactions directly with other people without a middle man company taking a percentage. This will disrupt big business models making them obsolete in the near future. Decentralized apps also make it possible for communities to transparently pool their funds together and digitally vote on how a project moves forward or spends its funds, which could potentially cut out the need for governments and politicians all together.
Which crypto should I buy?
In the crypto space, you should never tell anyone exactly which cryptocurrencies to invest in or offer any financial advice, due to the fact that if anything were to go wrong, that person would hold you responsible which could end badly for everyone involved. Instead, the best advice to offer would be to think about your timeline and risk tolerance. In crypto, a typical bull run/bear run cycle falls within a 4 year span. Investing in a currency like Bitcoin and holding or hodling in most cases has proven to outperform those actively trading in the crypto market, but in any crypto endeavor, it is important to do your own research. Risk tolerance can come in varying degrees within the market. Typically, greater risk means more potential gain. Calculating the market cap of a token or a coin by multiplying the current value of the token or coin by the circulating supply can give you a bit of an insight on where you may want to invest. The smaller the market cap, the more potential upside a crypto has in increasing its value regardless of its dollar value because it takes less money to increase that value. Keep in mind there are many factors that will determine a crypto’s success, these include the team, potential utility, marketing, narrative, and community sentiment. If there is one thing everyone should remember about the crypto space, it is “Crypto is Irrational, and currently the number 1 factor that drives up a coin’s value is pure speculation, so tread the sharky alt coin waters with extreme caution.
The world of crypto is a vast space that can seem overwhelming or daunting to newcomers. But, just like with most other new ideas, projects, or interests, researching and asking as many questions as you can are crucial. With so many resources in the online world you’ll be navigating the crypto space like a pro in no time. Now hit that subscribe button and notification bell because we have a lot more knowledge bombs to drop every week to help you jumpstart your crypto journey.