Understanding Cryptocurrencies: Everything a Beginner Needs to Know
Cryptocurrencies are confusing… Why is everyone talking about bits and dogs? What’s up with all the memes? Why does your cousin’s sister’s nephew suddenly have a Lamborgini? All these questions and many more will be answered. Here you will find everything you need to know about cryptocurrencies to prepare for the future and look smart at parties.
This is not investment advice. Consult financial experts for investments.
Q: What is cryptocurrency? (If you see phrases you don’t understand, see the glossary at the end of this article.)
Cryptocurrency is like normal currency, but completely digital.
Cryptocurrency comes in many forms, intentions, and uses. The simplest way to think of cryptocurrency is as a form of stored value (money) that is not subject to governments or centralized bodies like banks, states, or corporations. All the records of its creation and sending or receiving are stored in a kind of digital ledger that anyone can access to maintain honesty. It cannot (easily) be stolen or confiscated and can be used anywhere in the world. Cryptocurrencies make it possible to lend, sell, buy, or borrow without identity, credit, or even a bank!
Some currencies are used to transfer value (measured in a currency such as the dollar) more cheaply and quickly than through credit or traditional means. This means that the cost of sending cryptocurrency that can be converted to regular currency is cheaper than something like a check or wire transfer.
Others are the only form of payment or value accepted on exchanges or in software such as video games. Years ago, this made cryptocurrencies very popular on the dark web to buy drugs or other illegal things on the Internet. Instead of giving a drug dealer $20 for certain drugs, someone would send that amount of USD in your chosen crypto (usually bitcoin) directly from your crypto wallet to theirs.
However, cryptocurrencies are NOT just for illegal purposes. In fact, it has fallen out of favor on the black market mainly due to price volatility and other reasons.
Long explanation: A cryptocurrency, cryptocurrency, or crypto is a set of binary data (1s and 0s) intended to serve as a medium of exchange.
It sounds complicated, but even dollar bills have serial numbers to verify and track. The same goes for cryptocurrencies. They can also be divided into smaller parts, just like the USD can be divided into cents.
Ownership records for individual coins are stored in a ledger, which is a computerized database that uses strong cryptography to protect transaction records, control coin creation, and verify the transfer of coins between individuals.