Overview of Cryptocurrency
Published October 10, 2021 by Elana K
Cryptocurrency is a digital asset with no central governing authority, as opposed to fiat currency, which is government-issued. It operates on the premise that it cannot be censored, since transactions are anonymous and there is no controlling authority.
You’ve probably been hearing a lot about cryptocurrency recently since it’s one of the hottest trends in finance. If you’re interested in jumping on the crypto bandwagon but don’t really understand it, read on to learn about the basics and how it works.
Cryptocurrency and the Blockchain
Cryptocurrency is a digital asset with no central governing authority, as opposed to fiat currency, which is government-issued. It operates on the premise that it cannot be censored, since transactions are anonymous and there is no controlling authority.
Cryptocurrency is built using blockchain technology so that it can operate on its own. A blockchain is a digital ledger that keeps track of every transaction, and groups of transactions are combined into blocks. The blocks are linked together so that whoever is looking at it can view every transaction.
Bitcoin was the first cryptocurrency created by someone using the pseudonym Satoshi Nakamoto, who published the whitepaper on Bitcoin in 2008. Today, thousands of cryptocurrencies exist, but Bitcoin remains the most well-known.
Cryptocurrency Lingo
There are several crypto terms that are often used interchangeably, but are slightly different: crypto/digital assets, cryptocurrency, and crypto tokens.
Crypto/digital assets is the umbrella term that contains the two latter. Cryptocurrency, also known as crypto coins, are those native to blockchains. For example, ether is the cryptocurrency of the Ethereum blockchain and bitcoin is the cryptocurrency of the Bitcoin blockchain. These are the coins that cryptocurrency miners are after.
Crypto tokens, on the other hand, are assets that don't have their own blockchains but run on already-existing ones. NFTs, non-fungible tokens, and DeFi, decentralized tokens, are types of crypto assets associated with blockchain technology.
Is It Safe to Invest in Cryptocurrency?
Cryptocurrency has its fair share of opponents and supporters. It seems to be growing in popularity and becoming more mainstream, whereas it had been more associated with computer/finance geeks in its first decade of existence. Today, many reputable banks and payment platforms support cryptocurrency. The government of El Salvador has even adopted it as legal tender.
That’s not to say that cryptocurrency has become completely accepted. As an investment vehicle, it’s extremely volatile and investors should be prepared for this reality. It’s also an unregulated industry, as of now, which can be cause for concern. Due to its decentralized nature, cryptocurrency can be used for money laundering or to circumvent legal pathways.
For the everyday investor, however, it seems to hold a lot of potential benefits. If you buy cryptocurrency on a respected platform (Binance, Coinbase, Gemini, and others) and safely store your log-in information, cryptocurrency can be a good way of diversifying your portfolio.
Remember, in addition to being used as an investment tool, cryptocurrency can actually be used to make online purchases. Depending on your location, you can use cryptocurrency like real cash and buy fast food, clothes, make travel plans, and play at online casinos. Cryptocurrency is a very young industry, and as it evolves, it’s important to keep track of the potential advantages that come from owning it.
