What’s with cryptocurrency?
What are all these signals, dip and the rest I’m seeing here and there?
So if you have been asking those questions and you find cryptocurrency as confusing as I found it until I did the necessary research. You are in the right place.
Here is everything you need to know about cryptocurrency and more to prepare you for the future and whatever you want to use the knowledge for.
Before we start talking about cryptocurrency fully I will love to take you down the history line to give you a clear picture of what cryptocurrency really is.
Remember studying history in school? I’m guessing you would have been taught about the barter system.
A type of trading system in which two or more people exchange goods and services for each other’s needs.
One notable thing about this system was that back then there was no currency used for exchange.This was like their own form of currency. For Instance, Someone might exchange a sack of potatoes for a sack of beans.
The barter system failed because of three basic factors:
People’s needs have to match.Let’s say, there is something you want to trade, someone else has to want it, and you have to want what the other person is offering. Before the trade can take place. The system did not have any common / stable measure of value.
You have to decide how many of your items you are willing to trade for other items, and not all items can be divided.
For example, you cannot divide a live animal into smaller units. The goods cannot be transported easily, unlike our modern form of currency, which fits in a wallet or is stored on a mobile phone.
Then came the introduction of a currency (the paper currency, credit cards or money). This became valuable and an accepted means of trade because: Almost everyone had it.
Merchants accepted it as a form of payment (it has a common measure of value).
Society trust that it’s valuable and will be available in the future.
The central point of failure of this currency is that it has a centralized regulatory authority that limits how this currency works (the BANK).
This is where cryptocurrency comes in, it removes all limits and problems that the other currencies pose.
Crypto currency is a form of payment that can be exchanged online for goods and services.It is like a regular but completely digital currency that is used as a medium of exchange.
It is quite similar to other currencies but it does not exist in a physical form(just like paper currency).
Cryptocurrency works using blockchain, blockchain is a decentralized technology spread across many computers that manages and records transactions (they are created using mathematics and coding ).
They operate independently and in a decentralized manner, without a bank or a central authority.
Cryptocurrency comes in so many forms, intentions and uses. This makes it easy to buy, sell, borrow or lend without an identity, bank or credit score.
In other words it removes the limits placed on our everyday financial transactions by modern banks.
Payments through cryptocurrency are created using encryption algorithms. The use of encryption technologies means that cryptocurrencies function both as a currency and as a virtual accounting system.
To use cryptocurrencies, you need a cryptocurrency wallet. These wallets are softwares that are a cloud-based service or are stored on your computer or on your mobile device.
The wallets are the tool through which you store your encryption keys that confirm your identity and link to your cryptocurrency.
Cryptocurrencies are divided into coins and tokens. Coins operate on their own blockchain and hold value as they are used as money for transactions. Tokens, on the other hand, are built on an existing blockchain.
Low cost of transaction and instant worldwide payments:The fee for transactions using cryptocurrency is quite very low.You can make transactions at any time of the day or night, at any part of the world and there are no limits on purchases and withdrawals.
Minimizes the rate of fraudulent activities:Every cryptocurrency transaction is recorded in a public list called the blockchain, which is the technology that enables its existence. This makes it possible to trace the history of Bitcoins to stop people from spending coins they do not own, making copies or undoing transactions.Thereby minimizing the rate of theft and fraud.
Confidentiality:Each transaction between two parties using cryptocurrency is a unique exchange with no intermediates . That is to say, no one person, government or institution has central control over it. Rather, it is the network that is in control and it cannot be manipulated to suit agendas.
This makes cryptocurrency more confidential and a favored type of payment among people who are into it.
According to Swanepool, “The financial system as it exists today is built on trust. But people no longer trust that it exists to help them – that it helps only people working in the industry. Cryptocurrency removes this need to trust people’s motivations.”
Helping the ‘Unbanked’:On a global scale, Several people across the world do not have access to a bank account. Many of these people do have a mobile phone and access to the internet. Cryptocurrency opens the opportunity for these people to establish credit financially and make it possible for these people to carry out financial transactions via biometrics and a mobile phone.
Traceability of transactions:In cryptocurrency everyone can verify if a transaction took place or not; this is made possible because every transaction is verified by nodes(a network of devices that are decentralized).
These transactions are stamped in real time and linked to the previous transaction, creating a chronological series of transactions.
All successful transactions are synchronized and updated on all devices participating in the blockchain network.It makes it impossible for anyone to manipulate the payment.
Easier international exchanges:Cryptocurrency offers an opportunity for international business people or parties to make one-on-one exchanges online without the complications and added fees that traditionally come with international currency exchanges that involve third parties.
This is also because the verification requires little time to process as there are only some barriers to cross.
A) Aiding Illegal transactions:The privacy and security of cryptocurrency transactions are very high, this makes it extremely hard for the government or security agencies to trace down any user by their wallet address or keep tabs on their data.
Cryptocurrencies has been used as a mode of payment (exchanging money) during many illegal deals in the past, like buying illegal drugs. It has also been used to convert their illicitly acquired money to hide its source, through a clean intermediary by some people .
B). Risk of Data LossAlthough the developers of cryptocurrency had the intentions to make virtually untraceable ASCII documents, strong hacking defenses, and impenetrable authentication protocols. So that it would make it safer to position money in cryptocurrencies than physical cash or bank vaults.
The problem is that if any user loses the private key to their wallet, there is no getting it back. The wallet will remain locked away along with the number of coins inside it. It might result in the total loss of the Cryptocurrency by the user.
C). Volatility in Price One of the cons of cryptocurrency is its prices have high volatility, which many people also consider as a significant issue.
Because of this, some people do not consider cryptocurrency as a tangible investment. This price volatility is tied to a lack of inherent value.
Having addressed the pros and cons of cryptocurrency, our next step in understanding cryptocurrency will be talking about the types of cryptocurrency.
There are over 6,000 cryptocurrencies in the world with different forms and names.
Before we begin, there is something I would like you to know and keep in mind. I’m guessing you know Bitcoin is a type of cryptocurrency. if you don’t I just told you now. So every other cryptocurrencies except bitcoin is called Altcoin.
So we are going to talk about the different types of cryptocurrencies under the forms in which they are classified under.
At the beginning of this article, I talked about cryptocurrencies being in either coins or tokens. These are the forms in which they come under. 1. COINS This is a crypto currency built within its own blockchain that is to say, every cryptocurrency that falls under this form has it’s own blockchain, it’s running on its Blockchain and they are unique to each other.
This coin can be mined. You can earn crypto coins in two ways. One is through traditional mining on the Proof of Work system or the other method which is the proof of stake system.
Let’s give a few examples:
BitcoinBitcoin is the mother of all cryptocurrencies. It is the oldest and most popular cryptocurrency in the world. It was created in 2009.
It is the first decentralized cryptocurrency that facilitated transactions using its own blockchain technology.
The aim of introducing bitcoins was to make cross-border payment transactions cheaper and faster.
Over the years, it has proven to be a store of value. Although at 2009 when it was introduced one bitcoin was roughly equal to $1, now the value has grown to about $48,000
A good thing about Bitcoin is that it helps prevent fraud through their public ledger of all transactions in the history of bitcoin( that is, their Blockchain). which allows the party to prove they own the Bitcoin they are trying to use before they can use them.
EthereumThis is a platform that uses blockchain technology to enable the creation of smart contracts and other decentralized applications.
It is a decentralized software that allows smart contracts to be built on its network and run on it without any control or fear of fraud by a third party.
That is to say Ethereum is both a cryptocurrency ( Which are measured in units called Ether- Ether is the token used to enable transactions on the Ethereum network) and a software development sandbox.
DogecoinDogecoin is a cryptocurrency that was created based on the popular “Doge” Internet meme and features a Shiba Inu on its logo. it was created in 2013. The price of dogecoin skyrocketed after receiving backing from Tesla CEO Elon Musk.
Dogecoin, unlike Bitcoin, has no limit on the number of coins that can be mined. This could pose a problem as it could lead to limited effectiveness when it comes to storage of value. Dogecoin can be use for payments and purchases
Litecoin (LTC)This cryptocurrency was created by Charlie Lee, a graduate from MIT and an engineer at Google in 2011. It was one of the first few cryptocurrencies that followed the same technology as Bitcoin.
Litecoin (LTC) is decentralized money, free from censorship and open to all. It makes it very easy to send low cost, private, secure, borderless payments to anyone, anytime, anywhere.
Despite being modeled on Bitcoin, Litecoin generates blocks at a faster rate, and, hence, offers a faster transaction time
Tokens
These are cryptocurrencies that are built on another Blockchain. It can also be described as a crypto-asset that runs on top of another’s block chain. For Instance, a dapp that runs on ethereum Blockchain.
These tokens usually represent an asset or utility for a specific purpose and are sold or given for free during the first public sale of a project.
Tokens help decentralized applications to do everything from automating interest rates to selling virtual real estate. But they can also be held or traded like any other cryptocurrency.
A good example of what a token is(when likened to our day life) would be Chicken Republic and Pie Express which are both separate companies running under the franchise of Food Concepts Plc.
Let’s give a few examples:
Defi Tokens These are cryptocurrency-based applications that aim to recreate traditional financial-system functions (lending and saving, insurance, trading).
They mostly run on the Etherum Blockchain and without a central service to exercise control over the system.
Defi tokens that perform a wide variety of functions but can also be traded or held like any other cryptocurrency.
For Instance, borrowing and lending are among the most common uses of defi applications.
Users can len defi tokens and earn money as lenders just like our traditional bank platforms. The interest rate is relatively low and borrowers can access these loans once they have other crypto assets to use as collaterals.
Governance TokensGovernance tokens are cryptocurrencies that represent voting power on a blockchain project.They are specialized DeFi tokens that give the holders a say in the future of a Blockchain project , which (being decentralized) don’t have boards of directors or any other central authority.
Users with these tokens can vote for different fees, implement UI changes, change fee reward distribution and revise dev funds plus many more things.
Governance tokens are not used for voting only. They can be used to stake, take loans and earn money. Although their primary purpose is for distribution of power.
These tokens make it easy for the developers to interact with the community to enable find out which feature needs to change, how funds and partnership should be handled and the cons of the project. thereby helping to easily make decisions that will favor the project.
Note that governance tokens can not be premined, and the decision-making process is limited only to those who are quite literally invested in a platform.
Non-Fungible Tokens (NFTs)I know you might have seen the ongoing trend with NFTs lately and you are probably asking yourself “what’s going on here?” or “What are NFTs?”
Here is the thing, NFTs are non fungible tokens, that means they are unique and cannot be replaced with something else.
For Instance, you can trade a Bitcoin for another Bitcoin(having the exact same thing) but If you are trading with NFTs it will be for a different thing , you’d have something completely different from what you have traded with.
A clear example of this is exchanging a customized one-in-lifetime edition of lamborghini for a limited edition of a sports car.
The gist is that NFTs can be anything digital( music’s, drawings, pictures etc). NFTs are designed to give ownership rights to a unique digital or real-world asset.
They can be used to make it more difficult for digital creations to be copied and shared and are also used to sell unique virtual assets like rare items in a video game etc.
NFTs are stored in digital wallets (though the wallet does specifically have to be NFT-compatible).
Security TokensA security token, on the other hand, represents an ownership stake in an asset. They are like a new class of assets that aim to be the crypto equivalent of traditional securities like stocks and bonds.
These tokens usually derive their value from an external, tradable asset. Because the tokens are deemed a security, they are subject to federal securities and regulations.
Their main use is to sell shares in a company and other enterprises without the need for a broker.
Security Tokens acts like a bridge between traditional finance world and the blockchain world, since the assets which are represented by the security tokens already exist in the “real world”
Cryptocurrency value can be determined through exchange platforms In other words, it increases in value based on supply and demands.
Let’s say, if a large number of people agree that something is valuable then it becomes valuable.
It doesn’t matter why they think it is or why they desire it. As far this desire is in high volumes the economic value of the acclaimed thing is generated.
It is notable to understand that the rate of supply of a cryptocurrency depends on how many new coins are being mined and how many current owners want to sell their coins.
While that of the demand for a cryptocurrency depends on several factors. Demand will be increased based on Coin’s Utility(How useful it is to own the coin).
Since we’ve talked about how Cryptocurrency can gain value through demand and supply, let’s talk about how it can gain value through exchange platforms as listed above;
In an exchange market, once a stock is listed on an exchange market and is sold, the buyer and seller exchange ownership of the share, and the price at which that exchange occurs becomes the new market price.
That is to say, the price of a share is determined by market forces. Although as stated earlier, demand and supply is also a major part of these forces.
The higher the demand of the shares in the market, the higher the price while the lower the demand, the lower the prices.
This also applies to cryptocurrency. Once listed on an exchange, the value of cryptocurrencies is determined by the market forces.
Cryptocurrencies in high demand tend to surge, pushing prices up, whereas price movements of cryptocurrencies in low demand are often low.
Another factor that can determine the value of cryptocurrencies is their usefulness and utility in decentralized finance and applications.
For instance, people will find owning a $200 Amazon gift card more useful than owning a $200 voucher for an online store for fashion wears.
This is because Amazon gift cards offer a wider variety of purchases due to the amount of items it has listed on it’s marketplace.
How Can Users Increase The Value Of Cryptocurrency: We already know how the value of cryptocurrency can be determined.Another thing we need to know is that there are methods and ways in which users can increase or affect these values.
These methods includes:A) Mining Remember we talked about supply as a factor that can determine the value of cryptocurrencies.
The act of mining of cryptocurrencies(Bitcoin or Altcoin) is one method that can be profitable in affecting the value of cryptocurrencies because it impacts the supply of cryptocurrencies.
B) Trading One of the methods of increasing the value of cryptocurrencies is by buying low and selling high.
The value of crypto can increase when users buy and hold coins. The buying increases demand thus increases the value of crypto.
C) Rate of Utility Like we said earlier on, the value of a crypto can be determined by its usefulness. Once more institutions get to invest in crypto and accept it as a form of payment, its utility and use case increases.
As a user, you can contribute to this process. This will increase the value of cryptocurrencies over the long term.
D) Media coverage The prices of crypto are affected by media coverage. Users can impact this through their social media accounts.
To begin any of the three things mentioned above you need to have a basic knowledge about cryptocurrency which I’m certain you already do with all I have talked about so far.
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Below are a few steps needed to start buying, investing and investing in cryptocurrency.
A) kChoose a Broker or Crypto Exchange:To buy cryptocurrency, first you need to pick a broker or a crypto exchange where you can buy these cryptocurrencies.
Cryptocurrency Exchange: This is a platform that makes it possible for buyers and sellers to meet to trade cryptocurrencies. They include Coinbase, Binance etc.
Although the trading interface of this platform might be a bit confusing for beginners, I would like to point out that it has user-friendly, easy purchase options that makes it easy for beginners.
Cryptocurrency Broker: This is a firm or an individual that acts as an intermediary between the cryptocurrency markets to facilitate buying and selling of cryptocurrencies.
They provide online financial assistance and services for users who want to buy or sell cryptocurrencies. They charge a fee for these services too.
The crypto brokers platform is a suitable environment for users just getting started with cryptocurrency markets.
B) Create and Verify Your Account:Once you have decided on whether to use the crypto broker or crypto exchange (note, it might be advisable for you as a beginner to use the crypto broker). You can create and open an account with your choice.
The next step is to verify your account, the type of verification depends on the platform and the amount of crypto you plan to buy. You may not be able to buy or sell if you don’t verify your account. It’s an important step to prevent fraud.
C) Pay In Cash to Buy Or Invest:You need to have the required amount of funds in your accounts to be able to buy any cryptocurrency.
You can fund your crypto account by either linking your bank account which makes it possible for a wire transfer or by using your credit or debit card to make payments.
Note that using a debit or credit card to fund your crypto accounts incurs additional charges that might be relatively high.
Using the funds you deposit into your crypto account might take days depending on the payment method you used or whether it’s an exchange or broker.
D)Buy Your Cryptocurrency:Once you have funded your cryptocurrency account you are ready to buy your first cryptocurrency.
There are over hundreds of cryptocurrency to choose from. It might be quite hard to pick a particular cryptocurrency to invest in. Here is a few tips to help:
Look out for cryptocurrencies with strong communities and loyal followers . It shows people have a genuine interest and belief in cryptocurrency and it also helps you understand crypto and it’s technology.Getting to know the foundations of crypto you are looking to invest in – their team, their ambitions, their strengths etc.
Researching on the team is another important factor you need to consider when picking a crypto to invest in because a team has the power to steer them to success – or failure.
A white paper is one the best places to evaluate the fundamentals of a coin – and you should never invest anything into it until you’ve read their white paper. A white paper outlines the purpose of the coin, it’s technology, how it works and it’s overall vision.
There are other tips involved in choosing a particular crypto to buy, like it’s technology, vision, leadership, price history, credibility and road maps.
Make sure you consider all these tips before deciding on the crypto to buy. Also recall what we mentioned. Buying low to sell high might be advisable too.
After deciding on the crypto to buy and invest in, you can enter its symbol(e,g Etherum - ETH, Bitcoin- BTC, Dogecoin- Doge etc) and the number or amount of coins you want to purchase.
E) Choose A Storage Method:It is very important to have a secure storage place for your cryptocurrencies after purchase to avoid the risk of theft,hacking or losing your investment due to lose of code to access your crypto account.
Buying crypto via a broker can leave you with little or no choice on where to store your crypto.
Here are a few options on how to store a crypto if you purchase via an exchange.Once you purchase cryptocurrency, it is stored in a crypto wallet that is attached to the exchange.
You can decide to move it to a more secure location by transferring it to either a hot wallet or a cold wallet for storage.
You can decide to store them in a hot wallet. These are crypto wallets that run on devices connected to the internet( phones, laptops etc) and are stored online. These wallets have a high risk of theft because its connected to the internet.
Cold wallets are another secure way of storing your crypto. They take the form of devices such as USB drivers etc. They are also not connected to the internet. It’s quite difficult to get access to crypto if you lose the keycode associated with them or the device breaks or falls.
Conclusion:
Crypto is the future. There’s nothing here again.
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Best Wishes.