Cryptocurrency 101: A Beginner’s Guide to the New Way of Money

Chances are great that you’ve heard about crypto world and it’s currencies. Or, simply – cryptocurrency.

Still tiptoeing around it all and not completely sure what it is and how it functions?

No problem – we’ve prepared some super easy definitions and explanation in today’s introductory article.

We’ll literally start with some “ABC… 123…”

Let’s go!

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Okay, so, as we know, money is something that people use to buy things they want or need.

It is usually made and controlled by governments and banks. They decide how much money there is, what it looks like, and how people can use it.

They also make sure that money is safe and reliable. For example, they prevent people from making fake money or spending the same money twice.

But what if there was a different way of money that did not need governments or banks? What if there was a type of money that was digital, meaning it only existed on computers and the internet? What if there was a type of money that anyone could create, use, and exchange without any middlemen?

That type of money is called cryptocurrency.

Cryptocurrency Definition

Cryptocurrency is a word that combines two words: crypto and currency. Crypto means secret or hidden, and currency means money.

Cryptocurrency is a secret or hidden money that uses special codes and math to make sure that it is secure and trustworthy.

Cryptocurrency is not like regular money that you can touch or see. It is a digital token that represents a certain amount of value.

You can store these tokens in a digital wallet, which is like a special type of piggy bank that only you can access with a password. Also, you can send these tokens to other people who have digital wallets, or you can receive them from others. You can exchange these tokens for other types of money or goods and services.

How Cryptocurrency Works

Cryptocurrency works on a network of computers that are connected by the internet. This network is called a blockchain, which is like a digital Lego.

A blockchain is made of many blocks that are linked together by codes. Each block contains information about the transactions that happened on the network.

For example, if Alice sends Bob 10 tokens of cryptocurrency, this information will be recorded on a block.

The blockchain is public and transparent, meaning anyone can see the information on it. However, the information is also encrypted, meaning it is scrambled and hidden by codes.

Only the people who have the right codes can unlock and read the information. This makes the blockchain secure and prevents anyone from changing or deleting the information.

The blockchain is also decentralized, meaning it does not belong to anyone or anything. It is maintained by many computers that are called nodes.

These nodes work together to verify and record the transactions on the network. They also compete to create new blocks by solving complex math problems. The first node that solves the problem gets to add the new block to the blockchain and receive some tokens as a reward. This process is called mining.

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Cryptocurrency Journey

Cryptocurrency was invented in 2009 by a mysterious person or group called Satoshi Nakamoto. They created the first and most famous cryptocurrency called Bitcoin.

Bitcoin was designed to be a new way of money that was independent, anonymous, and scarce.

Since then, many other cryptocurrencies have been created with different features, functions, and goals. Some of the most popular ones include Ethereum, which is a platform for creating decentralized applications and smart contracts; Cardano, which is a project that aims to provide a more scalable and sustainable alternative to Ethereum; and Axie Infinity, which is a game that uses non-fungible tokens (NFTs) to represent digital creatures that players can collect, breed, and battle.

Cryptocurrencies have attracted the attention of investors, enthusiasts, regulators, and critics for various reasons. Some see them as a revolutionary innovation that can transform the way we exchange value, store wealth, and access financial services. Others see them as a speculative bubble that is driven by hype, greed, and manipulation.

Pros and Cons of Investing

The pros and cons of investing in cryptocurrencies depend on one’s perspective, risk appetite, and goals.

Here are some of the potential benefits and drawbacks of crypto investing:

Benefits (Pros):

• Cryptocurrencies offer a high degree of autonomy and control over one’s own money, as they are not subject to censorship, seizure, or interference by any third party.
• Cryptocurrencies can provide lower transaction costs, faster settlement times, and greater accessibility than traditional payment systems, especially for cross-border transfers and remittances.
• Cryptocurrencies can enable new business models, innovations, and opportunities in various sectors, such as finance, gaming, art, media, and social networking.
• Cryptocurrencies can offer diversification benefits for investors who want to hedge against inflation, currency devaluation, or geopolitical risks.

Drawbacks (Cons):

• Cryptocurrencies are highly volatile and unpredictable, as their prices are influenced by supply and demand dynamics, market sentiment, news events, regulatory developments, and technical factors.
• Cryptocurrencies are subject to various security risks, such as hacking, phishing, malware attacks, or human errors that can result in the loss or theft of one’s funds.
• Cryptocurrencies are not widely accepted as a means of payment or legal tender in most countries, and they may face legal or regulatory challenges that can limit their adoption or usage.
• Cryptocurrencies require a high level of technical knowledge and responsibility to use safely and effectively. Users need to understand how to store their private keys securely, how to backup their wallets properly, how to avoid scams or frauds, and how to comply with tax obligations.

Photo by Kanchanara on Unsplash

Conclusion

Cryptocurrency is a fascinating and complex phenomenon that has the potential to change the world in many ways.

However, it also comes with significant risks and challenges that require careful consideration before investing. Anyone who is interested in learning more about cryptocurrency should do their own research, consult reputable sources, and seek professional advice if needed.

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What’s your opinion on this topic and did you have any experiences within crypto world so far?

We’re excited to hear your stories in the comments below! 🙂

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© cashmeere