A beginner’s guide to cryptocurrency
We discuss the basics of cryptocurrency, how to get it, how to store it, and what it is used for.
Topics to read before diving into this lesson:
At the end of the lesson, you will be able to answer the following:
What is cryptocurrency?
How can I get cryptocurrency?
How can I store cryptocurrency?
What are the types of cryptocurrency? – Bitcoin (a bit about its origins), and Altcoins + examples
What is cryptocurrency used for?
What is cryptocurrency?#Copy URL to this article section
Before you dive into the world of virtual transactions, gaming-finance platforms, or non-fungible tokens, it is important that you thoroughly grasp the idea behind cryptocurrency—one of the main factors that keep web3 spinning on its axis.
Definition#Copy URL to this article section
Cryptocurrency pertains to digital currency used as a way of exchange. In the old days, humans would swap an item for another to get what they needed (e.g. a basket of vegetables for bottles of milk) in a method called bartering. Noticing how inconvenient this process actually was, we switched to silver and gold coins sometime around 640 BCE, and eventually to the thin, paper money we know today. The value and amount of paper money are controlled and authorized by our government, earning the name “fiat.
What is Cryptocurrency: Bartering
Cryptocurrency is quite similar to fiat, except it does not have any physical embodiment, and it uses cryptography to work. In contrast with fiat’s government-issued nature, a cryptocurrency’s value is determined by other things, like its supply and demand. Cryptocurrencies operate independently and in a decentralized manner, without a bank or a central authority. This essentially means that in the crypto world, it’ll only be you, the technology, and the currency.
Now that’s convenient!
Technology#Copy URL to this article section
As expected from something called digital money, all cryptocurrency activity happens online. With the power of computers, mathematical coding, and the Internet, cryptocurrency runs on a technology called the Blockchain.
Blockchains are public digital ledgers or databases distributed across an entire network of computers. Basically, instead of bank tellers who organize your information manually, the blockchain does it on its own through the combination of three technologies, namely:
Cryptography - a secure communication technique that allows only the sender and intended recipient of a message to view its contents
A peer-to-peer network containing a shared ledger - two or more devices are connected and share resources without going through another medium
Means of computing, to store the transactions and records - fixed mathematical computations are encoded to verify the transactions, instead of people
What is cryptocurrency used for?#Copy URL to this article section
All in all, cryptocurrencies are designed to be a new paradigm for our money. It is another chapter in the story of our innovative world, made to follow the previous barter, coins, and fiat currency. Like all developments, it is constructed to convenience us; this includes streamlining existing financial processes, decentralizing monetary systems, and instilling independence from institutions, such as banks.
Security, speed, and independence—that is what cryptocurrencies are for.
Crypto vs Fiat Venn Diagram
How can I get cryptocurrency?#Copy URL to this article section
Since it is decentralized, you may buy cryptocurrency by trading it on crypto exchange sites. There are two types of exchange sites, namely centralized exchanges (CEXs) and decentralized exchanges (DEXs). Both work well for purchasing cryptocurrency.
Cryptocurrency Exchanges: Binance
Centralized exchanges coordinate cryptocurrency trading on a large scale, using a similar business model to traditional systems like stock exchanges. With CEXs, you may trade from fiat to cryptocurrency (or vice versa) and trade between two different cryptocurrencies.
Popular CEXs include:
Generally, decentralized exchanges are simply just a service platform, which connects buyers and sellers who want to exchange their tokens. Unlike CEXs, fiat currency cannot be traded on this platform.
Decentralized Exchanges: Buy and Sell
How can I store cryptocurrency?#Copy URL to this article section
Crypto wallets store your private keys, keeping your crypto assets safe and accessible. They also allow you to send, receive, and spend cryptocurrencies.
Hardware wallets#Copy URL to this article section
Also known as “cold storage”, they are physical devices used to store the private keys for your crypto assets. Many crypto enthusiasts consider this form of storage to be safer, as you can keep them offline, away from the Internet, until it’s time to use them again. However, the physical nature of hardware wallets poses the challenge of owners losing them entirely, should they not store them securely.
Ledger and Trezor are the most popular hardware wallets.
Software wallets#Copy URL to this article section
Software wallets are non-physical programs that you can easily download on your computer or mobile device to hold your crypto assets. This type of crypto wallet is more commonly used as they are more user-friendly and can be accessed with just a few clicks! A seed phrase is one of the key components to ensuring the security of this type of wallet.
There are tons of software wallets available online; the most commonly used include Metamask and Exodus.
What are the types of cryptocurrency?#Copy URL to this article section
There are a myriad of cryptocurrencies available on the market, as decentralization creates opportunities for an open, inclusive market that anyone can join in. However, it is popularized by the main cryptocurrency, Bitcoin—all other coins that fall under it are dubbed as altcoins.
Bitcoin (BTC)#Copy URL to this article section
Bitcoin was created by Satoshi Nakamoto, a pseudonymous person or team who proposed the cryptocurrency in a document entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” back in 2008. It was an attractive and new concept that prompted interest amongst tech and finance geeks alike.
Bitcoin: Tech Interest
The idea was that using the power of the blockchain, Bitcoin would be decentralized and any two people—anywhere in the world—can send the coin to each other without the involvement of a bank, government, or other institutions. Its creation was a response to The Great Recession around that time and intended to provide an alternative payment system free of a central authority and may be used in the same way that traditional currencies are.
As of 2022, 14 years after Nakamoto’s proposal, Bitcoin is widely-known across the world as the number one cryptocurrency. It has a market cap of $750 billion—a vast increase from its early market cap of $1 billion, back in 2013.
Literally as simple as it sounds, altcoins (a portmanteau of "alternative" and "coin") are really just any cryptocurrency that isn’t Bitcoin. At its core, they share Bitcoin’s intent to serve as a substitute for traditional processes. However, the vision and goal differs from coin to coin. It is a fundamental practice that you read about their purpose (and other details) through an altcoin’s whitepaper.