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What is Cryptocurrency? Everything You Need to Know
Cryptocurrencies have been with us for quite a while now, and there's hardly a person in the online realm who hasn't heard of them. In other words, if you're reading this, you're probably interested in learning more. Cryptocurrencies are prevalent, widespread, and useful in many aspects of life, with thousands available worldwide. You can use them as regular money to buy various products and services, but you can also trade them as you would with stocks and hold them long-term to enter the world of crypto investors.
But what are they exactly? How do they work? What makes them have any value? Do they “behave” like standard currencies? In this guide, we will answer all of these questions and a lot more. By the end, you'll know exactly what cryptocurrencies are and how to obtain and use them. This may be an incentive for you to enter the fascinating world of crypto.
What Exactly Is Cryptocurrency?
Cryptocurrency, or crypto for short, represents digital currency and assets anyone can buy, sell, trade, or use to purchase a good or service. Crypto is fully digital, and it can circulate online without a governing body or a specific organization controlling it. Transactions in crypto are possible entirely due to the underlying technology that powers it, which is no other than blockchain technology.
Every cryptocurrency is created with the help of cryptographic techniques and processes performed on computers and other devices the very crypto users have. Cryptography is what allows any crypto to be a virtual currency that can be used in the same way fiat currencies can. It's also what makes counterfeiting crypto impossible.
Specific people or organizations make each crypto, but they are still largely decentralized and operate thanks to their users. This network of users performs the processes that keep the crypto network going without the need of a central government or large corporation overseeing it all and ensuring nothing goes wrong.
These are usually the defining factors of most cryptos. However, every cryptocurrency is special, and each legitimate one strives to offer something unique and a solution to a specific problem. For example:
- Bitcoin tries to solve the reversibility of electronic payments.
- Ethereum tries to solve the problem of indirect digital interactions and tries to allow people to interact with others.
- Polkadot tries to solve the main issues blockchain has of interoperability and scalability.
Individual units of cryptocurrencies are called coins or tokens, and the exact name depends on their use. More and more cryptos are created every year, but in the last two years, the crypto market has exploded. In November 2019, there were "only" 2,817 cryptos, while in February 2022, that number rose to 10,397 unique cryptocurrencies.
Naturally, only a thousand or so are worth something, and at the time of writing Bitcoin alone accounts for more than 40% of the entire market's worth and Ethereum around 18%. However, bear in mind that these numbers constantly change due to each crypto's price volatility.
What Is Blockchain Technology?
The first crypto ever was Bitcoin, created by Satoshi Nakamoto in 2009. The underlying technology powering it is blockchain technology, which backs most cryptos today.
As the name likely suggests, blockchain is effectively a set of blocks connected together like a type of digital chain. In other words, a blockchain is an online ledger (blockchain is also referred to as a Distributed Ledger Technology or DLT). Each block is a record of a specific number of transactions people have made using that cryptocurrency.
Every member of the network independently verifies each of these transactions.
This is precisely why no single authority is needed for a specific cryptocurrency. Every transaction and consequently every block needs to be verified, and once it is, it's written into the online ledger forever and cannot be deleted. Similarly, every other member needs to consent before any changes get approved. That's why many believe that cryptocurrencies and blockchain bring to life an idealistic form of democracy.
Every computer in this system stores the entire ledger. Once you buy your first coins of specific crypto, this process gets automatically finished on your computer. The whole ledger is also fully transparent, further increasing its security and making it impossible to tamper with any section.
This incredible safety feature of blockchain technology has made it even more revolutionary than the actual cryptocurrencies it was made for. Many experts agree that blockchain can serve countless industries, most notably the supply chain and online voting. It can be beneficial for both governments and private companies.
The process of obtaining new Bitcoins that previously weren't available anywhere is called Bitcoin mining. In other words, that's how new bitcoins are placed into circulation.
But how does that work? How do miners mine something that exists only in the online world?
In essence, a miner uses sophisticated hardware called Bitcoin mining hardware (ASICs) that solves complex computational mathematical problems. In the early days, the process was accomplished through basic CPUs featured on every desktop or laptop computer. However, as the Bitcoin network grows, it becomes incredibly complicated to mine new coins, which means you need more time to mine every new block of Bitcoins.
The faster the device solves the computational problems, the faster it will mine new blocks of Bitcoins. It's thus more worthwhile to use more robust devices, and that's why ASICs were created. They are miles ahead of regular CPUs.
However, mining is not only about discovering new Bitcoins, but it's also about verifying transactions made on the network. In return for doing that, you get Bitcoins as a reward. So essentially, the network fee everyone pays when making Bitcoin transactions is the funds allocated to miners.
This may be difficult and not rewarding unless you invest heavily in mining equipment, but it's necessary for the network's survival. Miners are effectively the auditors of the network, and they are the ones who ensure there's no double-spending and creation of Bitcoins out of thin air.
In simple terms, without miners and blockchain technology, anyone could use the same Bitcoin and copy it all over again and then spend those copies indefinitely. This is essentially how mining with most cryptos works, as long as that crypto is made through mining. However, some cryptocurrencies are not made through mining but added to the network based on specific predetermined criteria.
Even though cryptocurrency was initially envisioned as a digital or virtual currency, it has become, in many ways, more akin to stocks. That's because many cryptocurrencies are now made to be digital assets. They are created to support the project behind them, and the technology an organization is making to fulfil a specific purpose.
Polkadot is a good example here. It's a protocol that strives to connect independent blockchains and enable the transfer of any asset or data through its network. The Polkadot (DOT) token, on the other hand, is there to govern this network of blockchains and people buy DOTs to have a say in how the network develops. At the same time, they get more DOTs as rewards and get to use them for trading or simply storing long-term.
So, by buying DOT or some other similar cryptocurrency, you are effectively buying stocks and hoping for their price to rise in the future so you can get value from your investments.
However, you need to understand that there is still one big difference between stocks and cryptos: stocks are ownership interests in a specific business backed by the assets and actual cash flow of that business. Cryptocurrency is not backed by anything in the physical world, so it's vital that investors only make investments in proven crypto projects run by reputable organizations and individuals or projects with great potential.
How to Invest in Cryptocurrency Stocks?
The most common and usually the best way to invest in cryptos is to buy them through cryptocurrency exchanges. We'll explain how these work in the next section, but it's worth mentioning the other, less popular methods for investing in crypto:
- Crypto futures: You get to wager on the price of a cryptocurrency without actually buying it.
- Crypto funds: These funds contain various cryptocurrencies.
- Blockchain ETFs: They contain companies that might profit from the emergence of blockchain, so you're effectively investing in them by investing in such ETFs.
A crypto exchange is a digital platform, a marketplace where you can buy and sell various cryptocurrencies. For example, you can trade one crypto for another or buy it for fiat currency and sell it for that currency. A crypto exchange lets you enter the crypto world and quickly become a crypto investor or trader.
The main benefit of cryptocurrency exchanges for beginners is that you can use traditional payment methods (credit cards, e-wallets, bank transfers) to deposit fiat currency like US dollars and use those funds to buy a specific amount of available crypto.
Most popular crypto exchanges have hundreds of different cryptos available, so they are typically the primary method for crypto investors to invest in various coins. Every exchange is unique in some way, and when you want to start using one, you need to ensure you're taking into account every vital aspect like:
- The pricing (transaction and deposit/withdrawal fees)
- Liquidity (availability of specific cryptos and crypto trading pairs)
- Available cryptocurrencies
- Available payment methods
- Customer service
To start using an exchange service, you need to register an account as you would on any other website. However, you'll have to use your personal information and specific documents like an ID and utility bill to prove your identity and place of residence. Some of the more widely-used crypto exchanges are:
A cryptocurrency wallet is an app that lets you store your cryptocurrencies and retrieve them when you need to. You usually get the chance to store various cryptos. Naturally, you don't have to use them, but they are incredibly beneficial as you get to keep all your different cryptos in one place and somewhere safe. A crypto wallet can be an app on your computer or phone or a piece of hardware (usually something akin to a USB stick).
A wallet app is usually more convenient, and users can open an account for free. The best examples are Trust Wallet, Electrum, Exodus, Guarda, Coinbase Wallet, and Luno Wallet. A hardware wallet is slightly less convenient than a software wallet app but much safer. You also need to buy the device. The best examples are Trezor, Ledger, and SafePal.
What Is the Best Cryptocurrency
If you're ready to start investing in cryptocurrencies, you should look at buying the best ones. With the market filled with thousands of different coins, and so it can be hard to make the decision on which to invest in. Naturally, once you become a more proficient investor, you could start considering some new and less known coins to find the next big thing. Here's a list of some of the top coins worth considering:
- Bitcoin (BTC): The king of crypto and likely the only one bound to stay for as long as cryptocurrencies exist. It's expensive, but you can always start with smaller amounts like 0.01 BTC or even less, as there is no limit to the amount you can buy.
- Ethereum (ETH): This is the second-best crypto and one of the most promising new technologies as it's so much more than just a cryptocurrency, including global transactions and applications.
- Litecoin (LTC): A crypto very similar to Bitcoin but with faster transaction speeds.
- Polkadot (DOT): One of the most promising cryptos with the goal of powering a decentralized web.
- Solana (SOL): A unique cryptocurrency made to help run decentralized financial technologies and so-called DApps or decentralized apps.
- Cardano (ADA): A highly environmentally-friendly crypto with a proof-of-stake model that allows you to stake your ADAs and gain rewards.
Other coins you should also consider include Tether (USDT), Bitcoin Cash (BCH), Binance Coin (BNB), FTX Token (FTT), Avalance (AVAX), Uniswap (UNI), XRP (XRP), Terra (LUNA), Stellar (XLM), Dogecoin (DOGE), and Monero (XMR). However, before you start investing in any coin, make sure you study it carefully before spending a single dollar. You need to know what you're investing in and the potential to achieve what it is set to perform.
How Are Cryptocurrencies Created?
Creating a new cryptocurrency is not easy, but you'll undoubtedly have a much easier time than most others if you're a developer. As it involves a lot of work, we'll only cover it in a few short steps so you can get a better overview of how it generally works. Then, you can start doing your heavy research.
- Pick a consensus mechanism.
- Choose a blockchain platform.
- Design the nodes.
- Create the internal architecture of your blockchain.
- Integrate the needed APIs if necessary.
- Build the interface.
- Verify legal compliance with the help of an expert.
How to Use Cryptocurrency?
Most people buy a cryptocurrency to profit from its price change. In other words, they get to trade them. Besides that, you can also use them to buy goods and services, especially using Bitcoin. After all, you've probably already run into a few sites that accept Bitcoin as a payment method.
Most other cryptos are not generally accepted as tender, but Bitcoin is an exception. It has even become a legal and official national currency in El Salvador. Another popular way to use cryptocurrency is online gambling. The online gambling world has fully embraced cryptocurrencies, most notably Bitcoin, Ethereum, Litecoin, Dogecoin, Tether, and others.
You can use some or all of them on many crypto-exclusive gambling sites or regular gambling sites that accept specific cryptos as one of the many payment methods. Several reasons make the use of crypto in online gambling attractive and likely even better than traditional currencies:
- Higher security and privacy.
- Much faster transactions, especially withdrawals.
- Lower transaction fees for deposits and withdrawals.
- Volatility benefits (possible negative side of crypto gambling).
- Crypto casino bonuses usually trump regular ones.
More and more crypto gambling sites choose to offer Bitcoin and other cryptos as payment methods. This seals a few critical gaps that traditional online casinos can’t seem to fill, such as identity protection - anonymity and lightning-fast withdrawals.
Plus, many new casinos like crash gambling sites are crypto-exclusive, meaning they only accept cryptocurrencies as a payment method. These sites are often better than regular casinos as they provide near-perfect anonymity and have much better bonuses and instant transactions. However, you need to be careful when picking one, as some might be low-quality or downright scams. When choosing a crypto casino, be it a regular online casino or crypto-exclusive, you need to ensure you're choosing one with:
- Great online reputation
- Suitable license and safety features
- Quality website design
- Lucrative bonuses
- Great casino game selection
- Good customer support
- Favourable terms and conditions
- Low wagering requirements for bonuses
- Fast deposits and withdrawals
Is Cryptocurrency Legal?
Cryptocurrencies are not fiat currencies, and governments or banks don't get to control them, for now at least. This implies that they cannot always be entirely safe and, therefore, trusted. Plus, as they represent new technology, it makes sense that they are not fully and adequately regulated in many countries.
Naturally, every country makes its own rules, so whether cryptocurrency is legal depends on where you're from and what laws apply. Thankfully, more and more countries either have regulations for cryptocurrency or similarly allow their use in stocks and other assets in which citizens can invest.
Countries Where Cryptocurrency is Illegal
According to the latest estimates, as many as 103 countries have developed specific regulations that govern cryptocurrencies. Currently, only El Salvador has officially recognized Bitcoin as legal tender. Other countries where cryptocurrency is legal are:
- United States
- EU countries
- New Zealand
- United Kingdom
On the other hand, only nine countries have entirely banned the use of crypto. These countries are:
As for other countries, around 40 have some form of implicit bans. The rest haven’t come up yet with any regulations on cryptocurrency. In any case, make sure you check your country's cryptocurrency laws and regulations before you start investing.
How to Protect Yourself From Cryptocurrency Scams?
Like every innovation in the digital age, scams have become a scourge in the cryptocurrency world too. A scammer will possibly try to extort Bitcoin, or some other crypto, via specific ransomware or some other cyber attack. They might even try to scam you with a crypto-related offer. Whatever the case may be, you need to learn how to protect yourself. The most important thing you need to do is learn about the possible scams out there and how to avoid them. As for specifics, here are a few tips that will help you stay safe:
- Keep your personal data safe, especially your private keys from your crypto investments.
- Don't share your info with anyone who makes unsolicited contact with you.
- Try to avoid any remotely strange offers. If it sounds too good to be true, it probably is.
- Turn on two-factor authentication wherever you can.
- Don't use unofficial app stores or disreputable sites.
- Keep your anti-malware and antivirus software up-to-date at all times.
Final Thoughts on Cryptocurrencies
All in all, cryptocurrencies are a complicated subject that we will discuss at length through several extensive guides like this one. But thankfully, the basics are easy to grasp, and we hope that this article has shone some light on the most common questions you have about cryptocurrencies. If you want to start investing, trading, and using crypto on various online gambling services, you will likely have the necessary info to begin your journey.
Where to buy cryptocurrency?
You can buy most major cryptos at several notable cryptocurrency exchanges, including those mentioned in this guide.
How does cryptocurrency gain value?
Cryptocurrencies are not backed by anything physical, so they gain value based on community involvement. The more people use a specific crypto, the more value it will have. Naturally, many other factors play a role, including regulations, laws, significant developments in the world of crypto and blockchain, and a lot more.
What was the first cryptocurrency?
Bitcoin was the first crypto ever created back in 2009. Satoshi Nakamoto, the originator, is likely just a pseudonym for a person or several people.
How do you cash out cryptocurrency?
It would help if you sold your cryptocurrency for fiat currency like the US dollar. It's easiest to do this on a crypto exchange, and then you can easily withdraw the exchanged funds to a specific payment method like your debit card or bank account.
How to earn cryptocurrency without investment?
You can earn specific cryptos without investing in many ways. For example, you can use crypto mining, airdrops, cash backs, DeFi yield farming, crypto dividends, getting paid at your job in crypto, playing Bitcoin games at online casinos, etc.
What can you do with cryptocurrency?
You can do various things, like buying multiple goods and services, making investments, and even playing casino games.
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