What is crypto?
Crypto has been around for a couple of years but can still feel very complicated if you don’t know how
crypto actually works. In this blog and the video you will learn the basics about crypto and we will answer
the question ‘what is crypto’. In the video below Emile gives an easy explanation of how crypto actually
works. We will answer the following questions:
What is cryptocurrency?
Simply put, cryptocurrency, or crypto, is a form of digital money or a digital asset. You can store it in a wallet, send it to a friend or use it online to pay for your pizza. It is possible to interact with the cryptocurrency on your phone, on your computer, or on any device you would like. The great thing about crypto? It is:
Borderless: you can send to anyone across the globe.
Fast: a transaction to the other side of the globe in a matter of minutes.
Permissionless: be your own bank, nobody is going to stop you!
That’s the beauty of cryptocurrency. Send your currency wherever you want, to whomever you want. No banks and no financial government. You, your friends, and millions of others can send cryptocurrency directly to one another. No third party is required. The word is a combination of the words ‘crypto’ and ‘currency’, meaning that the currency is secured via means of cryptography, a technique that allows only the sender and intended recipient to view its contents. It is derived from the Greek word kryptos, which translates to the word ‘hidden’. Because the currency is protected through cryptography, it cannot be double spent or counterfeited.
What are the most popular cryptocurrencies?
The cryptocurrency era started in 2009 with the first successful crypto: Bitcoin. Nowadays, there are countless variants of cryptocurrency, each with different properties. Some focus on transaction speed while others focus on utility or convenience. Cryptocurrencies are not only used to buy, sell or trade, the technology is also used to create and run decentralized platforms, apps, games and many other things. The most popular cryptocurrencies are:
Bitcoin (BTC): Bitcoin is the very first digital currency that is not controlled by banks or governments. It was developed in 2009 by Satoshi Nakamoto, a pseudonym for an individual or group of people who has an anonymous identity. Since 2009 Bitcoin has seen great growth. There were moments when very few people saw a future in the coin, but it has shown its value as it once started at less than a dollar but reached an All-Time-High at $69.000, twelve years later. You can buy Bitcoin to make transactions to buy things, but most people buy Bitcoin as an investment. Bitcoin is scarce because there will only be 21 million Bitcoins in circulation, which is why some people refer to it as digital gold. Bitcoin is already recognized and used as legal tender in some countries. Some large companies such as Microstrategy and Tesla have invested part of their wealth in Bitcoin. Currently, Bitcoin is the best-known cryptocurrency with the largest market value.
Ethereum (ETH): is a decentralized cryptocurrency that allows you to develop software platforms that are called decentralized applications (dApps). DApps work on the blockchain, which is the technology that makes it possible that cryptocurrencies exist. Blockchain technology is a system for recording information in a way that makes it difficult to change, hack or cheat the system. This makes dApps safer than applications managed by a company. Ethereum aims to create a secure digital environment for everyone. It is designed to be scalable, programmable, secure, and decentralized. For this reason, the blockchain is ideal for developers and businesses. When someone has coded a program on the Ethereum platform, nodes (thousands of computers on the network) make sure it works. Ethereum makes it possible for people to connect with each other through its strong decentralized network.
This idea behind Ethereum was conceived by Vitalik Buterin, a Canadian-Russian computer programmer and writer. Buterin was first introduced to Bitcoin by his father in 2011, which he had little interest in at the time. Eventually, Vitalik Buterin came up with an idea to decentralize other software in addition to decentralized payment methods. He published a white paper in 2014 to introduce Ethereum to the world. He was only 21 years old at the time. One year later in 2015, the platform was launched in collaboration with Joe Lubin (the founder of blockchain software company ConsenSys.45). They succeeded in being the first to further develop blockchain technology in the form of software programming rather than just secure virtual payment methods (with Bitcoin, among others).
Ripple (XRP): is a peer-to-peer network that offers financial institutions an easy, fast, and secure payment system. Ripple makes it possible to carry out transactions directly. This also applies to payments to the other side of the world. Payments can be made in both fiat money and cryptocurrencies. Ripple is striving for a network in which low transaction costs are the norm. Ripple has gained the trust of banks, mainly due to the fast transactions, low costs, and not to mention the control that banks gain by using the system. In this sense, Ripple is the opposite of Bitcoin, striving for value transactions without the use of a bank.
These were one of the most popular cryptocurrencies, but there are many more. Every cryptocurrency which is not Bitcoin is called an altcoin, which stands for alternative coin. Like bitcoin, all these coins rely on the blockchain to store and verify data, these coins are stored on a network called a blockchain, which will be explained in more detail in the next paragraph.
How does cryptocurrency work?
Before you invest in cryptocurrencies for the first time, you should have a basic understanding of blockchain. This is the ledger that records all cryptocurrency transactions in the chain and allows you to verify them without being able to change them. This is especially important because all transactions can be verified, which means that the blockchain ecosystem (and prices) are completely transparent. Blockchain technology contains a chain of data blocks. The chain is spread across a huge network of computers (also called nodes) around the world. New blocks are only added when they have been verified by the majority of nodes in the network.
To add new data to the blockchain, consensus mechanisms are created. There are different types of consensus mechanisms, for example: Bitcoin uses Proof of Work, Polkadot uses Proof of Stake and Solana uses Proof of History. Every consensus mechanism has its pros and cons. After this process, the nodes check that the data they want to add is correct and that no incorrect transactions have been made. This also ensures that the data is never lost. In the case of Bitcoin, the information goes all the way back to 2009. Because a new block always contains the information of the previous block, all transactions can be traced. The blockchain makes it possible to make a secure transaction without the need for a bank.
Once you have the knowledge of the basics of crypto, you need to know how to buy it and when to buy them. The more pragmatic investor may need some help in the beginning, so you might consider signing up with one of the most user-friendly crypto broker, Anycoin Direct.
Online crypto brokers give users the best experience on their platform with options and information that you need to start understanding cryptocurrency. They also provide you with easy ways to store your coins. Most often you can choose if you want to trade with a wallet or Vault built into the platform. Online storage options, also known as Hot Wallets, make your coins accessible 24/7. This option makes it very easy for you to buy and sell quickly and is available to you whenever and wherever you want. With the new Anycoin Direct App you can easily trade crypto on your mobile device whenever you want. Using the app is very easy and everyone should be able to work with it. Alternatively, you could use Cold Storage Wallets which are hardware wallets. These physical devices, like a flash drive, store the passwords that give you access to your coins. Cold storage is considered more secure against potential hackers. There is plenty to consider when choosing which option works for you. At Anycoin Direct you can always choose between the types of wallets, choose what you are most comfortable with.
Is crypto real money?
Even though you can't hold it in your hands, crypto does exist. The moment you start buying crypto, you can always sell it, but the value may have changed. Blockchains are developed daily by people all over the world and run 24/7. Because it is still a relatively young market, prices are very volatile, but the potential for huge returns, and risks, is there. There are many ways to grab profits, you just have to choose a way that suits you and works for you.
The largest cryptocurrencies such as Bitcoin, Ethereum and other altcoins have experienced tremendous growth during their lifetimes and although there have been times when the value has dropped, there has generally been steady growth over the years. Ethereum originally started at $0.31 while Bitcoin was originally launched at $0.0008 and both have become one of the most popular currencies to invest in. The stock market works the same way, the price is determined by very simple economics, supply, and demand. The value of each coin is linked to how much of that cryptocurrency is available and how many people want to buy that coin. But it's also important to remember that although interest in a coin can drive up prices if everyone starts selling that coin, the price will fall.
Demand for a cryptocurrency can rise or fall dramatically within minutes, causing the currency to experience significant price fluctuations. Cryptocurrencies can be a volatile investment, meaning the value can change quickly and often. Therefore, it is very important to manage your risk and know how much you can afford to invest. Some people wonder if cryptocurrencies are taxable. In most countries around the world, long-term investors will pay less in taxes than active short-term traders. For example, HODL assets often fall under individuals' savings or total assets. Active traders (also known as day traders and scalpers) are more likely to pay taxes on their profits because they will often be recognized as primary income. The biggest difference between the rules is in the limit cap and tax rates. Make sure you are aware of the rules in your country. Because in some countries, if you don't provide the right information about your crypto, you might be fined a hefty fee.
Currently, there are two countries that made cryptocurrency a legal tender. In September 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender. In many ways, this is an unusual move that has attracted a lot of attention internationally. While the crypto community received this move enthusiastically, the reaction from institutions such as the International Monetary Fund (IMF) and the World Bank was mainly negative. The people of El Salvador were also less satisfied. Immediately after the introduction of Bitcoin, there were reports that the introduction had been very chaotic and had caused great discontent among the population. Recently, however, things have been a bit quieter. The Central African Republic (CAR) has become the second country to accept Bitcoin as legal tender. It seems logical that the countries at the edge of the financial system would be the first to turn to cryptocurrency. After all, they are in a position where Bitcoin offers a possible way out to a better future. Today retailers around the world are understanding cryptocurrency is a valid payment option, and governments have been slow to adopt crypto, but we are starting to see some governments beginning to explore how they can embrace this innovation. Some say crypto has already reached its peak, some say this is just the beginning.
How to store your coins?
Cryptocurrencies are digital assets, so you cannot hold them physically. Cryptocurrency wallets are used to store them. These come in different shapes and sizes with different features. A wallet has two types of keys: public keys and private keys. A public key is your wallet address to which anyone can send crypto to. Private keys are there to keep your cryptocurrencies safe, think of it as a password. You should keep them safe and not share them with anyone. It is possible to be your own bank by using a personal wallet. No other person can do anything with your coins. The disadvantage is that if you lose your private keys, no one can help you with access to your stored crypto. So always store them well! Of course, there are easier solutions. You can also leave your wallets out of your own management (custodial wallets). This means that your wallets are managed by an organization. This has the advantage that it is quick and easy for you as a consumer. An example is the Anycoin Vault, it allows you to securely store all of your coins in one place. In the Anycoin Vault you can seamlessly swap your coins without paying the blockchain network fees. If you want to buy more than one coin you can use the Vault to buy them both, you don’t need two different wallets. Which way of storing your coins is best for you, you will have to decide for yourself.
To sum up everything just what cryptocurrency is:
- Cryptocurrencies are a form of digital money that allows you to make value transactions from anywhere to anyone.
- In addition to value transactions, you can also use cryptocurrencies to develop decentralized platforms, apps, games and much more.
- It works based on blockchain technology, which is a decentralized network operated by thousands of computers around the world. Blockchain technology ensures that transactions can be done securely and the platforms function properly.
- Crypto can be a volatile investment, meaning that its value can change quickly and often, so managing your risk and knowing how much you can afford to invest is very important.
- Many countries are still uncertain about the legislation of cryptocurrencies, but there are more and more countries that have accepted it or want to accept it as legal tender.
- You can trade crypto at a crypto broker and store it in a crypto wallet. These come in different types and each has its characteristics. At Anycoin Direct, you can use the Anycoin Vault through the Anycoin Direct App, in addition, you can also use your own software or hardware wallet at Anycoin Direct.
With this video and blog post, we hope you learned a lot about crypto. If you want to learn more about cryptocurrencies, you can check out our other videos regarding crypto. Check out our YouTube channel or our website for other crypto topics.